Level 1: THE FIRST BATTLE, Forex Art of War

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2 Level 1: THE FIRST BATTLE, Forex Art of War Disclaimer: Forex Art of War and Vance Williams believe that customer should be aware of the risks associated with over-the-counter, spot Forex. Forex trading is highly speculative in nature which can mean currency prices may become extremely volatile. Forex trading is highly leveraged, since low margin deposits normally are required, an extremely high degree of leverage is obtainable in foreign exchange trading. A relatively small market movement will have a proportionately larger impact on the funds you have deposited. You may sustain a total loss of your funds. Since the possibility of losing your entire cash balance does exist, speculation in the Forex market should only be conducted with risk capital you can afford to lose which will not dramatically impact your lifestyle. 1

3 Level 1: THE FIRST BATTLE, Forex Art of War Personal Note from Vance This book represents the best of 11 years of my Forex trading and coaching. I created this book prior to my retirement so that others would have a path to follow to reach success, efficiently. Of course I m not actually retiring, just shifting more of my time to my passion, which is human potential and life coaching. While I maintain the copyright on this book, you are welcome to share it with anyone you like. The only thing I ask is that you share the entire book, and not in pieces. So as long as you are sharing the entire book, you are welcome to pass it out as much as you like. Special note: In this book, you will notice references to a community activity which is an important part of skill development. To do this on your own, you will need a forum that enables you to create your own topics and allows you to post pictures of your work. Create a forum which is your name or moniker. Have each of your friends do the same. Then as you all post trades, give each other feedback and follow what I show you in this book. I ll provide a few more tips in the back of this book. If you don t have a team, you can check out the tools I created for this purpose at I wish you the very best on your journey! Vance Williams 2

4 Level 1: THE FIRST BATTLE, Forex Art of War An Introduction to Level 1 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

5 Level 1: THE FIRST BATTLE, Forex Art of War Or Learn to make good decisions regardless of the emotions you experience. I also like to think of this as operating proactively instead of reactively. Can I put off the short term discomfort for the longer term rewards? Those are your two choices. 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 book for you. The Forex "culture" encourages an ineffective vision of Forex trading. This is primarily due to the fact that most information about Forex trading is provided by brokers in one way or another. They are not in the training business. They make money when you trade a live account. I m not disparaging them. I m grateful they make retail trading available for just about anyone. But at the same time, the best place to buy a car is probably not from an oil company. They want you to use oil, and have little incentive to make a great car. The bottom line is that if you want to succeed in Forex trading, you absolutely, positively must stop following, and think completely for yourself. Get in the habit of going after the best information possible for making decisions. The best information is often hidden behind a symbol, as you will soon see. 4

6 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 1: Getting Started If you are a member of my community, be sure to access the sessions I recorded, specifically going over the content in this book. I would encourage you NOT to jump ahead. If you try to run before you learn to walk, you risk being disappointed. Whether you are in my community or part of another, make it a habit to ask a question in your forum anytime you have one. The goal of this first section (level 1) is to provide you with the tools and basic knowledge, so that you can build a solid foundation for high probability trading. This guide is intended to show you the fastest and most efficient way to get started trading the Forex market. 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 need charts or a trading platform, we provide those for free. We include videos that explain their use. You will find all of this in the member area. Forex Art of War is a holistic strategy for winning that strives to take into account everything that affects your ability to make consistent profit. I consider this first section 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. 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 Implementing a simple trading plan, setting the trade on auto-pilot and leaving it alone I have been trading and training others for over ten years. 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 5

7 Level 1: THE FIRST BATTLE, Forex Art of War to reach further in their life inspire me. It s why I am transitioning to life coach over the next two years. 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 that you cannot make more 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. 6

8 Level 1: THE FIRST BATTLE, Forex Art of War 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. 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, currently at approximately 5 trillion USD a day in volume. 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. That data comes into my software and tells me what price is doing. 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 (free of charge) in hopes that you will eventually trade a live account with them. Be sure you only open a practice account, NOT a live account. If you are a member of my community, you will find free software and tutorials there. Do not open a real money 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. 7

