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

34 Level 2: SEIZE THE HIGH GROUND, Forex Art of War In addition I said to know your current objectives, and part of being vigilant is being conscious that you are going to have emotional ups and downs for a long time to come. This is all natural. The trick is to make the right decision regardless of how you feel. That s part of what is means to be vigilant. Okay on to the next important element of preparation. There is no trading plan in Level 2. There is in every other level. But not in level 2. There is a plan, but it is not a trading plan. There is a very important reason you want to do it in this way. One of the most frequent mistakes made by Forex traders is that they try to copy someone else. In another section, I m going to show you how silly this is. But for now, I want to just expose you to the idea that your brain processes information differently from every other person. You could stand behind a great hitter and try to emulate everything he does OR you could learn the logic (behavior) common to all great hitters, copy the logic, and then improve on how YOU do it. There is a common proximity to the plate. Common position of the hands on the bat. A common direction the eyes are looking. The knees slightly bent are also a common behavior. And we could look at all that they have in common, and it is this that we would practice. If we have a coach, or the help of our fellow players (our trading community), when we swing, others can give us feedback on how we can improve. Just so you know, I have a mentor I meet with regularly, who is an expert in the field of psychology. I tell him what I am experiencing, what I m doing, and he gives me feedback. I always sought the guidance of mentors who could share powerful ideas about me. That s a little different. In that scenario, they were teaching me ideas. With my current mentoring, it is about how I am applying the information. It s about my application of the ideas, in addition to the ideas. That is built into the community. The best advice I can give you? Be authentic. Be willing to fail in front of others. It s not actually failure, after all. Your ability IS WHAT IT IS. If you can accept that, you will post what you are actually doing in real time, and you will receive the best feedback. I d love to spend more time on that subject, but I ll move on. There is another trap that traders fall into. It doesn t take much at all to find yourself in the wrong mindset. What am I talking about? I m talking about the mistake of imagining that if I just know enough about the market, I will succeed. Again, this is the introduction, so I want to be brief and say that there is a great preoccupation with knowledge. Let me turn the lights on in this way: who do you think would be able to hit a baseball better? 1. Someone who studied one hundred books on hitting a baseball and practiced for one hour? 2. Someone who studied one book and 33

35 Level 2: SEIZE THE HIGH GROUND, Forex Art of War practiced for 100 hours? The answer is pretty obvious in those terms, is it not? And yet 90% of the traders you will see out there in the world are focused on knowledge, not experience. I ll touch on why this is happening in a future section. Always remember that the mind can only think in symbols. So just about all mind function we are accustomed to using is imaginary. Only your experience is real. Back to our subject There is no trading plan in level 2. Just like in the example of emulating the common behavior of all baseball players, that is what you are going to do in level 2. I m going to give you the complete logic. Then you are going to do your best to apply that logic. But it goes without saying that YOU are going to be applying the logic, and not a single trader is going to do it in the same way. There are no right or wrong answers. There is just what you know now, what you can do now, and what you need to learn or do next. I often tell people that the difference between what I do and just about every other Forex training in the world is simple: just about everything else is education. Education is you watching me. Training/coaching is me watching you. Take a moment and think about real life examples of this and you will see quickly that this is true. So the community aspect of this program IS your most valuable tool. Now let s introduce you to what you will be learning. When I trade, I see only a few of things, really. The buyers or sellers have an advantage. I can measure the strength of that advantage. I can see how I can get in and out of the trade with good risk management. Like writing a beautiful song, before you can get there, you first have to learn the alphabet, the rules of language, which words symbolize your intent best, and so on. But eventually, you will become an unconscious competent. But you have to learn to walk before you can run, as they say. In the early parts of level 2, I will be discussing the ideas behind our decisions, such as logic and probabilities. Then I will move towards high probability trading piece by piece. In level 1, I gave you simple rules for using the Fibonacci. In level 2, I will give you specific rules for using this tool with greater accuracy, and in such a way that will enable you to measure buyer and seller strength and weakness. You will learn the complete logic for making good trading decisions, and you will be applying that knowledge in such a way that it is personalized to you from the very beginning. And finally, I ll show you exactly what to do to optimize your experience by applying what you have learned and getting feedback from the community. That s a small sample of what you are going to learn. Do not try to master trading in Level 2. Try to master carrying out the level 2 objectives and the rest will follow. 34

36 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Level 2 Objectives Study this course material Focus only on applying complete logic by taking trades in your forum Look for feedback on your trade Ask questions when they arise. Be patient Focus on the process, not the end result If you go through the information once or twice and are still uncertain, let me assure you that an imperfect effort today is always more valuable than a more perfect effort tomorrow. That means you are better off just taking a swing and getting feedback than you are studying. The Goal of Level 2 The goal of level 2 is for YOU to SEE a setup consistently that represents the application of complete logic. You might have 90% of it, but continue to make a mistake here and there. Perhaps you didn t quite understand ROA. Maybe you aren t quite getting what a trend advance really is. Perhaps you are not seeing the New Waves well yet. It s better not to rush. Once you get all of that down and see the trading setups that contain the complete logic, it will be apparent in your most recent 4-8 trades. When that happens, others in the community will tell you. When that happens, it is time for you to move to level 3. I suggest that you don t jump ahead. I have designed this course specifically so that you can learn at your current level of ability and understanding, and at your own pace. I wish you the very best on your journey in level 2. I can tell you with confidence that the ideas you are about to learn are powerful. Everything I teach you, I teach you from experience. You can do this. Just keep in mind that the way our results affect us in Forex trading is different from ordinary life. In the end, the most difficult part is dealing with how we feel. To help with this, I suggest abandoning language that triggers emotion. Instead of calling it a win or a loss, just say it hit your target or stop loss. Try not to celebrate your wins or mourn your losses. You will feel something, and accept that. Just allow it to be and continue on to the next setup. Now, let s get started with high probability trading. Let s do this on a higher, more effective level of consciousness. Get ready to part ways with superstition and things you don t understand. Let s begin using the best information possible in order to make our decisions. 35

37 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 1: Logic, Probabilities, Risk Probabilities Understanding probabilities and how to use them are crucial to trading success. When I say probability, I m referring to your ability to calculate the likelihood of an event in the future. If you think this might be difficult, consider that you do this all day long, every day, usually without even thinking about it. When you are approaching an intersection in your car, and the light turns yellow, you begin calculating probabilities without even thinking about it. It goes something like this: You look at the distance you need to travel to get to the other side of the intersection. You take into consideration your speed and the distance to get to the other side. In less than one second, you determine if it s probably a good idea to continue forward, or to step on the brakes. If you are inexperienced, you have a third option (lol) to step on the gas. So you are doing this all of the time. Now I am going to tell you something very important about the mindset and worldview of a trader. An experienced trader knows that he/she has no idea what s going to happen in the next five minutes or five seconds. Why? Because the next moment in time is nothing but a probability for us. In ordinary life, it usually feels like we know what is going to happen five seconds from now, but a trader has come to see and understand that there s no way to be certain of what s about to happen. It s just a probability based on your past experience. The reason why this is critically important to understand is because in ordinary life, we make assumptions all of the time without realizing how often our assumptions are incorrect. I m going to suggest to you that about 50% of the time, our assumptions are incorrect. Why are we so bad at this? The simple answer is that we aren t often held accountable for our assumptions. Therefore there are no consequences, and no incentive to learn from the mistake. In addition, poor assumptions create poor expectations, and poor expectations create all kinds of psychological issues which distort how we see and understand our relationship to the information being presented to us. So try to imagine that you are seeing the future as it is. It is totally uncertain. That can be a little uncomfortable if you are new to the idea, but it is the way life really is. Try to imagine having no expectations. So now you are approaching the next moment totally with an open mind. 36

