Underground Forex Trading Blueprint

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2 Disclaimer: Forex, stock, futures, and options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the information in this special report will generate profits or ensure freedom from losses. Copyright by Profits Run, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, or mechanical, including photocopying, recording, or by any information storage and retrieval system. Published by: Profits Run, Inc Beck Rd Unit F1 Wixom, MI Page 2 of 40

3 PLEASE PRINT THIS REPORT NOW! Please take a few seconds and print this entire report right now. Here s why: When you print this report out, the chances that you ll actually read it and learn something new about trading the Forex markets will increase dramatically. I have a collection of digital reports on my computer, and the only ones I ve read all the way through are the ones I ve printed out. When you print this report out, you can read it anywhere in your house (or on the road, for that matter). I love my family, but my office is smack dab in the middle of the house, so it s a high traffic area. Sometimes the only way I can get a solid chunk of time to read something I find online is if I print it out and take it somewhere else in the house. There is an activity in this report that requires you to answer some questions. The impact of this activity will be much greater if you actually get out a pencil or pen and actually write on this report. I highly recommend you spend some quality time completing this activity. Your future could depend on it. Page 3 of 40

4 Dear Trader, Underground Forex Trading Blueprint 50,000 Traders & Their Forex Frustrations The information you hold in your hands (or are viewing on your computer) has the potential to dramatically increase the pips you pull out of the Forex markets, and it does have the potential to change your life. That s not hype, because the potential is real. It s up to you to make it happen, and my goal with this report is to help you discover in hours and days what took me decades to realize about success in the markets. I ve been trading the markets since 1974, and I ve been teaching thousands of students around the world what it takes to succeed in the markets since So some people think of me as a grizzled trading veteran because I ve seen so much over the past 3 decades. Sure, I ve scraped my knees and have been through a few bumps and bruises over the years, but I see myself as a filter for you, or someone who has the ability to sift through all the junk and noise that s out there and tell it to you like it is. So, I may come across a little harsh in this report, but I don t believe in sugar- coating anything or giving you false hopes of success. There are enough swindlers doing that already. I want to give you the facts, like em or not, so you re empowered to take action and make positive decisions on how to succeed in the Forex markets. They Nearly Begged Me to Help Them For years now, my students and readers have been pleading with me to show them how to trade the Forex markets. And many of them actually took my stock trading courses and started telling me about all the money they were making by applying those courses to the Forex markets. They essentially proved to me what Page 4 of 40

5 I knew to be true markets are markets. There s nothing magical about the Forex markets, because all markets are ultimately driven by human psychology fear and greed and supply and demand. Sure, every market has its own peculiarities, but if you understand how the basic drivers of human emotions work, you can potentially succeed big in any market. As I researched the answers to my students questions about Forex, the more I realized that too many traders were getting suckered and taken by less- than- honest Forex brokers, as well as the holy grail peddlers who were preying upon the wide- eyed desperation of traders who think they can get rich quick trading the popular Forex markets. Excuse me, but what I found was disgusting. I found more misinformation, lies, and hype about Forex that I had seen in some time. And that s when I decided to put all my energy into dispelling this junk so I could give my students and readers a source of factual, actual, solid, realistic Forex Profit Principles that they could use to potentially profit in the Forex markets again and again. So to make sure I didn t miss any big questions or concerns, I surveyed over 50,000 active traders recently and asked them one question: If you could sit down and have lunch with me, what is the top question you would ask me about Forex trading? That s it. Plain and simple. Almost immediately, the questions began to pour in. You know what it s like Monday morning when you check your and there s a ton of it from over the weekend? Well, it was like that multiplied by a hundred, or a thousand. People were confused more than I realized about Forex. I Was Shocked and Excited Quite honestly, this response overwhelmed me. At first I thought to myself, How can I possibly address all these questions? There s just not enough time to do it! But then I noticed something amazing I started seeing the same questions over and over. So I began to put them into categories, and after a long 12 hour day, I was shocked and excited. Why? Page 5 of 40

6 Well, I was shocked to find that, indeed, most of the questions fell neatly into a handful of broad categories. But I was excited because I had personally experienced what all these questions were asking. And I knew without a shadow of a doubt that I could help these traders. But it gets better, because I realized that if a survey of 50,000 traders resulted in a core, common set of questions, then millions of traders all around the world probably had the same concerns. So this report is my answer to the top questions I received from my readers and students about Forex trading. Now let s get right into the nitty gritty and clear up these questions once and for all. Are you ready? Let s begin. I hear a lot about Forex trading and am very interested in learning more about it. Can you give me a brief overview of the basics of Forex? Unlike stocks and futures that trade through exchanges or the NASDAQ, Forex trading is done through market makers that include major banks as well as small to large brokerage firms located around the world who collectively make a market on a 24/7 basis. The Forex market is always open and is the largest financial network in the world (daily average turnover of trillions of dollars). Forex trading involves trading currency pairs such as the EUR/USD pair (Eurodollar/US dollar pair) where a buyer of this pair would actually be buying the Eurodollar and simultaneously selling short the US dollar. Page 6 of 40