9 Level 1: THE FIRST BATTLE, Forex Art of War 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 10-12% 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. You can use web based software on MAC but functions will be limited, though adequate. With modern software, you can execute trades directly from your charts. I recommend a desktop trading platform for new traders because it has functions that enable you to learn details you don t know. Please make a note that some user codes expire every 30 days. So your charts and trading platform will become inaccessible when a code expires. Simply register for a new user code in the free member area once you are a member. Use that new code to login to your charts and trading platform, and you are good to go again. 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. It can be beneficial to set your charts to New York, ET if they are adjustable. This will make it easier for you to read other trader posts, and make it easier for others to review something you share. For example, if a trader writes that they entered the trade at 13:00. This could cause confusion if your charts are set to a different time zone. If you do prefer a different time zone, that's okay, because what I'm showing you will work for any time zone or charts. 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. You will find instructions regarding in the charting tutorials within the community area. Give yourself time to practice and become familiar with the charts and trading platform. I m going to give you a specific method (rules) 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

10 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 2: 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 (ha). 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 almost 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. This can be confusing for new traders. We understand that if we buy something and the price goes up we make money. If the price goes down, we lose money. But how do we comprehend selling something and the price going up or down and making or losing money? It s because currencies are traded in pairs. As one goes up in price, the other is going down by exactly that same amount. So imagine you are trading the EUR/USD. If you buy the EUR/USD and it goes up, you make money. Simple enough. But what if you sell it? Think of it this way, if it helps. Selling the EUR/USD is the same thing as buying the USD/EUR. So just change their places, and you are back to buying! 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 cents. Only it is even 9

11 Level 1: THE FIRST BATTLE, Forex Art of War smaller. In US Dollars, a PIP is one 10,000 th of a cent (there are actually no pennies in US currency, we just got in the habit of calling a one cent coin 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 (decimal places) on the chart. Many brokers have switched to fractional PIPs to be more competitive. So for example, if your EUR/USD displays like this you have whole PIPS in the last two decimal places (82). If you have fractional PIPs (as I now do), it may be displayed That means that the last digit on the right (7) is 1/10 of a PIP. Or 82.7 PIPs using the last three digits. My suggestion as a new trader is to simply ignore the 5th decimal place for now. You really do not need to complicate the process further at this point. 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 (popular among a very small group). 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 trading US Dollars, you would need to determine the actual PIP value in US Dollars. No need to concern yourself with that now. 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 essentials. 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 currencies, 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. From time to time, the Bank of Japan does its best to manipulate that currency. This is called an intervention. An intervention is when a central bank, a group of central banks, or policy makers take action to alter the price of a currency. 10

12 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 3: 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. The minors (AU, NU) are only there for practice. The logic I teach you will work best on the GBP/USD and EUR/USD. With all other pairs, there will be other factors which will influence your probability of winning. For example, commodity prices play a huge role in the price of the AUD/USD and NZD/USD. For now, just use them for practice. In 2008, the future of the financial world became very uncertain. Will the Euro have a future? Will the US dollar remain the world's reserve currency? The very existence of these questions cast a shadow of doubt on long term positions. So for years, I focused on trends that are created and run their course on much shorter time frames. In September 2014, the world markets began to compete again, with central bank interest rates telegraphing divergence. That was followed by Japan in October engaging in an every man for himself philosophy. This was followed the Swiss bank making a unilateral and surprising decision in January 2015 that stunned the currency markets. So there has never been a better time to trade Forex. Competitive markets create more opportunity and make the market more predictable for a skilled trader. 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 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 30 minute candles. You will find a complete tutorial on downloading and using the charts in my community area, but many brokers are very helpful with their free 11

13 Level 1: THE FIRST BATTLE, Forex Art of War software. I recommend 30 minute candles because they will give you more opportunity to practice. Always keep in mind that a trader does not look for a way to enter a trade. A trader waits until the right opportunity presents itself and then strikes. There is a very big difference. Make this a part of your mindset at the very beginning. 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. Now you should have four (4) 30min charts with 21 and 55 EMAs. I recommend 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. That s simple logic. Here are the reasons I ask you to setup your charts in this way: More trading opportunities Learn to follow a trend Learn to see a pullback Learn to see a barrier Learn to enter and exit trades If you are ever going to make consistent 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. 12