38 Level 2: SEIZE THE HIGH GROUND, Forex Art of War It s important that we get into the habit of thinking about the future as a probability. It s uncertain, and that s okay. From this point of view, we can then use simple logic to put the probabilities of winning in our favor. As I said, you are assessing probabilities all of the time. In fact, you mastered this a long time ago. You use your past experience to form the best conclusions about what you should do and anticipate what is going to happen next. That s what we do in Forex trading. If you are new, you don t have much trading experience. But the good news is that there s a record of past experience of the market that you can draw upon to know what has happened in the past. As you have already seen in the previous section of this book, as traders we use charts. What are charts, really? The charts are buyer and seller orders that show up in the form of pattern. As patterns form over time, the behavior of the buyers and sellers is revealed. Some behaviors repeat more often than others. And it is this information which enables us to anticipate what will happen in the future. It s how you do it in ordinary life, and it s how we do it as traders. We just need information about what has happened in the past. Can we rely on past information? ABSOLUTELY! This is all possible because HUMAN BEINGS REPEAT THE SAME BEHAVIORS OVER AND OVER AGAIN. In fact, we re such creatures of habit that even when we make a conscious effort to change any behavior, we find it difficult to do. Just think about the last time you made a New Year s resolution, are attempted to changing eating or exercise habits. But this tendency for human beings to repeat past behavior is good news for us as traders. You can be confident that people will continue to repeat the same behaviors over and over again. In fact, they can t stop themselves. Any meaningful change takes a very long time or is usually contingent upon some kind of catastrophe. It s not too early to let you know that my goal in level 2 is to guide you to patterns that repeat with enough regularity that they will keep your winning potential above 70%. Once you have the complete logic down, you will be able to go back in time and confirm that this is an accurate assessment of history. But don t do this the other way around. Don t formulate a trading strategy based on back testing (how many traders fail). 37

39 Level 2: SEIZE THE HIGH GROUND, Forex Art of War In other words, wait until you have your setup with complete logic, and THEN go back and validate that it is correct. Back test to validate. You cannot back test to create. It would require a lot of writing on my part to explain why this is. As my friends would tell you, I would love to write it, and it would be no effort at all. But to keep this brief and on point, I ll just let you learn that it time, from experience. I m going to teach you patterns that are reliable. If you were here for the past 11 years like me, you would know this to be true. But even if you are completely new, what I m going to show you is so full of common sense (can be confirmed by prior life experience), that it will be very easy to accept. The main point is this: you can rely on what I am showing you. In time, you will know this. Why? Because you will see the patterns repeating over and over again in your own experience. Usually, when we are new to trading, when we think about winning, we think about choosing the right direction that price will go - perhaps choosing the right direction without price hitting our stop loss before it reaches our profit target. But having this focus tends to keep us preoccupied with those two issues. So we end up spending most of our time trying to anticipate price direction and read barriers well enough to give our stop loss enough room. But your actual probability of winning a trade involves more parts. The probability of winning is determined by all of the parts, working in a relationship with one another, as I m going to show you. How do we know which direction price is likely to move? A pattern. How do we know the potential the movement has? A pattern. You get the idea. What creates these patterns? Simple: Repetitive human behavior. We are so predictable that we might blush is someone skilled pointed this out to us. Consider that in everyday life, you are actually being taken advantage of by businesses like grocery stores. I could show you many ways this is going on. For example, it s conventional wisdom that if you buy a bigger package (bulk), you get a better price. However if you look closely at the price of flour, you notice that some of the bigger packages are more expensive (2 lb. vs. 1 lb.) Why? Because computer algorithms monitor your buying habits. They pick prices up a bit to see if there is a change in behavior. If there is not, they bump prices up again. This process revealed that they can charge more for the bigger package of flour than the smaller. 38

40 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Why? Because you assume the bigger package is cheaper, equating greater quantity with greater value. And really this is happening everywhere now. They also know that if they give you three prices to choose from. A low price, a high price, and one in the middle; if this is not a special occasion, you are going to choose the middle price. If you are pressed for cash, you will choose the lower price. We have gotten into such of a habit of buying the middle price, that now, very often, quality and middle price might not equate at all. You might be getting the bottom shelf product at the middle shelf price. They try it. If you keep buying it, they just keep it there and keep banking the additional profits. It is well known that convenience stores charge more, because they are more convenient than going into the grocery store. But the major chains are in the game, too, with a new angle. I was in a chain hardware store some time back. I was there to buy light bulbs. The first section I came to had all types of light bulbs. I can say that looking at the prices, I wondered where the bargains were. They are all quite expensive. I was curious and went a little farther down the aisle. I found almost a duplicate set of lightbulbs at better prices. You see, the chains have figured out how to use your past behavior to make more money. They use the idea of convenience and have two displays. One for the first light bulbs you come to, and then another display for the more conscientious shopper. Even the price you pay for many products is determined by your behavior. But specifically, that s why you see prices that vary by up to 40 cents per gallon in different parts of the same exact city. Their goal is to maximize what they can charge, based on your behavior. If there is a sharp drop, they lower prices to restore demand and then they go through the cycle of inching the prices up again. And somehow, the prices rarely get back to the former low I could go on with many examples of how businesses are capitalizing on your behavior. I m telling you all of this because when it comes to price, I want you to know that you can totally rely on past information (human behavior) to anticipate what is likely to happen in the future. Again, when you look at charts, you are not really looking at candles. What you are really looking at are symbols that represent human behavior. I don t really see candles anymore. I just see behavior, and that is why I call this approach Price Logic Trading. It s because we are focused on the behavior, not the symbols of behavior. Let me give you a real life example of the difference. Perhaps someone was taught that if they walk under a ladder, it is seven years of bad luck. You are conscious that there is a ladder. You are conscious that you should not walk under 39

41 Level 2: SEIZE THE HIGH GROUND, Forex Art of War it. But you are not conscious of the real reason why. The real intent of this story is to teach you very fast not to walk under ladders when someone is standing up high on one, because you could knock the ladder over and injure the person. But as someone who is superstitious, you lack the understanding of why you are making these choices. And this is what Forex traders are like that learn and trade systems. The system is akin superstition. It s easy to check and see if this is the case simply by asking the trader to explain what they see. Now that s not to say that you cannot be successful trading systems. The truth is that systems just have a lower win/loss ratio. Too low for an inexperienced trader. I ll explain later why you will be disabled psychologically if your winning percentage is too low. The reason why systems have a lower win/loss ratio is that they are often rigid and unable to account for hourly, daily, or even weekly or monthly changes in market conditions. I m not attempting to teach you a great insight here. I just want to make a small crack in conventional thinking. I want you to be thinking about using the absolute best information possible to make your decisions. I want you to avoid walking under a ladder because it is dangerous for the person standing on it, not because you might get seven years of bad luck. Let s focus more on probabilities. You know that a coin has two sides: heads and tails. So on a coin flip, our probability of guessing whether it will land on heads or tails is 50%. This, by the way is how we define gambling. My personal opinion is that if your probability of winning is 50% or less, and you have poor risk management, you are gambling. After all, if the odds are not in your favor, why are you taking the risk in the first place? Psychologically, the bigger the risk and the bigger the potential reward, the more exciting it is; hence the allure of gambling. Good decisions involve taking calculated risk when the probabilities of winning are in your favor. Of course winning is only one part of the formula for making consistent profit. You also have to manage risk and be able to execute. But let s take this one step at a time. It s fascinating when you think about it. I can show you how to turn a 65% probability setup into an 80% setup. And this is an opportunity to point out an important principle. You will find that when you increase something in one area, it must decrease in another. Specifically, let s use the example above. If the trade is a 65% probability, I can do two simple things to increase the probability of winning. I can increase the size of the stop loss and decrease the distance price must travel to the target. So my wins get smaller and my losses get bigger. This will immediately change the probability of the outcome. But what do 40

