THE FIRST BATTLE, Forex Art of War

Transcription

1 1 THE FIRST BATTLE, Forex Art of War

2 2 THE FIRST BATTLE, Forex Art of War Most traders don't recognize their first battle. But since it is a battle of vision, it must be won. If you are going to win in trading, you have to understand how the game is really played. The Forex culture fosters the belief that if you have enough information, if you manage your risk well, and if you are disciplined, you will win. That is absolutely TRUE. But it s also like telling someone who is overweight if you eat right and exercise, you will lose weight. Is that a STRATEGY for losing weight? No. When an objective is truly important, you will take the time to consider everything that can affect your success. Even when you have a good plan, it is a starting point. As you put your plan into practice, you discover critically important information about yourself. Such as, you will find it s better to not go to the store hungry. You might also discover that you continue to eat after you are no longer hungry. Personally, I discovered that even though I won t jog, I won t walk, I won t stretch, I will get beat up for an hour in Muay Thai Kick Boxing. Go figure. When I moved from my former residence and could no longer practice the same discipline, I had to find something else that I would do. Eventually I discovered that I ll walk endlessly on the treadmill if the TV is on. Bingo. When I came to Forex trading in 2004, my advantage was my experience with selfdiscipline. How do I get myself to make good choices? How do I consistently make good choices? If our goal is to lose weight, our greatest difficulty is going to be dealing with how we feel. We want something that is not good for us. The same is true with Forex trading. You are going to find out sooner or later that your emotions will prevent you from making money if you don t have a strategy for making good decisions in spite of your emotions. So this is your first and most important choice. Do what you feel like doing.

3 3 Or Learn go make good decisions regardless of the emotions you experience. Those are your two choices. Both are about how you feel. One is easy and results in no profit and the loss of all of your money. The second requires an effort and can enable you to reach your goal. Make the right choice and you move forward. Make the wrong choice, and you end up repeating the same activity over and over again for months or years. This was Einstein s definition of insanity, but people do it anyway. If you are ready to make the right choice, I wrote this for you. The Forex "culture" encourages an ineffective vision of Forex trading. For this reason it is vital for your success that you begin by reading the ebook: 8 Things They Don t Tell You About Forex Trading. My book explains why the Forex culture is the way it is, why traders lose their money, and that it is totally unnecessary. A Brief Overview of Forex Art of War Forex Art of War is a holistic strategy that takes into consideration all variables that have the potential of affecting your success. That part of the strategy began in October, In March 2010, I began testing the strategy with traders with great success over the next year. That strategy and what happened became documented in my 232 page book, Forex Art of War. Shortly after publishing my book, I recognized the need for more of a step by step process, and divided the strategy into three levels. Those have now developed into THE FIRST BATTLE, followed by SEIZE THE HIGH GROUND, followed by Sun Tzu RULES OF ENGAGEMENT. They are three levels. The first level (where you are now) is about becoming proficient with tools, language, and basic logic. The second level is about all of the important market information and tools that you are really going to use when you actually begin trading for profit. The third level is about how high risk decisions are made and focuses primarily on a process of separating your emotions from your decisions.

4 4 Getting Started Be sure to check us out on Facebook. My blog is Feel free to me at with any thoughts or questions! This guide is intended to show you the fastest and most efficient way to get started trading the Forex. I m not going to explain trading in a traditional sequence. Instead, we are going to get right into the charts, and you can learn as you go. The information is presented in the order it will be used. If you have the need, please ask us to forward links for free charts, practice account and trading platform. We include videos that explain their use. It s fine if you already have your own charts and trading platform. Forex Art of War is a holistic strategy for winning that takes into account everything that affects your ability to make consistent profit. I consider this book (The First Battle) to be the first level of knowledge, skill, and application. To illustrate: Before you can express an idea in a sentence, you must be able to write the words. To write words you must first learn the letters and basic rules for spelling. Once you are proficient in market language and tools, you can then move to the second level, which is logic and technique. The third level is where you understand how profit is actually made and includes the method, trading plan, evaluation and adjustment. The most important is the third level, where you learn to separate your decisions from your emotions. For now, just practice the basics. Here are the specific learning goals of Level 1: Tools such as charts and trading platform Vocabulary such as PIPs and Stop Loss Basic trading logic that teaches trends, barrier, entry and exit I have been trading and training others for more than seven years at this point. I have worked with thousands of aspiring traders, and had the privilege of working with some truly great traders. I love what I do because it is challenging and because I can help people to improve. People who strive to reach farther in their life inspire me. There are literally tens of thousands of pieces of information you can learn about the Forex market. I m only going to focus on the essential things that you "need" to learn. I believe