14 Level 1: THE FIRST BATTLE, Forex Art of War Your chart should look something like this. You can adjust the colors however you like. I have a black background (in this picture), 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. 13

15 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 4: Basic Chart Data 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. When you see a completed red candle that means there were more sellers than buyers in that 30 minute period. Candles have bodies, wicks, and tails. A candle is created by the high, low, open and close prices. The tail is the vertical line extending from the body down, and the lowest point of that tail is the lowest price that candle reached during that period. 14

16 Level 1: THE FIRST BATTLE, Forex Art of War 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 (as pictured), 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. 15

17 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 5: Trends, Pullbacks, Introduction to Barriers 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 (under), price is not trending, it is sideways. In this picture to the left, 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. Note that the faster moving average changes direction faster. If it helps, make the slower moving average (55) a dotted line. 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, 16

18 Level 1: THE FIRST BATTLE, Forex Art of War 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. In later levels, I ll increase the reliability to 100%. We are now building a trading method for practice that will consist of Trend Pullback to barrier Entry and exits Sticking with your plan So far we have explored trend". 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? 17

19 Level 1: THE FIRST BATTLE, Forex Art of War 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. A barrier is also called support or resistance, also referred to as areas of likely supply or demand. Resistance is a barrier that is above price, and Support is a barrier that is below price (demand below price, supply above). 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 a subtle difference between the use of the words sideways and consolidation. They will both be sideways. But sideways movement can be caused by periods of uncertainty. Consolidation is usually the result of very bullish or bearish price movement, and the bigger money needs to take profit and regain some capital for the next move up or down. You can learn more about that nuance later. 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 prices. 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. 18

20 Level 1: THE FIRST BATTLE, Forex Art of War In level 3, I will show you how to see when historic areas of resistance and support are more or less meaningful. 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. It s not too early for me to put it another way. You are looking for areas where we are likely to encounter buyers or sellers. You will hear us referring to this as orders. As in, there are probably some buy orders sitting there. I m going to share one more technique that you will need to practice for identifying barriers. Remember to connect with other traders, review work of traders at your level, and above all, ask questions when you have one. I can still remember how nice it was to have community when learning these techniques. 19

21 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 6: The Fibonacci Retracement Tool Basics 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 counter movement of 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. 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. 20

22 Level 1: THE FIRST BATTLE, Forex Art of War 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 counter to the trend. You ll see the opposite color candles like the one at the white arrow. The previous candle was blue at one point. You start the Fib where the trend begins down. 23.6% 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 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, and a shallow entry can increase the probability of your stop loss being reached. So I would like to see price move back to 38.2 before I consider a trade. That said, feel free to enter at any barrier at this point. Now you have two things to look for at a barrier. 1. A Fibonacci retracement level OR 2. A historic barrier. Once again, at this level, you are learning these key things: Proficiency with Charts and Trading Platform How to see a trend How to see when price is pulling back. How to enter and exit a trade. Sticking with your plan When you have the basics down, your next focus should be "defining the right high probability setup for you." Most traders spend years of wasted time at this level, making the mistakes of thinking that "if I just know enough about the market, I will succeed." This is just 21

23 Level 1: THE FIRST BATTLE, Forex Art of War a mistake. Your second level can be accomplished in a single month if you know what your job is at that second step. He's exactly what you should learn to do next (at the next level) 1. Learn the elements involved in any high probability trade 2. Learn to balance those elements 3. Learn to manage risk 4. Identify Your Personal Setup Now I will discuss an example of the trend, pullback and barrier in an uptrend. 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. When price reaches my barrier, I can buy. Just do the best you can drawing your Fib for now where you think the trend starts up. I developed a technique called New Wave Fibonacci Drawing (you will learn in level 2) that will enable to you draw Fibs with greater accuracy, but for now, I suggest you keep it simple and monitor color change. 22