7 The format of a Forex pair is YYY/ZZZ, where the first currency is called the base currency and the second currency is called the counter currency. The price for a Forex pair is expressed in terms of the counter currency. For example, the price of the EUR/USD pair is expressed in US dollars (the counter currency) as This means that the base currency, the Eurodollar in this case, equals US$ The price of the USD/JPY pair is expressed in Japanese Yen as , because for this pair the Japanese Yen is the counter currency. This means that the base currency, the US dollar in this case, equals Japanese Yen. Prices are expressed in pips, which are nothing more than the minimum increment that a currency pair price can change. For example, if the EUR/USD price changes from to , the price is said to have gone up by 1 pip. Most major pairs are priced to 4 decimals which is the equivalent of 1/100 th of one percent. The exception would be the Japanese Yen pair that only trades to 2 decimals. This is because there are usually over 100 yen to the dollar. Forex pair quotes are on a bid- ask basis. The bid is the price that the market is willing to pay a seller at a point in time for a specific currency pair. The ask is the price that the market is willing to sell to a buyer at a point in time for a specific currency pair. The difference between the bid and the ask is called the bid/ask spread. For example, a typical EUR/USD quote could be bid ask which is a spread of 3 pips. Since the spread is how the market makers are compensated, there is no commission when placing a trade. Also, it is important to note that the spread will vary depending on market conditions. So the quote itself for any given Forex pair is the bid- ask combination at a point in time based on the market driven floating exchange rate. The quotation lists the bid price first, then the ask price. For the EUR/USD example above, the quote would be expressed simply as / or /87. Trading is done in lots, either 100,000 unit standard or 10,000 unit mini lots. For example, for a standard lot purchase, if the EUR/USD quote was /1.3787, then buying an EUR/USD pair means buying 100,000 Euro dollars and selling short $137,870 US dollars. Therefore, for a standard lot in which the USD is the counter currency, 1 pip will equal $10 ($1 for a mini lot). For other major counter currency pairs 1 pip will range from $8 to $10. Page 7 of 40

8 Forex dealers offer leverage as high as 100:1 and sometimes higher. At 100:1 leverage, 1 standard lot pair in which the USD in the base currency would require $1,000 in margin ($100,000/100). On the other hand, a 1 mini lot pair would require only $100 in margin ($10,000/100). If the account value falls below the margin requirement, the dealer will close out the trade automatically. How do the Forex markets operate on a 24 hour basis? Active trading sessions in each country s financial centers around the world take place from Sunday 5:00PM EST to Friday 5:00PM EST. For the major financial centers, trading starts in Sydney, then moves to each financial center in this order: Tokyo, London (and Europe), New York. The daily session for daily charting purposes ends at 5:00PM EST (coincident with the New York close ), but the market does not actually close. Here are the time intervals for each of the major financial centers expressed as EST. Sydney session starts at 5:00 pm and ends around 2:00 am. Tokyo session begins at 7:00 pm and ends around 4:00 am. London opens at 3:00 am and ends around 12:00 am. New York session opens at 8:00 am and ends around 5:00 pm. To give you a visual representation of this, here s a figure showing the same business hours for the various regions. In this figure you can see the overlap between the London (and Europe) session and the New York session, between 8 am and 11 am EST. The currency markets experience the highest volatility and volume during that overlap, which also coincides with the releases of important US economic releases. Figure 1 - Forex Markets Timeline Page 8 of 40

9 Can you take me through a typical trade scenario? Let s say the current bid/ask quote for EUR/USD is /05 and you want to buy the pair because you think the Euro is going to gain on the US dollar. So you buy 1 standard lot. When you do that you are actually buying 100,000 Euros (1 standard lot) for $138,050 US dollars (100,000 x ). At 100:1 leverage, your initial margin deposit would be $1,381 for this trade. So in our example, let s say the Euro pair goes up and is now trading at /68 and you decide to sell and take profits. You would then sell your 1 standard lot. When you do that you are actually selling 100,000 Euros (1 standard lot) for $138,650 US dollars (100,000 x ). Since you bought 100,000 Euros for $138,050 and sold them for $138,650, you made a profit of $600 or 60 pips. If on the other hand the Euro pair went down to /78 and you sold at , you would have a loss of $300 ($138,050 - $137,750). And again, if the account equity fell below the margin requirement, the trade would be automatically liquidated. However, this should never happen to you if you follow sound risk management rules. What types of orders do I use with Forex trading? There are different order types for different trading needs. Market Order: This order type is used to enter or exit the market immediately at the current quoted price. If you want to buy you will be filled at the asking price. If you want to sell you will be filled at the bid price. Limit Order: This order type is used to buy or sell a pair at a predetermined price. A buy limit order will only be filled if the market trades (ask) at or below the limit price. A sell limit order will only be filled if the market trades (bid) at or above the limit price. Stop Order: This order type is used to buy or sell a pair at a predetermined price. A buy stop order will only be filled if the market trades (ask) at or above the stop price. A sell stop order will only be filled if the market trades (bid) at or below the stop price. Page 9 of 40

10 How much can I expect to make with Forex trading? It is very important to have realistic expectations. The truth is that Forex trading is not a get rich quick proposition, despite all of the hype to the contrary. That does not mean though that there isn t money to be made. One of the appeals of Forex trading is the great leverage that is offered. However, leverage can work for or against you and therefore it is critical that you follow good trading methods along with sound risk management principles to have the opportunity to unlock the profit potential that the Forex markets have to offer. Forex seems to be quite different from trading stocks. What are the benefits and risks in comparison and would a much bigger account be needed? In addition to the Forex attributes explained in the basics of Forex question above, the Forex markets are indeed different from the stock markets in that their price behavior is different with usually more abrupt price swings. This requires different trading methods than those typically used for stocks in order to take full advantage of the profit potential that Forex has to offer while at the same time designing the right strategy to minimize risk. On the other hand, they are alike in that both Forex and stocks are markets that develop repeatable price behavior that present profit opportunities for those traders with good trading methods, sound money management principles and disciplined trading. Page 10 of 40