5 5 that you cannot make lots of profit until you learn to make some profit. So that is an important principle applied in this book and the subsequent training. Basic Logic As traders, we are anticipating what will happen in the future. How do we do this? There is a simple logic in trading. Logic can be viewed and defined in many ways. I like to keep things simple. When I refer to logic, I m referring to information from the past that can be used to anticipate what is likely to happen in the future. Human behavior is repetitive. When you look, you see it everywhere. We tend to shop at the same places, and buy the same food. We know when traffic will be congested on our roadways. While I have written extensively on this subject, suffice it to say that not only do we repeat the same behaviors over and over again, we have difficulty changing a behavior even when we make a conscious effort. Just remember your struggle the last time that you set out on a new diet or exercise program. There is a deeper reason for our human frailty. The same mathematical sequence we see everywhere in nature is also in us. That is why we can rely on historical information to anticipate what is likely to happen in the future. Grocery stores even set prices based on your behavior. When I talk about repetitive patterns, I m not just talking about patterns you hear about like trends, head and shoulders, candle patterns, double tops, etc., etc. I m talking about patterns throughout the entire decision process. We know traders like to trade trends. Where do they like to get in? Where is the best place for you to get in? Where is the best place to put your stop loss and profit target? There are patterns (logic) for all of these decisions. So as buyers buy and sellers sell in the Forex market, they create patterns. These patterns show us what traders are doing over and over again. So when we see the pattern next time, we know what is likely to happen again.

6 6 The Forex I m going to be brief in my explanations because there is so much that you don t need to know. Forex is short for Foreign Exchange. It s the largest market in the world. I think of money as the life blood of business and the Forex as the circulatory system. It is a network of 1000 s of banks around the world with no central location. No one is in charge. The purpose of the Forex market is to determine a fair price of exchange between two currencies. The price is determined using the principle of supply and demand. If there are more buyers at any given moment, price is moving up. If there are more sellers, price is moving down. What is the Forex to me? A stream of data. To me, that s all it is. It is a stream of data (for real). That data comes into my software and tells me what price is doing. What else do I need to know? Not much. Trading Software Trading software takes in the data feed about buying and selling around the world and can be used in many different ways. In 2001 Platforms became very stable so that we were able to trade from our personal computers. So the industry or retail Forex trading (you and me) is still in its infancy. Brokers or dealers provide most of the data feeds, charting software and trading platforms. These should be free of charge. Most brokers are willing to supply these to you in hopes that you will eventually trade a live account with them. Be sure you only open a practice account, NOT a live account. has free $10,000 practice accounts available, as most others do (note that we are NOT brokers and have NO financial relationship with a broker). Do not open a live account until you actually know how to trade. If you open a live account prematurely, even if you intend not to trade it, there is a 90% chance (at least) that you will trade it and that you will lose all of your money. Again, make sure you read my free ebook, 8 Things They Don t Tell Forex Traders.