24 Level 1: THE FIRST BATTLE, Forex Art of War Sometimes you get two barriers lining up at the same time. So take a look at the picture above again, and then look at this picture below. In the picture below, notice the barrier with the three white arrows. This was the former resistance area that price broke above. It is easy to see. Then you can see at the green arrow that this barrier coincides with the former barrier. When two barriers coincide, this is called confluence. Over time, I have found confluence to be more coincidental than useful, so probably not that important to use. What is useful later is the increased comfort level you get when you can get your stop behind one of these former levels. For now, just look for a historic barrier like you see at the three white arrows OR a Fib level). In other words, you only need one barrier to practice (at this time). Do your best not to focus on winning trades right now. Comparing this to baseball, you are not attempting to get on base right now. You are just learning to swing the bat. Once you get the basics down, you will practice getting on base. 23

25 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 7: Entry and Exits Entry is about where you enter the trade. I ll keep entry and exit very simple so that you can move very fast to the next level of trading. We will be entering right at our barrier. So when you see price trending, you will look for the 23.6, 38.2, 50%, 61.8, 76.4 or a former barrier to. As you see here, the moment price pulls back to any level, we buy. That is the green line, and I suggest you just use a green line from now on to illustrate your buy price. At this level, simply buy or sell 4 contracts (40k). Contracts are also sometimes referred to as lots. In the next level, we ll learn how to limit our risk by a specific percentage. For now, just buy or sell 4 contracts in your (mini) practice account (this assumes you are using a 10k-50k demo account). For now, practice entering at any barrier. You are going through important motions. In level 2, we wait for at least a 38.2 pullback, but at this beginner level, as I wrote, go ahead and just enter at the 23.6, as well. 24

26 Level 1: THE FIRST BATTLE, Forex Art of War An exit is your profit target or stop loss. First let s discuss your stop loss. For now, simply place your stop loss 30 pips away from your entry. Again, do not be concerned with winning or losing. I m teaching you good form for swinging a baseball bat, so to speak. We are just practicing good form while learning the basics. So if you are buying, as in this picture, your stop loss is placed 30 PIPs below your entry price. If you were selling, your stop loss would be placed 30 PIPs above your entry price. It is important that you enter your stop loss immediately on the trading platform. You must always be in the habit of doing this. The stop loss limits your overall risk in every trade. It is crucial you do this for many reasons. The most important reason is this, and I suggest you write it down and pin it up on your wall: Each trade must be thought of as a random event. What that means is that anything can happen. No matter how smart or knowledgeable we get, no matter how great our trading setup is, at any given moment, anything can happen. An oil pipeline can get attacked. Fears of a bank collapse can emerge. A bank can make a surprise announcement. The possibilities are numerous. We don t have to monitor everything that is happening in the world. We just have to trade our plan and always know that there is no way we can ever prepare for every possibility. Nor do we need to. We make money from a series of trades, not a single trade. This is reality. This is just how it is. It is only natural to be disappointed when we lose and excited 25

27 Level 1: THE FIRST BATTLE, Forex Art of War when we win. But in time, this will change. It will be a while, but it will change. So you MUST ALWAYS trade with a stop loss limiting your risk. 26

28 Level 1: THE FIRST BATTLE, Forex Art of War For our target, let s also keep this really simple. Your plan will be to make 15 PIPs. Prior to 2014, it was necessary to learn to factor the spreads into all of our calculations. Spreads have dropped in many cases to.5, making this no longer an issue. So I chose to drop that requirement at the beginning level. Once you move to live trading in Level 4, it will become more important to account for spreads. As I wrote, don t worry about your total risk at this time. Later we will limit our risk to 2-2.5% maximum of our equity when we trade. This adds more complication to your practice. For now, when you trade, just buy or sell 40k in contracts (lots). 27