42 Level 2: SEIZE THE HIGH GROUND, Forex Art of War I give up? I give up profit if my losses are too big and my wins are too small. We ll be discussing this in future parts. Let me give you another example. Let s say I am intending to buy as price pulls back to an area. I set my stop, my entry and my target prices. I look at that trade using my experience and say to you: that has a 65% chance of winning (how do I know? A lot of experience). We can improve your probability of winning by lowering the entry price and the target. Here s that principle again. Since you increased your probability of winning, you have to give up something. What is it? You must give up trade frequency. In other words, if you are going to wait for a better price in order to increase your probability of winning, then you will also need to be okay if price doesn t pull back to your entry and just leaves without you. So let s review some of the important ideas covered in this section. Logic You are already a Pro at calculating probabilities We are able to put the odds in our favor using history History is created on the charts in the form of patterns Those patterns are created by the repetitive behavior of PEOPLE You can rely on this information We ve been talking about logic all along in the previous section, but here I wanted to give logic its own section to get very specific about the definition we will be using. Since there are many different definitions, let me just give you my definition and explain it. The logic we use comes directly from the most repeated human behavior. So if I show you a pattern on the chart that repeats 80% of the time, we would consider that GREAT logic on which to build your decision. Now there are many parts to a trading decision, as we shall see. All of they should be based in good or great logic. Good logic to me is 70% or higher. Great logic is 80% or higher. Some of you might be wondering: how high of a probability of winning can one achieve? Well quite high, actually. In fact, a master trader once told me that if he used only the best of criteria for his trades, the previous year, he would have won every single trade. Note that he would have. He didn t actually take them. But the catch was this: there were only four. And again, they were looked at in hindsight. You cannot rely on anything being 100% when it comes to probabilities. But it is not out of the question that you could achieve 90% with a lot of experience. 41

43 Level 2: SEIZE THE HIGH GROUND, Forex Art of War But as you might guess, to achieve that gain you must give up something. And what you give up is frequency. In essence, you will use more criteria and only wait for the best of circumstances when every factor considered is great logic. And because of this, you won t have very many trading opportunities. So as we shall see, there is always a BALANCE to be achieved between the variables involved in trading decisions, and even your personality plays an important role. What I m going to say next is very important: logic comes from us observing repetitive human behavior, and every single part of the decision has logic associated with it. The time of day, the currency pair, the stop price, the entry price, the target price. Even your experience level has a value of logic to it. If you are new and inexperienced, we MUST balance out that trading factor using even better criteria for the complete setup. It s just logical, is it not (lol)? As you continue forward, try to be mindful that candles, candle patterns, and chart patterns are symbols of behavior, no different from words. If you do this long enough, I ll put a crack in the symbolic reality, and you will see the real human behavior behind it. Eventually you will see resistance and support as just obvious areas where sellers or buyers might have their orders parked. If you understood that last sentence, congratulations. If you didn t understand the sentence, no worries, it will come with time. But the difference is that if you don t understand it, your reality (what you see, the information you use) is based on more crude symbolism. If you do understand it, you are closer to observing the underlying logic (behavior). Why would we know that there are likely to be orders there? There are almost always orders sitting at obvious barriers. In many ways, it is a self-fulfilling prophesy. But now or one day, you will stop seeing candles and patterns, and you will instead just see the repetitive behavior. Supply, demand, support, resistance all obvious areas where there are orders parked. Why? There are almost always orders parked near an obvious barrier. Some are stops to close out trades, and some are new positions. Probabilities? Our probability of winning is determined by our ability to see and apply good, complete logic. I have been using the word complete. I would like to now change to a better symbol. From here forward, I will use the word holistic. I tend to think of holistic as all of the parts. Just so you know, the greatest advantage Sun Tzu had over his enemies was simple: He had a holistic approach. He said that it took six months to plan a single battle. He took six months to consider every factor that would affect the outcome of any battle. 42

44 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Risk I want to touch on risk in this section. One of the challenges to learning and teaching is making sure that we understand one another (as best we can). Risk, like other words in English is a word that is spelled the same, but often used to describe very different ideas. Knowing the definitions of some of them will help you have a quicker understanding of what we mean when we speak. Sometimes we use the word RISK to describe the risk of our capital at any given moment in time. We call this risk to equity, which we will be covering later. To a certain extent, there is catastrophic risk to capital. This is if something unexpected and unprecedented happens in the market, usually. But you can also be at catastrophic risk of capital if you trade without a stop loss (a no no ), or if you trade without discipline (in a live account). The word RISK is also used in this way. It felt risky. This is a form of what we actually call risk tolerance. It s how circumstances (more equity, uncertain circumstances) make us feel more at risk. For me, risk tolerance refers specifically to the moment your feelings interfere with your execution, causing a change in behavior. Risk is also used to symbolize Risk to Reward. This is the relationship between the percentage that you may lose, and the percentage you may gain. This is a very important concept, but here I just want you to know that it is another way the word risk is used. There is another way we use the word risk, and I wanted to bring your attention to this here: The risk was higher because the setup came just before the release of non-farm employment data. This use of the word RISK is symbolizing a factor that lowers your probability of winning. We could just as easily say that the probability of winning is lower. It s the same thing as saying that the risk is higher. In this context, saying the probability is lower is probably a better way to communicate. But as an instructor, there are some ideas that people just won t let go of, and you just have to accept it. For example, you will notice that we write the words risk to reward with the word risk appearing first in the term. But when we actually write the numbers, it is reversed..75:1 is showing a reward of.75 but a risk of 1. And I could give you a number of examples. I tried, for example to get traders to refer to the GBP/JPY as the GJ. Why? Because it is the first letter of each of the three. But they thought of it as the Great British Pound vs. the Yen. So Great/Yen or GY. Oh well. Pick your battles, lol. No sense in arguing for this, since it really doesn t matter. 43

45 Level 2: SEIZE THE HIGH GROUND, Forex Art of War But on topic, if we see price coming into an area of resistance, if everything else looks good, I might say, the barrier increases the risk, so you need to get in at a better price. As you can see, learning to trade Forex can be tricky. Do you understand what I actually said? The only way to know is to check. And that, again emphasizes the importance of the community. On that note, you will notice that as you practice techniques and the application of logic, when you get feedback and get it right, your confidence will grow. This is important. Most traders out in the world don t have that. Since they don t get much feedback, the only way to gain any confidence is to trade with consistent success. That s a long time to go without building any confidence. So take that to heart. Beginner Trading Psychology I get asked all of the time which books I would recommend. Hands down, I would suggest The Four Agreements, by Don Miguel Ruiz. After more than 20 years in the field of personal development, in my opinion it is one of the most helpful books of our generation. Pay particular attention to no assumptions. When you read those words, I want you to think no expectations. I suggest you begin thinking about the value of expectations in life. And even if you decide they have value in ordinary life, know that they have to go, when it comes to Forex trading. More on psychology, later. Always remember that I have no spiritual, philosophical, or religious agenda. Don t believe anything I say. Apply the information and you will see the value for yourself. Just about every idea I share with you can be validated by your own life experience, and I would encourage you to test this as you study and apply the program. Okay so let s move forward. I would love to take you on more of a journey into the psychology, but that s enough for now. Since you are already a master of calculating probabilities and risk, let s learn about the building blocks and variables you will be using here. 44

46 Level 2: SEIZE THE HIGH GROUND, Forex Art of War LEVEL 2: Time/Timing Charts We are not making any changes to the charts in level 2. They should be setup exactly as they were in level 1. Simple enough? You are welcome to practice with more pairs if you like. But as I told you, the AUD/USD and NZD/USD are for practice only. The EUR/USD and GBP/USD are chosen specifically because they are the biggest (Yen excepted). There is a logic to size and dominance. If you think of a sports team, there are 1-3 players that usually dominate. So while there are many parts that will affect the outcome, the 1-3 are a significant influence. The Dollar, Euro, and London hub (Pound) are like that. Time is Relative Now that you are in the level 2 material, I need to touch a little bit on the dimension of time. When it comes to using charts with different time frames, there is no perfect or right set of charts. I want you to get used to the word story. The momentum traders have their story. Those who show up to find daily trends have their story. Those who look for bigger trends have their own story, too. There is even a lot of money moving around that isn t even speculating at all. And yet all of that activity all over the world is happening right on the same chart. One trader can be buying, and another trader selling, enter at the same time, and both win their trades! Two traders can enter at the same time, go the same direction, and have almost the same trade and yet one of the traders makes consistent profit, and the other trader loses money consistently. Here s where I m going with this: No one can tell you the best chart to use. They can all work. But you have to pick something that is based in good logic and begin. Let me give you an idea about why I chose the charts I did. If we used four hour charts, they would provide us great opportunities with longer term trends, or even a market that was caught in a bigger range. However, we might only get 1 or 2 high probability trades each month. If we focused on daily charts, we would get far fewer trades, yet. You could argue that you could increase the number of currency pairs, but that would require substantially more learning and experience with the variables of each currency pair, and each would have their own important nuances. So that option is out for now. Now let s go to the other extreme. Imagine a one minute chart, and lots of movement. So you would identify a trend on the 1 minute, and enter. But you would find that very often, 45