7 7 I prefer Accucharts. Metatrader is also a good charting software program. You can get these free by contacting me at vance@forexartofwar.com For those of you who are MAC users, you will need to use Windows Parallels or a program like it to take full advantage of the tools available to a Forex trader. I know MAC users don t like to hear it, but MAC is only 10% of the PC market, so those who write software write it for the bigger market first. The good news is that programs work pretty well using Parallels. My suggestion for MAC users would be to get an inexpensive stand-alone PC. You can use web based software on MAC but functions will be limited. With modern software, you can execute trades directly from your charts. I prefer to have my charting software on my desktop and execute my trades using the web based trading platform. I recommend a desktop trading platform for new traders because it has functions that enable you to learn details you don t know. Later, all you will need to do is execute orders, and you can move to a web based platform where execution will be even faster. Once again, we do not benefit financially from you opening a live account with a broker. It s okay if you already have your own software. Just contact us if you need any help. Charts usually display military time as 00:00-23:00. To calculate the time, just subtract 12 hours. So if you see it is the 14:00 candle and you are not familiar with military time, subtract 12 hours and you know that is 2PM. I recommend you set your charts to GMT -4:00 in the Spring and GMT -5:00 in the Fall (when US changes time). In order to correctly follow what we are doing and saying, you would need to make this adjustment. If, for example, one of our traders writes that they entered the trade at 13:00, unless your charts are set to the same time zone, you won t understand or see what they are seeing. I recommend Fibonacci retracement tool settings of 23.6, 38.2, 50, 61.8 and These are used to measure the natural retracement areas of price waves, and will be important later. Give yourself time to practice and become familiar with the charts and trading platform. I m going to give you a specific system in this guide so that you can practice. This will help you develop proficiency with the tools, a familiarity with the vocabulary we traders use, and you ll be going through the motions of applying good trading logic.

8 8 Market Language There is definitely a vocabulary or language to trading; a few words and terms. I think the fastest way to learn is to begin using the charts and trading platform. You find out quickly what you don t know or are not sure about. When you come across a word or term you don t know, just ask or look it up. I ll briefly define most of the words and terms that are important. Currencies are traded in pairs. So when we trade, we trade a pair such as the EUR/USD. The currency on the left is the base currency. The currency on the right is the quoted currency. So that means when you look at a EUR/USD chart, you are seeing the Euro value move up and down on the chart. The price on the right side of the chart is the USD. So that chart is telling you how much US Dollars it takes to buy one Euro. You don t really need to know that to trade, though. All you need to know is this: If you buy and price goes up, you make money. If you buy and price goes down, you lose money. If you sell, and price goes down, you make money. If you sell and price goes up, you lose money. Buying or selling is the exact same thing because of the great liquidity in this market. That just means that there are always buyers and sellers available. That is very different from stocks where price could be plummeting and you cannot close the trade because there are no buyers. What you need to know is this: buying and selling is the same exact action. Another thing you need to know is that price movement is measure in PIPs. Just think of it as a currency measurement just like quarters, nickels, dimes and pennies. Only it is even smaller. In US Dollars, a PIP is one 10,000 th of a cent (it was pointed out to me there are actually no pennies in the US, we just got in the habit of calling it a penny). Now you don t need to know all of that. All you need to know is that a PIP is the last two digits on the chart. As I write this, the EUR/USD is at That means that the exchange rate is one dollar, thirty eight cents, and eighty two pips for one Euro. So as Forex traders, we are only watching the value in PIPs. You don t even need to know what PIP stands for. It used to represent Price Interest Percentage. It has become popular to call it Percentage in Point.