11 Because of the high leverage that Forex offers, Forex positions require a much smaller account size than do stocks trading similar sized positions as Forex margin requirements are much smaller than stock margin requirements. And so the reward can be much greater with Forex, but at the same time, the risk is much greater. But this can be dealt with effectively with good trading tactics and good money management rules that allow for maximizing profit potential and minimizing risk. How do I find a reliable Forex broker? Unlike stock and futures brokers, not all Forex brokers are regulated. It is very important to open an account with a regulated broker or bank that is a registered member of a regulating body. Since there is no central market, there is no global regulatory agency responsible for monitoring the activity of the currency markets. Therefore, regulation is left to each country. In the United States the Federal Reserve Bank monitors the banking system and the Commodity Futures Trading Commission (CFTC) has jurisdiction over all Futures and Forex activity. When trading in the foreign exchange markets, individuals should only trade with a CFTC registered entity that is also a member of the National Futures Association (NFA) and is regulated by the CFTC. For non- US broker/ bank entities, be sure that the broker or bank is registered with that country s appropriate regulatory bodies. In addition to working with a regulated broker, you want a broker that has low spreads. These spreads are calculated in pips, which is the difference between the price at which a currency can be bought and the price at which it can be sold at any given point in time. This is how the forex brokers or banks make their money since they don t charge commissions. So, obviously, lower spreads will save you more money. Trading tools are also very important when choosing a Forex broker. Specifically, you want a broker that will give you good charting and trading software that has the ability to plot the indicators that your trading method uses. This brings up an important point. You should never go looking for charting software first and then try to use or develop a trading method. Instead, you should first get educated on a good trading method (or develop your own) and then find charting software that will let you implement this method. Page 11 of 40

12 I ve seen too many traders stubbornly use inadequate charting software just because their broker gave it to them. Don t make this mistake. Thankfully, unlike stock brokers, many forex brokers do provide you with very adequate charting and trading software, all bundled together. Other aspects to watch for when selecting a broker are the leverage levels and account types (standard and mini accounts) offered. Most brokers offer at least 100:1 leverage which is more than adequate for most traders. Some brokers also offer greater leverage, up to 400:1. This type of leverage is completely unnecessary as the risk reward ratio can quickly go against you if you use excessive leverage. (I ll cover this in more detail later in the report in the question about risk management.) Depending on your account size, you will want to be sure the broker you choose offers the appropriate account types. Standard and mini accounts are typical. The standard account typically requires minimum initial capital of $2,000 or more, while the mini account typically requires $300 or more. Leverage of 100:1 should be available for either a standard or a mini account. What are the best Forex pairs to trade? I believe that not all Forex pairs are suitable for trading. What we should be looking for as traders are liquid markets that have sufficient price movement to make a trade worthwhile. With that in mind, the following pairs are the most widely traded, most liquid pairs and the only ones that I would consider trading: EUR/USD Eurodollar / US dollar Page 12 of 40

13 GBP/USD - British Pound / US dollar (often referred to as the Cable ) USD/JPY - US dollar / Japanese Yen USD/CHF US dollar / Swiss Franc USD/CAD US dollar / Canadian dollar AUD/USD Australian dollar / US dollar?????? And to further simplify Forex trading, you could easily limit your trading to the two most liquid and widely traded pairs, the EUR/USD and the GBP/USD. This really starts to reduce demands on your time for trading activities without giving up good profit potential. What is the best trading platform and charting software for both beginners and more experienced traders alike and where should I obtain the most reliable data? The answer to this question starts with your broker. First, I highly recommend that you only open an account with a registered broker. Having said that, most Forex brokers provide, free of charge, an online trading platform that is integral with decent charting software. So that you have your charting software, your data feed and your trading platform (the ability to place trades online) all in one. I believe you can consider the data reliable and the order execution proper as long as you are dealing with a registered broker. However, some trading platforms and charting software are more intuitive and easier to use than others, so in selecting a broker, you want to open a demo account first and get the feel for that broker s platform to see if it is comfortable for you. You will be able to determine this with a little paper trading over a few days and weeks. Page 13 of 40

14 Also, you want to be sure that your brokers charting software is able to plot the indicators that your trading methods call for. Most will be able to do this, but not all. In addition, some traders prefer to also use additional upscale charting software independent from the dealer, such as offered by MetaTrader. MetaTrader and others offer additional charting capability as well as trade alert capability that some traders find useful. Is it better to use fundamental or technical analysis with Forex trading? The answer to this question depends on your trading method. The markets are indeed moved by fundamentals (balance of trade data, money supply, interest rates, economic and financial reports, etc.) but only through the prism of human psychology. It is not the fundamental data or information that is so important as much as it is the markets reactions to that information. Many advocate trading on the fundamentals; however, a case can be made that trading on the fundamentals is extremely difficult due to the fact that the markets always immediately and continuously are digesting any and all fundamental data and to do this successfully, you need to be available on a real time basis at whatever hour of the day or night that the news is likely to impact the market. Then, you need to act on that news before or at least in the same instant that the rest of the world does or else the opportunity could be lost. While some do trade the fundamentals successfully, I believe using good trading methods based on technical analysis is an easier, less demanding way to trade Page 14 of 40