47 Level 2: SEIZE THE HIGH GROUND, Forex Art of War bigger money, focused on longer time frames would just mow you over when they decided they were going the other way. Without telling the whole story, let me tell you essentially why I have chosen the charts I have. There are two primary stories we are following in Forex trading as of the time I have been writing this (June 2015), and this has been the case since September of The first story is about the rising Dollar and the falling Euro. It has to do with the US being optimistic about the future, and the Eurozone experiencing nearly the opposite. It s about the US stopping quantitative easing and the Eurozone starting up. It has to do with the expectation of the Fed raising interest rates, while the Eurozone stays the same. This story has a view of 8-24 months down the road. Now that doesn t mean that price will do that for 8 or 24 months. What it means is that the information we have (now), which formulates our picture of the Euro and Dollar relationship causes us to have a VISION about that far out. A story is, in essence, a vision. This drives what I call the medium term trade. So all of the information surrounding that 8-24 month vision is a story. It could be argued that there is a long term story, but being someone who has been on the front lines where there was no future at all, I m not ready to do that just yet. Besides, I really don t think it is necessary. There is another story. This is about what is happening today, or this week, about data being released today or in the coming week. All of this information also forms into a story that provides fundamental conclusions about whether price is likely to move up or move down. As a reminder, when you see or hear the word fundamentals, you should think news. This is in addition to the technicals which refer to the behavior patterns we read on the charts. As you might guess, the 4 hour and daily charts would be keying on the 8-24 month story. The shorter term charts (30 min and 5 min) would key on the daily/weekly story. Since we need frequency (of trades), especially when we are gaining experience, we have to focus on the daily/weekly story, while keeping an eye on the medium term story unfolding. Don t worry, I m going to bring all of this together by the time we are done. Okay now that you have those two stories in mind (which drive price), now we need to decide which time frame we are going to use. Instead of explaining everything, let me just say that the daily/weekly story unfolds very nicely on the 30 minute chart, and the 21 and 55 EMA s help you to see part of that story while you are still learning. Could you see the same story on the 15 minute chart? Sure, 46

48 Level 2: SEIZE THE HIGH GROUND, Forex Art of War but you d probably need to change the periods on the moving averages. I m saying that you just have to pick one. I would also add that there is a price resolution element involved with time frames as well. For example, when I talk about your optimal profit target, we will look to see where the candle body closed at the end of the five minute period. This shows a bit of a struggle between buyers and sellers during that period, where they reached a 50/50 level of buying/selling at the end of that period. Using the same technique, I can tell you with conviction that when price resolves on a 30 minute period (candle), it can even be more telling. For example, if price has been in a range, and moves out of that range, it is a higher probability advantage if price closes outside of that range in a 30 minute period. It shows that the seller or buyers had more power outside of the range. So if this was a 30 minute candle, for example, closing below an important level, the sellers definitely have an edge. If however, you are at minute 16 and the sellers have it pushed out, you can t really see that edge. Very often, the buyers will just push price back up into the range in the next 14 minutes. Note: Please pause to notice something very important that I just did in the italicized area above. While we could make that knowledge above into a symbol in a system (sell if the 30 minute candle closes below the support), this would be us trading blindly. You need to see what is actually going on with the buyers/sellers, not looking for some short cut of symbols to chase a quick buck. These are not my only observations. But we see the trend, key levels of supply and demand, important 1-7 day ranges, and so on all on the 30 minute chart. Some have asked me, Can you do this on a one hour chart? Sure but by the time the one hour candle completes, the opportunity to trade might have already played out. So again, you see, longer time frame, fewer trading opportunities. Now we also use the 5 minute chart for something very specific. And I should tell you that I do not have four 30 minute charts and four 5 minute charts. I have four charts, and when I see something I like on the 30 minute, I zoom in with the 5 minute chart to take a closer look at the behavior. So I want to be very clear. I am NOT trading a 5 minute chart. Think of it like flying at a higher altitude in a helicopter. You might see movement in a direction, but can t quite make out what it is. So you fly lower and you can see more detail about the movement. I could 47

49 Level 2: SEIZE THE HIGH GROUND, Forex Art of War use a 4 minute or 6 minute. It doesn t matter. I am just looking at the buyer/seller movement (behavior). So that s what I mean by time being relative. Timing is a factor, but time is not. I m going to explain when and how we use the 1 minute chart in Level 3. Why not now? I would encourage you to practice the tools I give you in level 2. You need a base of operation for experience. I want you to know how well the 5 minute chart works, and when it tends not to work (from experience) before I explain when to use the 1 minute chart. But so you don t feel baited, it will be necessary (later) to move to a 1 minute chart when price is moving very fast. One of the doors to the paralysis of analysis waits for you in this very space, so let s deal with that later. Why am I explaining so much? If you knew how FAR lost in space most traders are, you wouldn t ask that question. You can t make money copying another trader or system. There is no machine you can put money into and have profits pop out the other side (auto-trading). Consider that 99% of the traders never have a good trading plan written, and you can t make money without one. It s not because it is not possible. It s because it is not doable for most people. I ll explain why, later. Moreover, I can tell if a person is trading a plan or not, very fast, just by watching or listening to them for a few minutes. The inconsistency in decisions, and the way they talk make it very obvious. When we get to New Wave Fibonacci drawing here in level 2, I ll be explaining exactly how we use the 5 minute chart. That being the case, I won t spend any more time on that subject here. But have a little faith for now: the thirty minute chart will work very nicely for you, providing great information for high probability trading setups. Time of Day and Trading Hours Time of day for me is a market condition. But it doesn t change much, so we ll just get it out of the way right here. I told you that the USD, Euro, and Pound (speculators) were the major players (influence). You will also find, in time, that WHEN those traders are active are also the best times of the day to trade. This I also consider logic because it is linked directly to the behavior of the people who move the market the most. Now you will get differing opinions on this, but I ll tell you what my experience has taught me. London is the best session to trade, and it runs from 3AM-11AM ET. Because of 48

50 Level 2: SEIZE THE HIGH GROUND, Forex Art of War where I live, I trade at the US Open, which is at about 8:30AM ET. So this is the period where you get a cross-over of the London and US markets. I actually live in the Pacific Time zone, so I get up pretty early. Since January of this year, I found that I can get up at 5AM, get to the charts just before US data is released at 8:30, and be ready for trading. It is estimated that about 40% of all Forex transactions occur out of the London Hub. If you can trade for a period during this time, that would be ideal. This is because the market is going to move with greater consistency (more consistent behavior) than at any other time of the day. I prefer the US open also because usually when the Pound traders choose a direction (from 3AM forward), price has a preference to continue in that direction. I call this London Sentiment, which we will be adding in the level 3 material. Again, let s not take on too much at one time, and keep in mind that ALL OF THIS looks a little different with the RIGHT EXPERIENCE. Now should you trade the entire London session? I wouldn t recommend it. This is probably a good time to let you in on a little known fact: A full time trader only needs to spend 30 minutes maximum trading. As a fully skilled trader, it takes about 15 minutes to get up to speed and get all of your tools up. As a skilled and experienced trader, you are looking for something very specific. It is either there or it is not. If there is the potential of a setup, you set alerts to call your phone and let you know. You could mull around for an hour, and really, you could spend only 10 minutes a day (on average). I have known some great traders, and some who spend 8 or more hours at the charts. In the end, almost all of them changed. I only know of two who consistently sit at charts waiting for a short term setup for a few hours. So you CAN do it. But you probably won t end up doing it. If you NEED action, take up free online poker. Or do what I did, and start playing Destiny (currently level 32 Warlock, PS4) or something that feeds that need. Just so you know, I have never been a gamer. I started playing Destiny in February of this year, and just fell in love with it. But the point is that you have to know yourself and you have to know your market. And then, of course you must manage your life. There are not endless trading opportunities. The guy who tells you that you can scalp (pick off 1-5 PIPs at a time) is probably making money from your activity in some way. Or he is a true believer that isn t actually making much money. In a later section, I ll explain the range of noise. Because of this range, you can t manage your risk well at all targeting under 8 PIPs or so. I referred to being able to tell a lot from how people speak. When you are really, really good at Forex trading, it should be boring not exciting at all. How do we know this? It s basic psychology. 49