9 9 While you are new, stick with US Dollar pairs. It will save you confusion. For example, if you are trading the EUR/GBP (called a cross pair), there is no US Dollar in the pair. If you were from the US, you would need to determine the actual PIP value in US Dollars. Keep in mind that there are so many things that you can learn about this market. But if you want to learn fast, focus on only the essential things. Then learn the other stuff as you go. Keep trading as simple as possible! I think it is useful for even a new trader to know that most of the volume in the Forex market is the US Dollar, Euro, Great British Pound, and Yen. USD 40%, Euro 20%, Pound 12%, and Yen 8%. Those are approximate enough to show you that 80% of all movement in this market is in those four pairs, with much greater volume with the EUR and USD. The Yen tends to be a little more erratic. So when you are new, avoid that currency. Currently there are some intervention issues going on around the Yen. An intervention is when a central bank, a group of central banks, or policy makers take action to alter the price of a currency. Setting up Your Charts For a new trader, I recommend practicing with EUR/USD, GBP/USD, and then minor pairs AUD/USD and NZD/USD. You don t need a lot of pairs to practice. I would have liked to recommend the USD/CHF, but recently the Swiss central bank began to intervene on behalf of their currency, as well. In my book, Forex Art of War, I show you a method that uses primarily longer term charts (4hr and daily). I believe that your best read on the entire market is going to be the 4hr charts. Having said that, trading the 4hr and daily charts are difficult for most traders because they come to the market expecting more opportunities than the market offers. So even trading 8 pairs, with a great method, you might only get one good setup a week. Most traders are not content with such few trading opportunities, though some certainly are. I include it in my book (Forex Art of War) because it is the best logic available. When you are newer, I think the most important thing to do is practice. You need to develop basic market proficiency with tools, logic and language. Tools such as charts and trading platform Language such as PIPs and Stop Loss

10 10 Basic trading logic that teaches trends, barrier, entry and exit This is what you need to get down in the first level, as I see it. Be careful not to take on too much at once or you will be easily overwhelmed. Just focus on getting proficient at those three areas first. To accomplish this, I m going to give you something to practice. First setup your charts so that you have EUR/USD, GBP/USD, AUD/USD, and NZD/USD. Set each chart to be 5 minute candles. I recommend 5 minutes because this will give you plenty of opportunities to practice. I have important reasons for recommending the following. Place a 21 and 55 EMA on each of the charts. These are called exponential moving averages. It doesn t really matter how or why they work. All that matters is how we are going to use them. Next, I want you to put a Slow Stochastics indicator on each chart. This will usually appear in a lower pane under the chart. The K period will be set to 5, D set to 3, and K Slowing to 3. Make D the same color as your background. We are only interested in the K period. So if you can t change D, just be sure you know which one is the K line. There should be an upper horizontal line that is 80, and a lower line that is 20. Now you have four 5min charts with 21 and 55 EMAs and a Slow Stochastics indicator. I recommend candles. If you are using web based charts, you might be limited, which is ok. Obviously I am recommending candlestick charts. They are the most common charts being used. Once you get to know me, you will see that I m always just watching what the trend is doing, watching what everyone else is doing, and based on what they do, I form high probability conclusions. So if most traders are using candlestick charts, that s what I want to be using, too. Be sure and go to our forums at and ask for help if you have questions about charts. The Reason I ask you to setup your charts in this way: More trading opportunities (5 min charts) Learn to follow a trend (21 and 55 EMAs)

11 11 Learn to see a pullback (ahead in this book) Learn to see a barrier (ahead in this book) Learn to see exhaustion (Slow Stochastics) Learn to enter and exit trades (ahead in this book) If you are ever going to make profits trading Forex, you have to be able to successfully execute this logic. So even though we are not focusing on making profits right now, you are going to be applying much of the logic that does make you profits. Your chart should look something like this. You can adjust the colors however you like. I have a black background for both panes, but you can use whatever you want. Some traders prefer to use different colors for candles. Some need to use different colors because of the unique way their eyes (brains) process information. Whatever the case, it really doesn t matter what the colors are, as long as you know what they represent.

12 12 You only see one line on my Slow Stochastics because I made the D line black. It just blends in with the background. Again, both can show.. just make sure you make K a distinct color. About Candles The time of the chart is on the bottom, left to right. On my chart, you see blue and red candles. The blue candles represent buyers and the red candles represent sellers. We could make these candles represent any time frame. In the second and third level, we change to 30 minute charts. Currently we are using 5 minute charts, designating that each candle is created in a 5 minute period. If you see a completed blue candle, that means there were more buyers than sellers during that 5 minutes. If you see a completed red candle, that means there were more sellers than buyers in that 5 minute period. Candles have bodies, wicks, and tails. These images are created by the high, low, open and close prices. So at the arrow, that is the tail (vertical line extending from the body down), and the lowest point of that tail is the lowest price that candle reached during that period.