15 with far greater odds of success. This is because I believe, as do technical traders in general, that any and all fundamentals are already always reflected in the price of the market at any instant and so I would rather apply technical analysis to the markets and trade them on my terms, when I want to trade them and how I want to trade them, with as little time spent in the process as possible. I am not able to dedicate the time it takes to day trade the markets. Is it possible to trade the Forex markets on an end- of- day basis so I can take advantage of the market trends while working my regular job or when sleeping? This is a very common question; because some believe the only way to trade the Forex markets is by day trading the markets, which generally does require a significant time commitment. While, day trading is very widespread in the Forex markets, I believe that a trader can do as well or better with far less time commitment by trading the markets on an end- of- day basis. Of course, in order to do so, you must have good trading methods specifically designed for end- of- day trading. It has often been said that if you cannot make money trading on an end- of- day basis, you will never make money by day trading. And I believe that applies to the Forex markets as well. This is because the time pressure to make instant decisions on order entry, immediate placement of stop orders and setting profit targets is very stressful and demanding of your time. While some traders prefer day trading and are able to handle its rigors and have the time to allocate to it, others prefer end- of- day trading that can be done in as little as 20 minutes a day while the markets are quiet. Let s look at a couple of examples to make this point. Page 15 of 40

16 Figure 2 - EUR/USD Daily Chart Figure 2 is a daily chart of the EUR/USD pair showing a great up move in the market from mid- October to early December. This was about a 900 pip move that occurred in a little over 30 trading days and a good end- of- day trading method should have been able to get on board and capture around 700 pips of this move. With a good end- of- day trading method, it could take less than 20 minutes a day to enter, place stops, manage and exit the trade with very nice profits. Page 16 of 40

17 Figure 3 - EUR/USD 5 Minute Chart Figure 3 is 5 minute chart of the EUR/USD pair showing two great down moves from 7:00AM to 11:00AM September 3. The first down move was for about 21 pips and lasted for 8 bars and the second down move was for about 20 pips and last for 5 bars. A good day trading method should have been able to get on board and capture 12 pips of the first move and 11 pips of the second move. With a good day trading method, it would have taken potentially several hours to capture these two moves. Now you re not always going to get a 900 pip move on the daily charts and you re not always going to get two 20 pip moves in a matter of 4 hours on the 5 minute charts, but I think this example makes the point that the potential gain for the time invested is far greater with end- of- day trading. Page 17 of 40

18 How is it possible to trade the Forex markets on an end- of- day basis using daily bar charts when the markets are always open? Most good charting software and trading platforms provided by a good broker or bank include the ability to plot daily bar charts where the daily bar closes at 5:00PM EST. This time is selected because it is coincident with the New York session close and the Sydney open which is a relatively quiet time in most markets until the Tokyo session begins at 7:00PM EST followed by the London (and Europe) session beginning at 3:00AM EST. We can then use these daily bar charts to develop trading strategies that require only the use of these charts without requiring intraday charts. Figure 4 EUR/USD Daily Chart Figure 4 shows a plot of a daily chart for the EUR/USD pair using VT Trader which is a widely used and representative charting software/trading platform. On this Page 18 of 40

19 chart, each bar represents one day s trading activity from the high price of the day to the low price of the day. The horizontal mark to the left of a daily bar is the open for the day (this is based on the first trade after 5:00PM EST). The horizontal mark to the right of a daily bar is the close for the day (this is based on the last trade as of 5:00PM EST). So, as you can see, daily bar charts are readily available in the 24/7 Forex markets. Also plotted on this chart are a few technical indicators. Two simple moving averages are plotted in blue and red and the ADX indicator is plotted at the bottom in brown. A simple moving average is calculated by adding up the prices for a number of bars and dividing that sum by the same number of bars. Moving averages help to determine the prevailing trends of the market. The ADX indicator is a complex formula that helps to determine the degree of trendiness of a market. These are only a few of the indicators that are available through VT Trader in applying technical analysis. If you look closely at the chart from left to right, you can see that this market was in an uptrend and then later formed a double top before falling into a down trend, only to reverse again into an uptrend at the end of the chart. This type of behavior is typical of what you can expect to see on a daily chart and these shorter term trends can definitely be traded using good end- of- day trading methods. A good end- of- day trading method should be based on an evaluation of the market after the daily bar closes at 5:00PM EST for trade opportunities to be considered after the open of the next bar which occurs as of the first trade after 5:00PM EST. In actual practice, because the markets are relatively quiet during this time, trades for the new daily bar can be placed anywhere from 5:00PM to 7:00PM EST when the Tokyo session begins. Trading in this manner then requires only a few minutes each day at the same time without worrying about an open position if it is properly protected with stops and profit targets. Page 19 of 40

20 Figure 5 - GBP/USD Daily Chart Figure 5, shows a plot of a daily chart for the GBP/USD pair using VT Trader with the same technical indicators as the previous chart. With this software, it is a simple matter to toggle from one pair to the other for quick visual analysis. If you look closely at the chart from left to right again, you can see that this market was chopping sideways until a major move up occurred over a period of more than 20 days and then the market reversed abruptly and retraced that entire gain even faster. After which a new rally started. Again, this type of behavior is typical of what you can expect to see on a daily chart and these shorter term trends can definitely be traded using good end- of- day trading methods. You can also see that if you do not pay close attention to risk management that these abrupt swings could do great damage to your account. Like any endeavor that offers great reward, you must get the proper education and training in order to stay out of trouble and realize that potential. Page 20 of 40