51 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Excitement is generated by a central conflict. You have the thing hoped for, and the struggle to get it. As you draw closer it becomes more exciting. As you move farther away, you become disappointed. When you get the thing you wanted, it is no longer exciting. There is no central conflict to create the emotion. Therefore, when you get good, there will be nothing exciting about it at all. When new traders asked how much time should they set aside for this work, I always suggest the same thing: 2 hours per day, four days per week. Much more than that, and your mind is just going to be on overload. Naturally you can put in a little more time taking initial classes and even watching older ones. But my suggestion is to be careful not to overdo it. It s just not necessary, and you run the risk of creating an imbalance with family or work if you spend too much time at the charts. Let me put it to you this way: There are only so many high probability trading opportunities. You don t create them with your skill. Each element of your setup is based on some piece of logic. If the logic is not there, you cannot MAKE the logic be present with more skill. Yes, with more of the RIGHT EXPERIENCE, you will have more opportunity. But it is not knowledge or observation that will make this possible. Only experience trading good setups. This also involves mistakes, which is our greatest source of insight. I also want to caution you not to make a mistake that so many make. Most traders think if I just know enough about the market, I will be successful. This is not true at all. There is only the logic that affects your probability of winning, and then the bigger task, which is execution. That said, if there is a subject that you are truly interested in, by all means, study away! I think that Steve Jobs illustrated this best in his talk about connecting the dots. Follow your interests, but do not imagine that knowledge is the key. It is not. But follow your interests, you never know where they may lead. What if you can t be around at any point in time for the London session? That s okay. You can only do what you can do. At other times of the day, you will have less opportunities, and the opportunities you do have (especially if the pairs are not EU or GU) will yield less consistent results. But if you don t think about winning or losing, and focus only on the application of logic and the feedback you get, you will do just fine. Later, one of two things can happen. 1. You free yourself up to trade at different hours. 2. You specialize in a currency like the AUD/USD and learn the unique nuances and correlating factors that move that currency pair, driving your winning percentage back up into an acceptable range. 50

52 Level 2: SEIZE THE HIGH GROUND, Forex Art of War As you trade in level 3, you will notice that there is something different about the 2AM-3AM period. The European markets open one hour earlier. It is very common for price to make a move during that hour, and then when the big boys show up at 3AM, just go the other way. I wasn t sure where to tell you that, so I just included here in the time of day section. There is a search function in this PDF file, but perhaps I ll create an index of topics listed alphabetically, too. So remember that timing is a factor, but time itself is relative. I think if you keep this idea in mind, it will help you to structure a framework that focuses more on the orders and not the symbols that represent them. 51

53 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 3: Introduction to Market Conditions It would be easy to miss consciously that most traders have a poor idea about how you actually learn to do this. There is a big herd running towards the cliff. And how could so many people be wrong? It happens all of the time in life. In fact, my first business teacher said on my first day: find out which way everyone else is going, and GO THE OTHER WAY! The truth is that you learn to trade Forex the way you learned to do just about anything else. There is not much to driving a car, right? Today if you have the key with you, you step on the brake and push a button to start. You put it in gear, and apply the right amount of gas. You observe the lights and stop signs and as you drive, along with other rules of the road. But if you have been driving for years, there isn t much to it at all. But if you think about it, driving a car is full of complexity. You might not notice because you rode around in a car long before you began driving one. You never questioned the risk of being killed driving through an intersection because for you, that risk was normal. But seeing it and doing it are two different things. I can still remember the struggle to learn to parallel park. Driving was not learned in a few days, or even a few weeks. It just seems like it was because you gained knowledge and training for a very long time. As a Forex trader who does not have their own customized setup or who has never traded a good trading plan, you are like a brand new driver who has never even been in a car, and maybe never even seen a car. So give yourself time. In the end, once you are fully skilled, you will see a buyer or seller advantage, you will be able to gauge the strength of that advantage seeing the best place to get in and out of the trade, and you will execute without your emotions getting in the way. It will be that simple. But first you need to learn to crawl before you walk and walk before you can run. And with practice, you ll be able to walk and chew bubble gum at the same time Market Conditions Time of Day I already talked about time of day. This is clearly a factor that affects your probability of winning. Why? The people who trade 3AM to 8:30 AM (All times in this book are written in Eastern Time) are different from the people who trade from 8:30AM to 11AM. The people who trade from 8PM ET to 2AM ET are VERY different from the people who trade from 3AM to 11:00AM. Why is this important? 57

54 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Think about a close friend. If you have been friends for a long time, you can probably predict many things about them. What do they like to do at night? What drink will they choose at dinner? How would they react to a particular political topic? You can predict a great deal of your friend s behavior, why? Because you have observed their past behavior. But if asked to predict the behavior of someone you don t know, well you aren t going to get the same results. The bottom line is that the people are different at different times of the day, and so the buying/selling behavior is going to be different too. So the most important thing I can tell you about this is to pick your hours and stick with them. In this way, you won t be observing patterns at one time of the day which are less repetitive at another time of the day. Remember that the logic you use to make your decisions are based on the behavior of real people. This is Price Logic Trading. That means that you are trading behavior. Not price, not candles, not systems. Price, candles, systems and such are symbols of behavior. It might be okay for you to make a decision not to walk under a ladder (based on a poor belief). But for more complex decisions, and especially those which result in a positive or negative consequence each time you make one, better information is needed. Having said all of that, do not be too concerned with the time of day in Level 2. Just trade when you can. You can make any necessary adjustments in level 3. Level 2 is just about seeing good and complete logic. Market Conditions High Impact Data There is a lot of news in the world that affects price movement. For level 2, don t be too concerned with this. In fact, even in Level 3, we do not make rules about this at first. But you can begin observing, and even making notes along with your trades. Our team and site publishes the information we think might have enough impact to move the market. Information that can cause the market to slow prior to the release, and even create hyper volatile activity. This is a real factor that affects your bottom line in trading, but just observe and make notes for now. And by all means, trade the high impact data in level 2! It is far better to have experience with the idea than to rely on something you saw me write here. Do make notes of anything you see. For example, in your forum, write this setup came 15 minutes before Consumer Sentiment out of the US. Not sure if this is factor. In this way, you are not pressured to understand anything, but you are becoming more familiar with the information and gaining the experience of the role it plays in your decision making. 58

55 Level 2: SEIZE THE HIGH GROUND, Forex Art of War In level 3, I will also explain anomalies. In essence, this is the ability to recognize quickly when something unusual is happening or has happened. For example, if price suddenly moves 100 PIPs in three minutes, this is an anomaly. While this is not rare, it is unusual. And the reason why we need to recognize these patterns is because we make our money on what usually happens. Again, focus on the repetitive human behavior, not the unusual behavior. More Than You Bargained For I think on this journey, you will discover that you got way more than you bargained for. You will likely see that the principles you are applying here can be applied to anything in life. There are greater implications. As a trader, you must learn to see the world as it is. You must learn to let go of expectations. You might decide to eliminate them in every other area of life. What another person chooses to do (like the market) is beyond my control. Why should another person s actions dictate what I experience emotionally especially when I don t even know the other person? Something to think about. 59