13 13 The vertical line on the top of the candle is the wick. The rectangular part of the candle is called the body. If the body is blue, then the candle began (opened) on the lowest part of the body, and ended (closed) at the highest part of the body. If the candle is red, then price opened on the highest part of the body and closed at the lowest part of the body. These are quite a few details that I am throwing out at you, but it is information you need to know. So let s think about some of that. If there were three blue candles in a row, which way does price have to be going? It can only be going up. The inverse is true of red candles. Sometimes it will be necessary for you to find out what the high, low, open or close is. You can eye ball this, but the more accurate way to do it is to use the cross hairs and display data box. On most charts, when you left click, and line up the vertical axis on any candle, a box will pop up. That box will tell you all of the specific information you might want about that candle. It will also tell you the positions of moving averages and other indicators.

14 14 The TREND As I mentioned in the beginning, all of our decisions are based on logic. That logic is the result of a study of historic patterns that are created by buyers and sellers. There are chart patterns, candle patterns, indicator patterns, and even other not so well known patterns. The most repeated pattern on the charts is what we call a trend. In trader speak, a trend is when you see price moving in a particular direction. In this picture on the left, price is trending down. The reason we want to know about the trend and learn to recognize it first is because MOST traders want to trade in the direction of the trend. So YOU should be looking to trade in the direction of the trend. A trend is any clear price move up or down. In this picture (right), price is not trending, it is sideways. On the left here again, I want to bring your attention to something else. The more experience you get, the less you will need to rely on indicators. The yellow lines are the 21 and 55 EMAs. They are moving averages. 90%+ of the time, they are going to give you an accurate read on the trend direction. That s good enough when you are learning how trading works. So trending is easy for you. If the faster moving average is on top, you only buy. If the faster moving average is on the bottom, you only sell. Don t overcomplicate this. Even some of the most skilled and successful traders use moving averages. Why? Because it gives them something definitive on which to base decisions. The more experience you get, the more you will appreciate the value of good definition. So we can see in this picture that price is making a steady move down. We can also just look at the moving averages and see that they are apart and down. That s all we need to see for now. We are now building a trading method for practice that will consist of

15 15 Trend Pullback to barrier Exhaustion at the barrier Trigger Entry and exit So we have trend so far. Pullbacks The barrier is just as important as the trend. We said that traders like to trade in the direction of the trend. We also know from repeated observation that traders like to enter that trend when price pulls back. Because of this market psychology, you will see a pattern repeating over and over again. You will see a trend, you will see a pullback, and then you will see price push again in the direction of that trend. Look at the picture below. Follow the white lines. Price trends and pulls back, trends and pulls back So the next key is how do we know WHEN to get back on in the direction of the trend? We see this happening over and over again, so the question is this: where will we get in?

16 16 Barriers We know from looking at charts for years and tens of thousands of hours that traders like to enter a trend at a good barrier. Barrier is also called support or resistance. Resistance is always above price, and Support is always below price. So you will need to know how to draw horizontal lines on your charts. When price trends and then goes sideways, as you see on the left, this is called consolidation. There is another type of barrier (support or resistance) that is called historic barrier. This refers to a price area where price has trouble going below or above. I write price area because it is usually not a specific price, but a range of support or resistance. Historic Barriers: As you can see, I am using a rectangle to show this area where price has struggled to get above or get below in the past. You are looking for multiple touches. This takes some practice. So practice. Whether it is a historic barrier, or consolidations, both are barriers, both are support or resistance. Our goal is to anticipate where price is likely to bounce.