29 Level 1: THE FIRST BATTLE, Forex Art of War Chapter 8: Application Stick with Your Plan The final piece is "sticking with your plan." One day, you want to be so detached from the outcome of the trade that trading is just like setting a timer. If the noodles take 13 minutes, you set the timer, focus on something else, and come back when the timer goes off. The goal of the Forex Art of War program is "developing the skill to make consistent profit." I believe that you cannot make "more" until you first learn to make "some." Focusing only on consistent profit, and knowing how to do that is the fastest path to real success. Keep in mind that your brain is very much used to processing information in a different way. I ll be discussing this in more detail. But clearly the beginning of processing information in a new way is practicing the right strategy (pattern). When you take a trade, you want to set your stop loss and profit target in the trading platform, and once you do that, your job is over. Price is either going to hit your stop, or hit your target. So practice this over and over. If you find yourself making changes during the trade, then I suggest that you turn your computer off and come back later. You are training your mind to understand that there is nothing for you to do. You'll see what I mean. The mind thinks that there is something to do. You need to train yourself that once you place your entry and exits points, your job is over. Beginner Psychology: Self-Discipline (the ability to delay immediate gratification) At Ted, you can view a video titled, Don t eat the Marshmallow (just go to and search). The video shows you one way that future success can be predicted. A professor at Stanford took children who were only four years old, put them in a room and gave them each a marshmallow. He said, if you wait 15 minutes, I ll give you a second marshmallow. But if you take even one bite of the first marshmallow during that time, you will not get the second marshmallow. At the end of the 15 minutes, about 33% of the children refrained from eating the marshmallow. 14 years later, they did a follow up study. They found that 100% of the kids who did not eat the marshmallow were successful (doing well in school, good relationships). MOST of the kids who did eat the marshmallow were not okay. In trouble, poor grades, some dropped out, not going to college, and so on. 28

30 Level 1: THE FIRST BATTLE, Forex Art of War This is an important principle because whenever you set out to change an existing behavior (like making decisions in a different way), you are going to run into discomfort (brain s resistance to change/fear or discomfort). Don t eat the marshmallow. 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. Do not chase trades. Learn to let the trade come to you. Remember to write any questions, any time in your personal forum. Congratulations on a great start, and I wish you the very best on your journey! VERY IMPORTANT: Below, you will find the Level 1 trading plan. When you carry out the objectives in that plan, you can then move to Level 2. PRINT THE PLAN! Your most important step is to become familiar with the Level 1 Trading Plan and look for a trade. Very often traders overcomplicate this level. If you are totally new, you will want to become familiar with the tools and language, but in terms of carrying out an objective trading, getting past level 1 could not be easier. Just follow the plan, and post your trade in your personal form. Look for feedback from other team members. Did you get right? Do you need to improve something? Remember that there are no grades. You either got it or you don t. If you find yourself hesitating to post, just remember that there is no growth without suffering/pain/discomfort. If you find yourself disappointed, remember the same. I have personally had a policy for years: If I make mistake, I look to quickly see if there is anything I can learn from it. If I can great, if I can t, okay. Then I get back on the horse and move forward. I have no time for shame. To be good, you must master your craft. But to be great, you must master yourself. Most of the time, the trick is to accept a little bit of temporary discomfort in order to gain the bigger rewards (Don t eat the marshmallow). And remember that the secret is practice. 29

31 Level 1: THE FIRST BATTLE, Forex Art of War Level 1 Trading Plan Level 1 Trading Plan Revision 4 Using only 30 minute charts. EU, GU, NU, AU pairs Chart Use only a 30 minute chart Currency Pairs EUR/USD (EU), GBP/USD (GU), AUD/USD (AU) NZD/USD (NU) Trend If faster moving average (21 EMA) is above slower moving average (55 EMA), only buy. If faster moving average is below, only sell. Pullback/Barriers Need only one barrier (any barrier) Can use Fibonacci retracement levels (no need to be precise in Level 1) Can use historic support or resistance (illustrate with rectangle) Entry A. Enter when price reaches your barrier (market order) B. Use a buy or sell entry limit (pending order) called entry order on other chart services. Exits Stop Loss: 30 pips below your buy price, or 30 pips above sell price. Profit Target: 15 PIPs from entry Additional Rules Take one trade at a time Trade 40 contracts (40K) Once you enter, set the stop and limit orders and do not touch it. Let price reach your stop or limit. Stick To The Plan Observe spreads, but ignore them in your calculations Post Trade in Your Personal Forum Label chart prices, describe reason for entering Trade, post before price reaches stop loss or profit target if you can. Watch for feedback from others 30