56 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 4: The Most Reliable Pattern (345), Trend, Ranges, Key Levels Okay in this section, I m going to begin showing you WHAT we are looking for, and WHY. Inherently this all works because human beings are herd creatures (feel safer in greater numbers). Whether we are talking about trends in shoes or clothing, or a great new song on the radio, we are more comfortable going with what is popular. So it is just human nature to go with the trend. Many years ago, I noticed that when price made a strong move in a direction, it liked to pull back and then make another push in that direction. Later I studied Elliot waves and saw the same pattern right in the middle of the Elliot wave pattern. But let me show you the pattern that Mr. Elliot observed all those years ago. Elliot Wave As you can see, there are five waves that move price up (or down), and then three correction waves. You can always get the book, Elliot Wave Principle if you would like to study more. But I m going to show you the direct correlation between what I do, and what Elliot observed. In this picture, you see the 1 wave makes a move up, followed by the 2 wave moving back. Then there is a very strong wave, which we call the 3 wave. This is followed by the 4 wave that pulls back, and then a 5 wave that makes a new high. Then the correction waves begin with A coming back down, followed by B testing the former high, and C correcting to %. 345 Waves 60

57 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Obviously this is an ideal picture. It almost never looks exactly like this. But let me tell you the part of this which you can see repeated over and over again, and it not that difficult to see at all. Notice that I did not include the entire 5 wave. I only included 3, 4, and part of 5. This part of the pattern is what my work, and Elliot Wave Principle have in common. So one way you could describe my pattern is this way: 3, 4, 5, or just 345. We don t really know what a 1 wave is until we see the strong move or 3 wave. It is not a high probability that wave 5 will move higher, not at all not in Forex trading, anyhow. If the 5 wave is hitting an obvious area of seller interest, then there might not be a wave B or C. Wave A just might correct all by itself. I m just pointing out that the high probability waves are 3, 4, and most of 5. The human psychology is easy to see. Traders see price making a good move (3), and want to get in that trend. When they do get in, as the 5 wave starts to the former high (of wave 3), they begin to wonder if it is actually going to go higher. After all, they encountered selling in that area before (which is what created the 4 wave). So they just don t have the conviction to go higher. 61

58 Level 2: SEIZE THE HIGH GROUND, Forex Art of War So here s what we know about this pattern. Traders want to trade in the direction of the strong move (3). Price is likely to pull back at some point (4), and then price is likely to test the former high (5). Pretty much any information can be confusing and interpreted in many different ways if you lack a context in which it is being viewed. So let me give you a couple of pieces. First of all, we are looking at this pattern in the context of the daily/weekly story, or vision. If you recall, there is a certain amount of money that is being moved based on what investors decide about today and this week. It is easy to follow that balance of money moving up and down on the 30 minute chart, with the 21 and 55 EMAs. If we also add that price must be advancing, we will have a pattern that is very predictable. Some will say that moving averages are unreliable because they are lagging. This is true. But it is also true that if you look for the position of the moving averages ONLY when price is advancing, suddenly the MAs become EXTREMELY reliable. If you think about it, if the MAs are showing that the buyers have an advantage, AND price is advancing up, they cannot be telling you a lie. Using those rules, they are 100% reliable. I want to remind you about what we are really doing here. 1. Seeing a buyer/seller advantage 2. Gauging the strength of that advantage 3. Placing entry and exit orders such that our risk is managed well. 62

59 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Said in shorter form, we are seeing an advantage and managing our risk. Okay let s take a peek at this pattern we are looking for on an actual chart. In this picture, it is inverted, showing a selling trend. But you can see the pattern. Here I have highlighted the (345) pattern that we want. 63

60 Level 2: SEIZE THE HIGH GROUND, Forex Art of War In this next picture, I am only illustrating the actual pattern we are looking for. Very strong move down, a pullback, and then a test of the former low. I think it is important to stick with only the highest probability stuff until you are fully skilled. As you gain experience, you will come to see, from experience when price is likely to continue lower. What is a Trend? Now take another look at the gray 21 and 55 EMAs (above). When the 21 (faster moving one) is below the 55, the trend is down. That s what we see in this picture. So while trends can be defined in many different ways, in our context, a trend is defined by the position of the 21 and 55 EMAs on the 30 minute chart. Ranges Here are a couple of examples of price in a range. This most often happens 1. Where there is an unusually strong move. 2. Trends begin to show exhaustion 3. When the currencies markets are closed. For example, GBP/USD at 5PM ET. Both the US and UK markets are closed. In these small ranges, during good market hours, we will look for price to break these levels (green). I refer to these price levels in green as key levels. 64

61 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Market Cycle What some call an Elliot wave pattern, I call a market cycle. There is a strong move, a test of that high/low, and then a correction of %. I care little for a newly forming trend or the correction waves (yellow left) when looking for a trade. If I see that price has already tested the previous low, there is no trade for me. At that point, the balance between the buyers/sellers becomes much closer, making any trade a lower probability outcome. That will do it for now. We will be coming back to this pattern frequently in this book. 65

62 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 5: Supply & Demand I m going to go a little deeper into this in level 3, but here in level 2, there are some things you need to begin seeing and defining. Supply is driven by sellers. Demand is driven by buyers. So if we have greater demand, price is moving up. If we have greater supply, price is moving down. There are many terms you will hear. Supply & Demand, Support & Resistance, Historic Barriers, and something I call Former Support or Resistance. You ll see the differences when we begin identifying a range of advance, and what actually constitutes a trend advance. These terms are all referring to price levels where we think we will find more buyer or seller orders being placed. In Level 1 I already defined Support and Resistance. To repeat, resistance is any barrier above price. Support is any barrier below current price. Just like support and resistance, we would see supply above price, and demand below current price. Always keep this one principle in mind: the more obvious a barrier is, the more relevant it is. If you read a high tech book on barriers, and you are only one of 20 people in the world that sees it, using that principle, we can know that your information is not likely to be that relevant. But let me define each quickly. Historic Barrier A historic barrier is just an area of two or more touches back in time, as is showing in the thin rectangle below. As with all of these ideas, the more experience you gain with them, the better you will see them, and the better you will be able to use them. 66

63 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Supply & Demand, Resistance & Support As you can see, the terms are virtually interchangeable. Over time, I have come to like supply and demand better as terms because that is what moves price up or down. Former Support or Resistance, Former Trend High/Low I have to jump ahead a bit in order to include this idea here, but if you don t quite understand, not to worry I m going to be going into this much more. As you can see, price is on the move up. Price reaches a high point (former high), and then retraces 38.2% or more. Following that, the trend advances again. The advance takes place when price moves above the former high point, or what you will also hear me refer to as former resistance. This specifically refers to the former high of the trend, on the move up. If this were a down trend, we would refer to former low. 67

64 Level 2: SEIZE THE HIGH GROUND, Forex Art of War This is good enough for level 2. If you find yourself struggling with barriers, don t be too hard on yourself. Just do your best, and in no time at all, you will find you will be quite good at spotting an area of supply or demand. And remember that principle: the more obvious the barrier, the more relevant the barrier. It may seem like I should say more, but this is really the basics that you need to know for now. In Level 3, I ll discuss how longer term barriers come into play, and what trend lines really represent. I ll also explain when and why you can ignore price points, when those price points were created in a different story context. Obvious examples would be 1. Where the market went sideways briefly waiting for some important data 2. Where the market briefly visited a price level based on speculation during a period of HID (high impact data) release. Don t worry about that now. I m just letting you know there is more to come. 68