17 17 I m going to share one more technique that you will need to practice for identifying barriers. Remember to visit our forums we have created for you for help with all of these lessons. I can still remember how nice it was to have community when learning these techniques. The Fibonacci Retracement Tool Once you see your trend, and that trend begins to pullback, this is where we will look for our trade. The word pullback is also called retracement. Retracement refers specifically to the Fibonacci Retracement Tool levels. A pullback can refer to any reversal or price. In the beginning of this book, I gave you Fibonacci settings of 23.6, 38.2, 50, 61.8, and This is what that tool looks like all by itself. We start at the beginning of the trend, and then draw it to the end of the trend. It is extremely valuable because there are repetitive patterns here, too. This tool can help us to identify a good barrier.

18 18 First you need a trend. When that trend starts to pullback, that s when you can use the Fibonacci retracement tool. From here on out I ll refer to it as the Fib tool. Once we draw it, I ll refer to it as Fib. As you can see if you follow the arrows, price is going sideways, and then it begins to trend down. In a downtrend, we would want to sell. But we want to sell when price pulls back to a good barrier (green). The Fib can be one confirmation that we have a good barrier.

19 19 The Fib is always drawn from the left to right. You know it is time to think about drawing a fib because price begins moving back up. You ll see the opposite color candles like the one at the white arrow. You start the Fib where the trend begins down. Here is some knowledge for you and 38.2 are natural profit taking levels, and 50% and 61.8 are correction levels. No need to get more into it than that at this time. I suppose I could write a book on why I think this works, but the historical pattern is this: 38.2, 50, 61.8, and 76.4 can be barriers indicating where price will turn. I don t pay attention to the 23.6 barrier as a potential place for a trade. All too often it moves to 38.2 anyway. So I would like to see price move back to 38.2% before I consider a trade. Now you have two things to look for as a barrier. 1. A Fibonacci retracement level 2. A historic barrier. As you later move to the next level of trading, there will be other tools we can use, and we won t trade unless two barriers are present together. For now, you just want to practice. You only need one barrier. Exhaustion (at the pullback) At this point it will be difficult for you to see exhaustion. It s not impossible. It s just that you have your hands full right now. The more you practice, the more your eye will begin to see what real exhaustion is. Imagine (like our picture above) price is trending down. THEN.. price begins to pullback and buyers start to buy. We d like buyer interest to get tired, or run out of gas or at least see signs of it before we enter a trade. There are certainly times that I trade where there are no signs of price exhaustion. When price is trending quickly during peak market hours, it will often bounce quickly off our barrier and return in the direction of the trend. You don t have to concern yourself with this at this time.

20 20 For now, I ll show you a Slow Stochastics technique we used for years. Traders still use it today the world over. But since we trade logic and not an indicator, price is always going to paint a better picture. For now, let s stick with the indicator. Look at the lower pane where we have our K Stochastics line in purple. There are little arrows in circles pointing at the extremes. When price pulls back to the barrier, we want the indicator to be in the extreme (higher than 80 for a sell) (lower than 20 for a buy) and then be hooking back in the direction of the trade. See next picture. If you are following along you will see that price is trending down. The moving averages are in order (faster one on the bottom) showing a sell only trade. Price reaches the bottom, and we draw a fib. We are watching for price to reach the 38.2, 50%, 61.8, or 76,4, or hit a historic barrier to set up a trade. At the two BIG arrows, you can see price reaching 38.2% and then next 61.8%. That is the point where price reaches our barrier, and the Stochastics indicator is hooking back down. The problem here is that the Stochastics never reached the 80 level (top horizontal line) for a sell. So we would not have considered a trade in either of those locations. We want to go with the trend, have price pullback to our barrier, and have Stochastics extreme, turning in the direction of our trade. You might have to practice to get all of this straight. For example, if I m drawing a fib from the top to bottom of a down trend, I can only ever be looking for a sell. Stochastics can never be at the bottom extreme hooking back for a sell. It can only be above 80, hooking back for a sell.