21 What are the attributes of a good Forex trading method? A good trading method should be as simple as possible to provide a powerful edge to the disciplined trader that is based upon specific setup conditions, entry rules, initial stops, and exit strategy. In addition the management of position size and number of positions must be according to strict money management rules. A good trading method also must be relatively easy to follow. Setup conditions These are the specific requirements that must be met to consider a pair for a trade. These requirements are expressed in terms of technical analysis indicators, patterns and price action. The aim here is to only consider a trade when the market sets up for a high probability profit potential trade and to stand aside otherwise. This is one of the ways required to put the odds in your favor. Entry Rules Once the setup conditions are in place, entry rules define the trigger necessary to actually enter into the trade. This usually means that price must behave in a certain way in order to trigger into a trade using either a market, stop, or limit order. Initial Stop Rules These are the rules that govern how a new position should be protected from an adverse move in the market. Since there is always risk when trading the Forex markets, it is very important to know the appropriate place to place the initial stop order. Placed too close to the market risks being stopped out prematurely. Placed too far from the market takes on too much risk. This is one of the most critical aspects of trade management. Effective Initial Stops should be place where you don t expect the market to go and if it does, the premise of the trade is over and you should exit the trade with a small lose. Exit Strategy Rules These rules govern how to manage a trade to exit the trade profitably. These rules should strike a balance between protecting open profits Page 21 of 40

22 as much as possible without risking a premature exit from the market and missing a great market move. What are the best technical indicators to use? At last count there are over 100 technical indicators available in most charting software packages. There is no magic in the indicators themselves as they all strive to tell you something about how the market is behaving at a point in time. And it is not that some are better than others, rather the key to using indicators successfully is to select only a few that complement each other and to use them in an uncommon manner together with powerful trading tactics. The tendency of amateur traders is to over- complicate things. They want to use (or misuse, really) too many indicators and patterns, and think that to be successful, there must be a bunch of complexity that is required in a good trading method. Nothing could be further from the truth. Simple is better, by far, for several reasons. 1. Using too many or the wrong indicators is counterproductive, as the information that those indicators provide is counterintuitive and just plain misleading. 2. Using a few simple indicators in a uniquely powerful way can provide the right information necessary to make good trading decisions. 3. With the right indicators and patterns, you will be far more likely to trade with discipline because you will be able to understand an objective set of rules that the right indicators and patterns can provide. Let me comment on a phenomenon that I see time and time again. Hopefully, you will not fall victim to this. Here it is: You research a new trading method and ultimately buy it. Then you quickly flip ahead to what you consider to be the meat of the method, and totally ignore the more- important aspects of risk management, discipline, and psychology. Then you examine the method, looking for a big, mysterious, jaw- dropping secret that will let you predict each and every market move like a modern- day Nostradamus. You look for a complicated formula, or you look for some cryptic combination of indicators that must be good, because they re just so complicated looking! Wow! Page 22 of 40

23 Then what happens is you ll typically burn yourself out trying to apply it. You ll become frustrated when the method doesn t work. Or, you ll blame yourself for not being smart enough to understand or apply the method. Then you ll put the method on the shelf, only to occasionally glance at it in wonder from time to time. Wondering why you couldn t get what you still assume to be a great method to work. But here s what can also happen. In the example above, after you discover that the meat of the method is very simple, easy to understand, and only uses a few common indicators, you become perplexed. You may even become disappointed. After all, in your mind, you expected some labyrinthine skeleton key that would unlock the mysteries of the forex markets once and for all. You may even be tempted to throw in the towel, instantly give up the method and send it back just because it s not complicated enough. What?! That s just crazy. But I have to admit, I went through a period in my younger (and poorer) days when I thought a bit like that. Time and experience have finally taught me, and much to my relief, that complicated is usually not good, and simple is almost always better. If those traders that are still cursed with that complexity mindset would just try a simple trading method, they would be doing themselves a HUGE favor (not to mention, potentially, their trading accounts). This goes for both true beginners as well as traders who think of themselves as experts. Again, the key here is simple, but powerful. Use just a few indicators, applied in a manner that is not the usual textbook approach. That is what can give you an edge trading the markets. Incidentally, the unfortunate truth of the matter is that that the old 80/20 rule will come into play here (except in trading, it s more like 90/10, or 95/5), and 80 to 95% of the traders that just read this section and nodded their heads in Page 23 of 40

24 agreement will completely ignore this advice and fall right back into the trap described above. It s a near certainty, and that s too bad. So I really urge you to go back and read this section again, and hopefully you can escape the self- sabotaging patterns that are separating most traders from failure and success in the markets. Let s take a look now at some examples of a few indicators that can be used to form the basis of very powerful trading methods. Figure 6 - USD/CHF Daily Chart Figure 6 shows some typical and not so typical indicators applied to the USD/CHF pair using VT Trader. First, notice that two simple moving averages have been plotted on the chart (in blue and red). These are commonly used indicators. I have also plotted moving average envelopes which are a fixed percentage above and below the blue moving average. These are not so commonly used and can be very helpful supporting various quick hit, in and out trading strategies that only need attention once a day at the 5:00PM EST daily close. Page 24 of 40

25 Figure 7 - USD/JPY Daily Chart Figure 7 shows some additional indicators applied to the USD/JPY pair using VT Trader. On this chart, I am applying a longer term moving average in purple together with two very short term moving averages in brown. The long term moving average is based on the closing price while the short term moving averages are based on the high and close respectively. Also, included is the ADX at the bottom of the chart. This is what I mean when I say the key to developing an edge when trading the markets is to combine a few indicators in an uncommon way. Each of these configurations is designed to exploit a certain behavior in the market. But the indicators alone are insufficient; only when combined with powerful trading tactics does the power of a good trading method emerge. Page 25 of 40

26 Figure 8 - USD/CAD Daily Chart Figure 8 shows a configuration we reviewed in an earlier question applied this time to the USD/CAD pair using VT Trader. On this chart I am applying two simple moving averages plotted in blue and red and the ADX indicator plotted at the bottom in brown. This set of indicators when combined with different trading tactics is designed to capture longer term moves in the Forex markets such as occurred on this USD/CAD pair beginning at the left hand side of the chart and continuing for over 5 months. These mega trends can only be captured by trading the daily bar charts. Page 26 of 40