65 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 6: Winning Percentage, and Risk to Reward We are inching our way towards the (holistic) high probability logic you will be using. As I said, in the end, trading can be as simple as seeing a buyer/seller advantage, and managing your risk well. You can see me doing this many times, but this morning (June 9, 2015) I did only that during the live session. You can go back and time and watch in the community area. There are still some important ideas we need to cover before we focus on the specific variables we ll be using. 70% Probability Importance You will often see me reference this 70% win/loss ratio. I ll explain this in more detail in level 3, but for now, I ll just give you the facts. As an inexperienced trader, it is important to put the odds in your favor as much as possible. The less experience you have, the larger the percentage of events that will appear random to you, driving your winning percentage down. The problem here is that there is a directly correlation between how much you win, and how many trades you will lose in a row when something changes in the market. The problem with this is that if we lose too much, too soon, we will be disabled psychologically. This is because of the great difference between ordinary life/circumstances, and Forex trading. It has to do with what we feel when our decisions result in consequences. I call this the Psychology of Consecutive Loss. In ordinary life, there are few painful consequences. In Forex trading, we could be faced with many in a row. So I wanted you to be mindful that I have important reasons for guiding you the way I am in this book and in the community. This leads in nicely to our next subject. Risk to Reward Ratio Risk to reward is about the relationship between how much you are putting at risk vs. how much you are targeting for your profit target. I get the opportunity now to show you another important idea at work. One of my trader friends, who was a student for a while, loved to trade a lot. He traveled the world in search of expertise. But he was always itching to trade. This was just part of his personality that he was born with. He was quite smart and educated, having a PHD in the field of psychology. *I think it is important to define what I mean by experienced trader. I mean this in a very specific way. Experience assumes 1. You are using complete logic 2. Your setup is unique to you, derived from the application of that logic 3. You have defined that setup in your own words, into your trading plan. Until you have these components, I do not consider you to have any more than a couple of month s experience, even if you have been doing this for years. 69

66 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Here s what he did. First, in his main money account, he followed his trading plan religiously. Next, he had a dummy account where he took whatever trade he felt like taking. And finally, he had a $100 account where he did something quite extreme. He traded with no stop loss and only targeted 1 PIP of profit. He did this for over a year, and one time, he was able to have 99 wins in a row before getting a margin call. Years earlier I had a friend who I gave the nickname stop loss Tommy. I gave him that name because he traded with no stop loss. He was doing amazing, ranking up 67 wins in a row. Then in about 2005, the Canadian Dollar (he was trading), went the other way, never to return for ten years to his price. These two stories illuminate an idea: The lower your target, and greater your stop loss, the higher your winning percentage. Before you go off the rails, there is no way to use this idea to get rich. You will always blowout your account at some point in time. And keep in mind that these examples I m using represent the best they ever did. But I find it useful to know this information. The next question for me was this: What is the optimal ratio in particular for the inexperienced trader? In 2010, we got our answer. We were trading a system with four criteria. We documented every detail in complex spread sheets. I ll explain all of this in level 3, but the optimal Risk to Reward was.75:1. This means targeting 75 cents of profit while risking $1. If you targeting less, it ate into your bottom line and made you less profitable. If you targeted more, it lowered your winning ratio. So we see again, that in all things, it comes down to finding the right balance. I knew by that time that we had to target between 70 and 80% wins in order to avoid the disabling psychology. Now I had the numbers to back it up. So I gave traders the choice to target.75:1 or 1:1. Over the years, most have settled on.75:1, recognizing that the first goal is simply to achieve the ability to earn consistent profit. Those who can t shake the desire to get more, went with 1:1, all the while with me telling them that they will make less money doing that. You see, our numbers showed that you make more money targeting.75:1 than when you target 1:1. Targeting less PIPs to make more money? Yes, less is more. And something popular in Forex trading, 2:1, is simply out of the question. In level 3, I ll explain exactly why you don t want to target 2:1 as an inexperienced trader. 70

67 Level 2: SEIZE THE HIGH GROUND, Forex Art of War So as you are going to see, I am suggesting you target that optimal.75:1, and hopefully I gave you some good reasons why, even if only in an introductory way. This brings us to the next idea. PIPs Don t Matter You will find a lot of traders focused on PIPs. The truth is that PIPs are relative. If your risk to reward ratio is 1:1, for example, if you get 10 PIPs or 100 PIPs, you make the same exact amount of money. And how many PIPs you get are not a function of your personal desire for them, but rather a function of the variables involved in any given trade. If the pattern we are trading has moved only 22 PIPs, for example, you aren t going to get 100, 50, or even 22. Your potential, as least working on your first goal of consistent profit is limited to the boundary of the pattern you are trading. You will see what I mean. Consider another way of looking at PIPs. As a teaching question, I have asked the group which makes you more money? 10 PIPs or 100 PIPs. Naturally most of the traders are suspect when I ask a question like that, but most new traders want to answer 100 PIPs. Here are the numbers. If you have $200 in your account, and make 100 PIPs at 2.5% risk, you make $5. If you have $5000 in your account, and make 10 PIPs at the same 2.5% risk, you make $125. That s 25 times the money targeting ten times less PIPs. My message to you? DO NOT focus on PIPs. PIPs are an irrelevant factor when it comes to decision making. In any given trade, you will manage your risk effectively, and only then find out what your potential for PIPs will be. Now it may be that you find down the road that your particular setup has an optimal potential of 15 PIPs (or whatever the number is). Notice that the market is providing that information to you, and not the other way around. Now it s time to learn about a very important tool that you are going to be using in your work. 71

68 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 7: New Wave Fibonacci Drawing I gave you an introduction to this tool and the settings in Level 1. Now I m going to take you to the next level. I first developed these rules back in This led to advances in trading that I had not previously imagined. Most traders know what a Fibonacci tool is, but if you are out in the mainstream Forex culture, you will find traders using different settings and different rules. In 2004, I attended a live trading room each morning. The trainer there only used the Fibonacci. When asked how to use it, he said to, watch and practice. So I ended up drawing thousands of them. Over the next few years, traders would ask me how to draw it. I would give them some guidance and then just tell them to practice. In 2007, I noticed that I seemed to be drawing the Fib using the exact rules. I wondered if this was true. So I looked at what I was doing for a couple of days, and realized that I was, in fact, using rules that could be defined and taught to someone else. Since then I have taught this to many traders, and it works with an extremely high level of effectiveness. First of all, it shows you the most accurate way to draw the Fib, and secondly, it enables you to measure the strength of movement. New Wave Fibonacci Drawing Rules Let s begin with the rules: 1. Always draw from left to right 2. Always start and draw in the direction of the trend 3. The end point is the high of an up trend or low of a down trend 4. The starting point is where momentum begins that breaks a new trend high or low, but which does not retrace 38.2 or more on the way 5. Draw on a 5 minute Chart (will add 1 minute in Level 3) Context Trend will be up or down, based on the 30 minute chart and the position of the 21 and 55 EMAs. Price must be advancing. 72

69 Level 2: SEIZE THE HIGH GROUND, Forex Art of War What is an Advance? I ve been doing this long enough to know that I need to define this very well so that you really get it. So I m going to provide you with several examples. There are classes recorded specifically based on this book that you can also access. But first I want you to know that price movement has a definition, too. A new wave is ALWAYS price movement that advanced the trend, and which DOES NOT retrace 38.2 or more during the course of that movement. I m jumping ahead a bit on purpose. I want you to know what an advance is, and then I ll come back to basics. First notice the start and end points. Now tune your eye into the Fibonacci retracement levels. Top line 23.6, next lower line 38.2, and so on. Notice that when price is moving up at the red dashed line, it does not pull back to 38.2 or more. Then when it does begin to pull back, that s when you place the start and end points of the Fib. Movement like this is defined as momentum. In these case, the buyers have momentum. We also want a minimum amount of movement, but we ll get to that. 73