21 21 Let me give you an example of all of these necessities lining up and coming back up the other way. Look at how the trend moves up (faster moving average is above), and then begins to a pullback the other way (back down). As it does, I draw a fib from the start of the trend to the top of the trend. Now I m looking for price to come down and reach at least the 38.2 Fib level. It does, and now I look to see if price is extreme. It is. Look at the vertical line showing the alignment. The candle before the arrow establishes Stochastics at extreme. Now pay attention carefully: In order for the Stochastics to hook back up, that 5 minute candle at my arrow MUST finish and close. When it does, I can then enter the trade. See next picture.

22 22 The green line is the price at which the candle closed. So I enter the trade right there. If you are trading a $10k practice account, don t worry about your total risk at this time. Later we will control our risk to 2-5% maximum of our equity when we trade real money. For now, that just adds more complication to your practice. For now, when you trade, just buy or sell 10 contracts (lots). You just want to repeatedly practice these elements. The stop loss goes just one PIP under the swing low. The swing low is the most recent, lowest price reached. This is usually the lowest price retraced when we are talking about pullbacks. So now we know where to put our stop loss and know the price. The next step is to determine our exit. I recommend you only target 10 pips. In order to get 10 actual pips, you will need to overcome the spread.

23 23 The trading platform I recommend for practice is called the GTS Pro. It offers many helpful functions when you are newer to trading. Notice the floating EUR/USD box I have in the front of the trading platform (green rectangle). You will observe a price on the left and the right side. On the left you have the bid and sell price at Bid and Sell mean the same thing. On the right, you have the ask and buy price at They mean the same thing. The spread is the difference between the bid and ask price, or the difference between the sell and buy price. When you execute a trade, price will need to first move the amount of the spread before you get to zero (breakeven, written as BE). So in the case of the Euro, the spread is 3 PIPs. Our entry price was Price has to move 3 pips in the direction of our trade in order to breakeven. Then a movement of ten more pips would bring us to So is our profit target. When you are actually

24 24 taking trades, be very sure to enter your stop loss in the trading station as quickly as possible. To reinforce how ridiculous it is to trade without a stop loss, imagine a NASCAR driver speeding around the race track without wearing a helmet. Or a parent leaving their two year old to play by the street while they go in to make tea. That s how outrageous it is. If anyone tells you different, you now know how absurd they are. If price is too close to your stop loss, the trading platform will not allow you to enter an automatic stop loss (usually the amount of the spread or closer). So if you entered this trade, and price dropped to , you would not be able to execute an automatic stop loss. You would need to manually close the trade when the stop price is reached. The same is true for the profit target. In the trading platform, this is called a limit. Now, I m going to give you a rule you do not need to understand right now (might hurt your head to try), but you absolutely must use it or you will wonder what is happening to you at times. Read carefully and pin it to your wall: WHEN IN A SELL TRADE YOU MUST ADD THE SPREAD TO YOUR STOP LOSS AND LIMIT WHEN TYPING IT INTO YOUR TRADING PLATFORM. This illustration above is a buy trade. So we don t do anything at all. The rule doesn t apply to buy trades. The rule only applies to sell trades. Let s walk through a trading setup again,

25 25 and then show how we would do things differently for our stop loss and limit in the trading platform. The faster moving average is on the bottom, so we can only sell. We draw a Fib from the top to the bottom of the trend. At the 61.8 level, the highest blue candle gets the Stochastics established in the upper extreme (must be upper for a sell). To hook back, the red candle at the white arrow must close. It does and you sell ten contracts immediately. Your stop loss goes 1 pip above the swing high. The spread is 3. You got in at , so your breakeven price is To make a 10 pip profit, price must move to So is your target. We now need to enter the stop loss and limit order in our trading platform. What is our rule? WHEN IN A SELL TRADE YOU MUST ADD THE SPREAD TO YOUR STOP LOSS AND LIMIT WHEN TYPING IT INTO YOUR TRADING PLATFORM. What does that mean? First of all, you don t change anything on your chart only on your trading platform. So the stop loss you type into the trading platform would be or Your limit order would be or That s what you type in the trading platform. Make sure you know the rule and know what to do. The reason for this is because if you are in a sell, your contracts are going to close at the buy price (3 pips higher). So when your chart price is at your target price (1.4060), the buy price will be at Easy just follow the rule if you don t understand.