27 Figure 9 - AUD/USD Daily Chart Figure 9 shows another combination of indicators applied to the AUD/USD pair using VT Trader. On this chart, I am applying an intermediate term moving average in red together with slow stochastics and ADX in the two panels below the price chart. The intermediate term moving average is based on the closing price. This set of indicators when combined with different trading tactics is designed to capture sudden trend reversal waves such as occurred on this AUD/USD pair just to the right of the center of the chart and continuing for almost 3 months. What simple strategy can I use to find good entry points? The general approach that I use is to develop specific setup conditions that, when present in the market, indicate that I should consider entering into a new position. So the first thing is to identify the conditions that occur relatively Page 27 of 40

28 infrequently in the market, but that when they do, a high probability opportunity awaits. This is a very important concept, because one of the keys to successful Forex trading is to wait patiently for the prime opportunity to enter the market. Amateurs too often become impatient and want to trade just for the sake of trading and consequently enter the market under other than ideal conditions. This greatly reduces the chance of a successful trade. Figure 10 - GBP/USD Daily Chart Entry Point Examples Amateur traders that do this are, in effect, trying to force the market to come to them on their terms. Guess what? The market doesn t care! It s going to do what it s going to do and there is nothing you can do about it except for one thing. And that is to wait for the market to develop according to predefined setup conditions and only when that happens is it appropriate to consider a trade. In that way, you re not forcing, but rather waiting for the market to come to you, which makes a world of difference. Another key concept to find entry points that is common to most types of trend trading is to attempt to buy into support levels and sell into resistance levels. The Page 28 of 40

29 success or failure of this attempt lies in the robustness of the setup conditions defined in the trading method. Once the setup conditions are in place, specific entry rules need to be followed to trigger the actual trade. For example, one of the pairs that you are following may meet the setup conditions for a long trade. Now, depending on the trading method, the entry order could be a Stop order that says, Only buy if the market trades above a certain level which confirms the resumption of the uptrend. Or, it could be a Limit order which says, Buy only if the market trades down to a support level, defined by a moving average or Fibonacci level or old highs, etc. There is no one right way to do this. However, the precise entry trigger point has to be integral to the other features of the overall trading method, including planned risk in the trade. The entry point rules of the method, by necessity, will determine the stop loss point and consequently planned risk in the trade. The two go hand in hand. How can I determine the initial stop loss, trailing stops, and exit points? Besides money/risk management, I believe this is one of the most important questions regarding a good trading method. It should go without saying that as soon as you enter the market with a new position, an initial stop order should be entered to protect the position against an adverse move in the market or an exit strategy should be employed to cover the trade if the market closes adversely. If such a move occurs, as is often the case, you want your position liquidated and out of the market with a minimal loss. The consequences of failing to do this are that you will not be successful at trading - period. In fact, every trade you put on, you should plan to lose, so that you are sure to place your stop loss order or cover the trade on an adverse close. Otherwise, what would have been a small loss turns into a big loss, throwing the entire risk/reward ratio out of kilter against you. That being said, where should the stop be placed? The short answer is, Where you don t expect the market to go ; or, more specifically, where the assumption in putting on the trade is no longer valid. For example, if a long position was entered into after an uptrend or breakout market traded back down to support, an initial stop could be entered below the recent low because if the market does Page 29 of 40

30 go there, support (as defined by that low) would have failed, and there is no longer any reason to be long the market so get out! Don t wait around for it to come back in your favor because the odds are against it. If the market goes in your favor once the initial stop is in place, then you need a set of rules that will allow you to exit the market profitably. This poses a real dilemma. If you exit too soon, you will secure a small profit, but miss out on all those big moves that occur (and the big profits that go with them). On the other hand, if you wait too long to exit, the market may reverse and take away all of your open profits and even put you into a loss position. Figure 11 - GBP/USD Daily Chart Initial Stop, Trailing Stops, & Profit Target Examples So what do you do? Well, the first thing is to realize that there is no method that can forecast whether or not a particular move will: Go against you immediately Go up only a little before going back down Go up a lot in your favor Page 30 of 40

31 For example, after you enter a long trade in an uptrend, there s absolutely no way to predict what will happen next (contrary to what the so- called gurus tell you). Because of this, you absolutely need an exit strategy that is effective for all outcomes. The Optimal Profit Exit Strategy The following is the very best exit strategy that I believe possible when trading the Forex markets on an end- of- day basis. I call it the Optimal Profit Exit Strategy. It s a strategy that scales out of a trade in two steps. This strategy is first and foremost about taking an initial profit as soon as appropriate, thereby taking some money off the table and reducing the risk in the trade at the same time. 1. Step one is to cover 1/2 of your position at a specific profit target. The profit target is modest, but enough to make the trade worthwhile and the specific level is also dependent on the overall method being used. Once that initial profit target is hit, you should move the initial stop up for the remaining 1/2 of the position to the lowest low of the past 3 days for an uptrend trade or the highest high of the past 3 days for a downtrend trade. You re now out of 1/2 of the trade with a very nice profit and at the same time you are prepared to ride the market as far as it wants to go in your favor for the remaining 1/2 of your position. 2. The remaining 1/2 position is then protected by the trailing stop always based on the lowest low of the past 3 days (for an uptrend trade). And so as the market continues to move up, you should continuously move the stop up with it. This locks in a significant portion of the remaining open profit but also gives the market enough room to trade down a bit without shaking you out of the trade before it heads even higher. With this strategy, you are prepared to take advantage of the market after entering a trade no matter what it does. And that s a big deal. Page 31 of 40