32 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Introduction to level 2 The Level 2 information is what most people are after when they enter Forex trading. In a nutshell, it is about your ability to read the market. But as powerful as the knowledge, tools, and techniques are in this section, the real results come from application. I ll tell you what I told every trader I coached over the years: I am not your teacher. Experience is your teacher. If you want to save a lot of time, also be wise. Wisdom is your ability to reflect on your experience and make better choices for your future. When I was a very young man, I became determined to succeed such that money was never going to be an issue for me. I think I began working on that dream even in my teens. I struck out into the world at 18, not knowing how little I actually knew. In the first years, I struggled, always struggled. Then I had some sporadic success, followed by painfully dry spells. But it was not until I was 26 that I first tasted what I wanted so much. My success was the result of a lot of effort, and a few really important ideas. Many of those ideas and others I learned years later are in this book. But one of the ideas I want to share with you first is this one: It changed my world. Make your first dollar first. This was not the first principle I ever applied, but it might have been the first time I became fully conscious that I was making a choice to apply a principle. I could understand it. I could see what made it a principle, and I could see why it worked. It s the idea that your first measure of success is that point in time when you have made one more dollar than you have spent since the beginning. Now think about it: If you know the goal is to make your first dollar, do you really need a new desk? If you don t, buying a new desk makes it take longer to reach your first goal. But it isn t just about items you spend money on. It s also how you focus your time. You will make your first dollar faster, if you focus your activity on those tasks which actually move you closer to your goal. For example, if you are in sales, talking to new people is, by far, the most important activity you can engage in. Now let s apply this principle to Forex trading. Because anyone can get lucky and make their first dollar their very first day, we cannot measure the first dollar in the same way we would a traditional business. In addition, we must define what that goal is. Before we do that, I d like to share some additional perspective with you. Years from now, you will come to see that when it comes to skill and execution, there is fundamentally no difference at all between making $5 a day and making $500 a day or $5000 a day for that matter. How much you make per day is purely a function of how much capital you have. That said, there can also be other factors that can change our behavior when we jump from trading $500 to trading $50,000. They key words there are a change in behavior. While I will 31

33 Level 2: SEIZE THE HIGH GROUND, Forex Art of War share ideas that lend themselves to advanced psychology, the goals of this book are centered on the skill of consistent profit making. What you are engaged in here is a powerful learning system based on 2500 year old principles found in Sun Tzu s Art of War. It was also necessary for me to add about five that are fitting for our day and age. But I used the principles to guide the development of the program. You don t need to know the principles. I m just sharing that it was the guidance of the principles that led me to the difficult solutions. Once I had the solution, it was obvious that learning Forex is really no different from learning anything else. Anyway, I want to give you what I call the core three principles that will help you with your initial obstacles. 1. You are in Command. Anything you experience in life is the result of your choices. 2. Know Your Objective Well at any given moment time, there is only one thing that we should focus our attention on. 3. Be Vigilant your current objective should be important enough that you can put everything else aside and give it all you ve got. We don t always get what we want, but we always get what we need. The power is evident in the last part of that sentence. So believing you are responsible for what happens in life is essential for success. This one belief is the difference between the 80% who never succeed, and the 20% who have varying degrees of success depending on the strategy that they employ. If you do have this belief, then it s just a matter of knowing what to do next. Then you give it your best. Then you learn from experience. With that in mind, as you are studying this course and applying it, always be mindful of your objective, and do your best to stay focused on it. If you are not sure what your objective is, ask. So make your first dollar first. That is to say, limit your focus to a worthy first goal, and design your activity around that goal. If you cannot make $50 a week, you can never make $5000. It s natural to desire more, but if you don t make some first, you will never make more. I am going to teach you how you actually make more by targeting less. Yes the old adage is true, less is more. I m explaining this in hopes that you will limit your expectation to consistent profit making only. Those who do not rarely succeed. A focus on anything else leads to a quest for short cuts. And we know short cuts in business lead back to where we started. 32