26 26 Keep in mind that different currency pairs have different spreads. The spread might even change for the pair you are trading. Be sure to check the spread each time you trade. In summary, trading is a marathon, not a sprint. You must become proficient at language, basic tools, and basic logic. Once you do, then you will be ready for more. Always remember it s not about what the market does, it s about what you do. Always keep in mind that your success depends on your ability to make good decisions, not on what you see happening in the market. me with any questions: vance@forexartofwar.com I wish you the very best on your journey! Vance Williams In the pages that follow, you will find a Level 1 Trading Plan, all the tools you need for trading, and an introduction to the next level of trading.

27 27 Level 1 Trading Plan (see next page for charts and trading software) Trend If faster moving average is above slower moving average, only buy. If faster moving average is below, only sell. Barrier Need only one barrier Can use Fibonacci retracement levels Can use historic support or resistance Stochastics Must be at upper extreme or coming from upper extreme, hooking down for a sell. Must be at lower extreme or coming from lower extreme hooking up for a buy trade. Trigger Your trade is triggered when all of these parts line up at the same time. If price is extreme and hooking back, be sure to wait for the candle to close. If price is hooking in the direction of the trade at that time, you enter. Take one trade at a time Trade 10 Contracts

28 28 Trading Platform and Trading Software You are welcome to use any charting software and any broker. I do not have a financial relationship with any broker. I recommend FX Solutions because I have been doing business with them for six years. They offer the tools for free, and the tools are very good. The way this works: If you register for a free $10k Practice Account, you will receive an with a username. That username can be used to login to charts and trading platform. $10k Practice Account Registration Upon registering, you will receive a second with a link to a new page. This page will provide free downloads, and video tutorials teaching you how to use the charts and trading platform. Be sure to let us know if you do not receive that second ! Note: If you are a MAC user, to take full advantage of Forex trading software, you will need to acquire a program like Windows Parallels or get an inexpensive stand-alone PC. You can use web based software if it is your only options, though functionality will be somewhat limited (MAC is only 10% of the PC market). Please visit our Forums for technical questions and support at the following link: Forex Art of War Technical Forum Community Teamwork! In all of my years of working with traders, I have found it to be of great value to be a part of a community of like-minded people. This is where you can share your trades, and share your point of view with others on their trades. This can greatly accelerate the rate at which you learn. You can access our public forums at the following link: THE FIRST BATTLE - Trader Community Forum

29 29 The Next Step SEIZE THE HIGH GROUND Once you have become proficient with the information in this book, it will be time to consider our second program, SEIZE THE HIGH GROUND. Write to me: for more information. It is a premium membership, however we are striving to keep prices as low as we possibly can while assisting you with your goals. Level 2: SEIZE THE HIGH GROUND The purpose of this program is to help you master the precise logic and tools you will later be using in Level 3, which is your method and trading plan. There are limitless setups you can choose to trade in Forex. My concern is teaching you where the best opportunities are. Trading decisions are not just about what price is likely to do. I ll be teaching you how we know which direction price is likely to go. I ll show you the optimal entry and the optimal exit. I ll teach you why trading a 1 or 5 minute chart is very difficult, why Daily and 4hr charts are easy, and why we choose to teach you to trade a 30 minute chart. I ll be teaching you insights into the market that few ever realize are taking place. All of this to give you a clear edge over other traders in the Forex market. Here is a sample of what you will be learning: New Wave Fibonacci formula for measuring trends How to Control Risk How to read price exhaustion How to read the correct trend to trade How to choose strong barriers How to factor in Time of Day When to stay out of the market And More.. This will also include a Level 2 trading plan, community forum, live trading sessions, and videos assisting you to gain more insights into what I am teaching. Again contact me: vance@forexartofwar.com if you would like to learn more. ~Vance