32 How can I find a Forex method that works almost all of the time with minimal or no losses? I call this the Holy Grail Syndrome and, of course, the Holy Grail of trading simply does not exist. I ve talked about this concept many times since I started training individuals to trade the markets back in 2001, but it bears repeating here. For years, I refused to believe in this concept and was forever looking for or trying to develop a method that would always win with no losses, or certainly never experience two losing trades in a row. I wasted years of my life with this false impression about what it would take to trade successfully. Don t fall into the same trap. While the holy grail of trading does not exist, nor will it ever; thankfully, it is not necessary in order to be successful. What is necessary as I have emphasized repeatedly in this report is a trading method that gives you an edge in the market, the discipline to trade it and of course sound money management. That sounds simple, and in some respects it is, until you factor us humans into the equation. Consider these questions. 1. Do you have an edge in trading the markets? What is it? If you don t know, then you do not have an edge. 2. How about discipline - can you really follow your trading method without fail, especially after two successive losing trades? What about three? Or will you drop the method and search for something else? When that happens the Holy Grail Syndrome is at work. 3. Then there is money management. Are you allocating the appropriate level of funds and controlling the degree of risk on each trade? Page 32 of 40

33 The reason most traders lose is that they cannot answer Yes to all three questions listed above. And I believe that the key to mustering the discipline needed to be a winner is to have a method that does indeed provide a winning edge, that is relatively simple to apply, and that uses sound money management practices. Only then, in my opinion, can one muster the required discipline to trade effectively. So do yourself a favor and abandon the search for the Holy Grail. Instead, find a good trading method that fits with your personality, apply sound money management practices, and trade it with discipline. How can I minimize downside risk while still capturing quality gains in the Forex markets? First, you must have a good trading method. But even more importantly, you must have strict money management rules; without them, even a good trading method will eventually fail. I have found that in order to be effective with risk management, you must have rules that are simple or else you simply won t follow them. For example, one risk management method is called Optimal- f. While Optimal- f has a lot going it for it, I believe it is too complicated to be of practical use. Instead I believe the best approach is as follows: Simply risk no more than 2% of your account size on any one position and no more than 8% of your account size on all open positions at a point in time. Risk in this case means the amount you plan to lose if the trade(s) goes against you. So, as your account size grows, you would be able to place larger and larger positions. When you have a losing trade or two, you would be reducing the amount risked and therefore the position size on the next trade. So this is a very simple self regulating concept that keeps your positions in proper alignment with your account size at all times. This is particularly important in Forex trading, given the tremendous leverage offered by the brokers. The last thing you want to do is to over commit to a trade just because of the broker s low margin requirements. By the way, I believe that most Forex traders that end up on the losing end do so because of poor risk management more than any other factor. Let s look at an example. Suppose you open an account and don t understand the importance of risk management. You elect to risk 30% of the initial account Page 33 of 40

34 size on each trade (because the broker s margin requirements allow it) and then promptly lose three trades in a row. Your account would be almost completely wiped out after only three trades. On the other hand, let s say you understand the importance of risk management and risk only 2% of the account size on each trade. Now let s say once again you lose three trades in a row. This time you would have lost less than 6% of your initial account size and still have plenty of capital left for additional trades where one good profitable trade could more than offset the three losers. You might say that this is an extreme example, but I think it makes the case; when you trade with proper risk management rules, you stay in the game. What account size do I need to trade the Forex markets? There is no one right answer to that question. However, Forex brokers allow you to trade standard lots and mini lots. The margin (depending on the pair you are trading) for a standard lot is around $1,000 and for a mini lot around $100. So technically, you could open an account with, say, $500 and trade 5 mini lots. Of course, you would be violating your risk management rules and would probably end up losing your stake. The key, once again, is to risk no more than 2% of your account size on any one trade and so if you were to put on 1 mini lot and risk 50 pips, that would be about $50 of risk in the trade (for a US dollar counter currency pair). That means you would have to have an account size of at least $2,500 ($2,500 x 2% = $50) to put that trade on without violating the risk management rules. Page 34 of 40

35 Forex freedom in just 20 minutes a day? As I said before, I ve been teaching thousands of folks just like you how to trade the markets since Back then, there was a TON of trading information online (and offline, for that matter). And today, this information seems to have multiplied exponentially. So where do you begin? Well, trading is very personal business and I ve always maintained that you need to trade with a method that fits your emotions, trading style, and personal lifestyle. But what are we all really trying to achieve? Honestly. It s not a digital trading account padded with a bunch of zeros is it? Sure, we all want to make a profit (a BIG profit, right?), but what we ultimately want is what that money can do for us. There s something to be said about lifestyle, and you need to ask yourself a very personal question. What s the right mix of trading and non- trading activity for you? When it comes to balancing this, I think I ve been through it all. In my early days, when I was killing myself to capture profits day trading, my life outside trading suffered and took some big bruises. I remember at least a few times where I would be in a very critical meeting at my day job, where my focus was needed 100% to truly be effective, but my mind would wander to that open trade I had just placed an hour earlier. So not only did my effectiveness at work suffer, but my trade did, too. And there was also a stretch of time when I d get home from a long day of work, see my wife and kids at dinner and then disappear into my trading lair with a pot of black coffee, as my wife put the kids to bed and fell asleep without me. These are some the events that drove me to discover trading methods that only required no more than 20 minutes a night to apply. And when I began sharing them with the world in 2001, I found out I was not alone. There were hundreds of thousands of traders out there who felt just like me. However, that s just my experience, and my story. You need to look at your story and decide what s right for you. You may love staring at charts for hours on end all day long. If that s you, I really hope it works out for you. All I know is that s not for me. But however you decide to trade the Forex markets (or any markets), you need to do one of two things to be successful based on my experience: Page 35 of 40

36 1. Dedicate years of your life to test, experiment, tweak, try, invent, etc. a good trading method on your own. 2. Invest in a good trading method developed by someone who s already gone through everything described in item 1 above. Way back in the 1970 s, I didn t understand this, so I chose option one. It took me years to finally come up with the core trading concepts that I know to be true and effective. The funny thing is, I ran into a handful of great trading methods that, had I had the right mindset and understood the concepts I talk about in this report, I probably would have avoided years of losses and frustration. All I know is that if I had a time machine, I d go back in time to 1974 and slap my younger self in the face and say, Don t even think about it. Good methods already exist. Find them, and trade them. I d also give myself a copy of this report! So, some traders whine and complain about spending money to learn how to trade. Or they moan about having to subscribe to a monthly data feed service for good trading data. I just don t get it! Trading is a serious business. In the broader picture, I believe spending money on trading education or on charting software is an absolute necessity for quickly reaching your trading goals (and thankfully, with Forex trading, most brokers will give you great software for free). Sure, you can go to the library or read every free article you can find online. I look at it this way. You re going to spend the money one way or another learning how to trade; either in losing trades over time, or upfront in good trading education. Let me be clear. This report is not a trading method. It s merely a collection of questions and answers. Yes, I believe it contains some very good information that can be used with any trading method on the market, whether it s your own or Page 36 of 40

37 someone else s. But this information is only one piece of the larger trading puzzle. Personally, if I can learn just one new insight or one new nugget of information when I m evaluating a new trading method, then whatever time or money I invested in it was totally worth it to me. And as you become a more experienced Forex trader, you ll see some of the same concepts covered again and again in various trading methods and courses. But that s OK! Remember what I said about simplicity. You don t need an overly- complex method to be successful. If you learn just one new technique, or if you see a familiar concept rephrased in a way that creates new clarity for you, then your time and investment in that method should have been well worth it. This is making gradual improvements to your trading success over time, and it s something I believe all of us as traders should strive for. Why Are You Interested In Forex? As you re digesting and assimilating all the information in this report, I want you to think about the underlying, core reasons why you re actually interested in trading the Forex markets. For most traders, it s because you want to improve or change something that s not working for you. So, to help you out, please take a few minutes and complete this short activity. I think you ll find that it will help you clarify where you are, where you want to go, and what it s going to take to get there. If you haven t already done so, I highly recommend you print this entire report out so you can actually write on it and fill in your answers to these questions. I ve found by doing it that way, this exercise will be much more effective for you. (By the way, if you re an analytical person like I am, you might find this activity a little weird or uncomfortable I know I did! But trust me, it forces you to think about what you really want in life, and the first time I did this activity, it was very profound for me. So if you re feeling a little resistance, go ahead and smash through it and commit to taking the first step to creating the future you want RIGHT NOW.) Page 37 of 40

38 1. What is your ultimate dream? This can be anything you want (for example, retiring early, traveling the world, sending your kids to college, starting your own charity, etc). Describe as if you already have and are currently experiencing it right now (for example, I retired at age 40 and am currently on a world travel tour with my wife. So far, we ve visited Italy, Spain, and Portugal, and have 8 more cities to visit this year. ) 2. What does your dream look like? Describe it in as much detail as possible. (Continuing with the example above, My wife and I are healthy and happy as we effortlessly travel first class from country to country. A private limousine picks us up at each airport we land at whisks us off to the next 5- star hotel. ) 3. What does your dream feel like? Again, use as much detail as you can. (For example, It feels so good to be free and to be close to my family. The stress and strain I used to wake up with when I struggled to make ends meet is now gone. I feel totally relaxed and in control for the first time in my life. ) Page 38 of 40

39 4. Write down 5 compelling reasons why you MUST transform this dream into reality. (For example, My kids are getting older, and I MUST spend more free time with them before they grow up and move away. ) 1) 2) 3) 4) 5) 5. Finally, write down 5 things that MUST CHANGE in order for you to achieve your dream. (For example, I MUST dedicate at least 20 minutes every day to studying successful Forex mentors, or I MUST find a good trading method I can rely on so I can have confidence in placing trades.) 1) 2) 3) 4) 5) Page 39 of 40

40 Now, save these pages and keep them somewhere where they can be reviewed every day. Even though I did this a few years ago, I still keep my answers next to my trading computer. It inspires me to stay focused and on target, and I hope this helps you do the same. Forex Survey Summary It was a lot of fun going through all the questions I got from conducting this survey on Forex trading. We all think we have unique problems and questions, but every time I do a survey I m reminded that we re not so different after all. Remember to go back and re- read these questions and answers at least a few times. Something that you missed the first time through will undoubtedly jump out at you in subsequent readings. Also remember that the Forex markets are not magical or mysterious. They re just markets. Period. And you can potentially pull profits out of the Forex markets just like with any other market. So with a good Forex trading method in hand, you should be well positioned to add Forex trading to your own personal trading toolkit. I d like to thank everyone who took the time to send me their top questions. In doing so, you helped a lot of traders who will read this report. And I hope you got at least one useful nugget of information about Forex trading. Remember, you are not alone in your quest to successfully trade the markets as always, I am here to help you. Good Trading, Bill Poulos Page 40 of 40