70 Level 2: SEIZE THE HIGH GROUND, Forex Art of War First notice the new wave on the left side which creates a new trend high. Then you will notice that price goes sideways making small waves up and down, but without breaking that high. Then you see the new wave on the right side of the picture advancing past the former trend high. So it is important to recognize that in order to have a new wave, price must be advancing, or breaking the former high (or low). If this were a brand new trend, there would be no new high to break. In this case, you would have price advancing the (new) trend, but not breaking a former high of the trend, since it just began. Trend direction, again, is only based on the MAs on the 30 minute chart. Because I use 30 minute charts and then change to the 5 minute charts, you see the 21 and 55 EMAs (gray) on this 5 minute chart. But they MAs have no meaning on the 5 minute chart. On some charts, such as MT4, you can set them to show the MAs only on the time frame you want. Let s review our rules again. 1. Always draw from left to right 2. Always start and draw in the direction of the trend 3. The end point is the high of an up trend or low of a down trend 74

71 Level 2: SEIZE THE HIGH GROUND, Forex Art of War 4. The starting point is where momentum begins that breaks a new trend high or low, but which does not retrace 38.2 or more on the way 5. Draw on a 5 minute Chart Take a few minutes, read the rules, and see if you can see the rules at work in these pictures. Once again, our definition of a new wave: A new wave is ALWAYS price movement that advanced the trend, and which DOES NOT retrace 38.2 or more during the course of that movement. Here are three examples of New Waves, and one example of a wave which is not a new wave I suggest you practice only this technique in your forum in the community many times and let others validate that you have it correct. It is an important enough idea to justify such action. 2 PIP Rule This is a great question, and an opportunity for you to learn more. Inevitably, this is where we need another idea. Those who are precise in measurement always ask, Vance, it came within one PIP of 38.2, before price continued in the trend. Do we ignore that, or do we consider that a 38.2 pullback? There is no central exchange in Forex trading. Stocks go through a central exchange on Wall Street. There is no such thing in Forex trading. The Foreign exchange market is a network of thousands of banks, and as crazy as it might seem, they are all trying their best at every moment to gather every bit of data on the cloud and determine what the price actually is. Because of this, this is what creates gaps on the charts, and it is the reason why one broker shows that price hit one area, and with another broker, price never reached that level. 75

72 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Here calls for a general rule to compensate for these differences in price. Setting unusually volatile movement aside, the prices are usually going to be off by as much as.75 PIPs in either direction. That puts us at 1.5 total, and the easy rule is 2 PIPs. So going back to that question: if it came within one PIP of 38.2, do we just consider that at 38.2 pullback, the answer is yes. Because on some feeds (just not yours) price probably did reach Okay let s go back to our rules. In my experience, traders tend to struggle with one part of New Wave Fibonacci drawing, and that is the starting point. Where does momentum begin? First you look for the break of the former high. Then you look to see where momentum began, and where price did not retrace 38.2 or more. Tune into the green arrow here. Notice that in the yellow highlighted area to the right, it does not extend up to that first red candle. The color suggests that momentum began at the red candle at the green arrow. But if you look closely, you will see that after that red candle at the green arrow was created, price moved up 38.2 or more (you can tell by the wick). Therefore, I would begin drawing my Fib at the next candle (one candle after the green arrow). There is either momentum or there is not. Getting this down is just going to require practice. So the more you practice, the faster you will master it. In level 3, I ll also show you how to use the Fib to anticipate where a trend is likely to reverse. It s not important at this point. I suggest you pause going any farther in this book, and practice this technique in your forum until you are sure you have it correct. Then you will be ready to move on. As you will soon see, we are looking for trend advances. When we see one, out comes the Fib tool, and then we next look to see if the movement is strong enough to get in and out with good risk management. When you are ready, proceed to Range of Advance. 76

73 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 8: Range of Advance Range of Advance once referred to the number of PIPs that the New Wave advanced beyond the former high or low of the trend. Over time, I noticed that using the entire wave was a better way to gauge the strength of buyer/sellers, but by then the term had stuck. A better name would be Range of New Wave or RNW. It doesn t really roll off the tongue, and making a change at this point would only be confusing. Then again, you could think of it as the Range of the Advancing Wave, and ROA would not be that far off. Whatever the case, I m sticking with Range of Advance and ROA, for short. The definition is simple. The ROA is the entire length of the New Wave. Since your Fib is being drawn from the beginning to the end of the New Wave, then the ROA can also be defined as the distance from the start to the end of the Fib. You can see that illustrated in this picture here. From the start to the end of the Fib, is 18.8 PIPs. So the ROA or range of advance is In order to see the correct ROA, or determine the strength of the move accurately, you first need to draw the new wave fib correctly. Range of Noise Very soon, a question will be popping into your head, if it hasn t already. How small of a range can we trade? In other words, how big does the ROA need to be? It s a great question. I can only tell you from experience that you do need some kind of range guideline. I refer to this as noise. And the word simply symbolized a range of random movement. This is about 0-14 PIPs. What I mean to say is that at any given moment, price can move 0-14 PIPs for any number of reasons which cannot be anticipated. That s not to say someone with a lot of experience cannot anticipate the next 5 PIPs of movement up or down. I do it once in a while in the live session, being in tune with the market, reading small movements up and down in real time. 77

74 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Keep in mind that this book is about how you learn to make consistent profit. So we must consider what you will be able to do. So I would recommend you stay out of this range of noise. I suggest a minimum ROA of 18 PIPs for trading. Usually I recommend 20, and those who like to push the envelope go for the 18. What s the difference? More trades. Is more trades better? At this point, the answer is yes. But clearly, with experience, you will see nuances that will enable you to make decisions that are not so generalized. I ll discuss this in future levels in the book. But to give you an example, perhaps there is a new trend. The first new wave is 13. The second new wave is 16. This might indicate that the buyers/sellers are getting stronger, and therefore there would be less risk of a reversal. That s an incomplete scenario, but perhaps a little illuminating at this point in time for the possible exceptions. For now, I suggest that you keep it simple. I might point out that if you are interested in applied math, or logic and algorithms, you could assign any system of symbols to the logic in this book. Then you could give each symbol values. For those not interested in math, I ve got news for you. You are already doing this with your minds. I m just saying that someone with applied math interest will find the variables quite compelling in formulas. But on that topic, do not mislead yourself by thinking that you can use the logic to create an automated trading system that you can sell for others. A good automated system should be based only on your unique trading method, and will always need some degree of supervision to input real time variables that can change at any time. This is my strong opinion based on reason, validated by experience and principles. As you gain experience, you will also notice that there is a maximum ROA based in logic, as well. This falls into core logic, which is usual vs. unusual. Taken to an extreme for illustration purposes, if a candle moves 200 PIPs in 5 minute with no pullback, this is unusual. But as you work your way back towards the 18 PIP minimum, you will find that 55 is probably a good number. If a new wave has an ROA of 65, there is probably something unusual happening. Remember high probability logic depends on what people usually do. With experience, like many general rules, this rule will become nuanced, and I ll talk about that in later sections. For example, even smaller ROAs close to the London close might be ignored. Heck, if the ROA is 18, but the previous ROA was 21, and you might decide over time that when strength is diminishing, you don t like this risk. But like all nuances, they need to be determined by what your eye sees, and by your personal experience. 78

75 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Remember no one swings a baseball bat exactly like you. We all begin with the exact same logic, but that skilled swing that hits the ball is like no one else s. At this point, I want to expose you to the progression of logic that you have learned so far. First is the trend, which is determined on the 30 minute chart by observing the position of the 21 and 55 EMAs. While the moving averages are not labeled, the 21 is above the 55 (21 changes direction faster). You can make these different colors if you like. So this gives us our first criteria. We are okay for a buy. The trend is UP. The very next thing we would do is change this chart to a 5 minute chart so that we can see the behavior better. If we don t change to the 5 minute, we may not see all of the movement that took place. For example, that blue candle at the black arrow might have pulled back 50% and then moved back up before closing where it did. We don t know. Since we are trading behavior, not symbols of behavior, it is important that we get the best information we can. This is a 5 minute chart, showing that same movement. The black dashed line shows the New Wave. The ROA of that New Wave is 39 PIPs. This also gives us an opportunity to see that your Fib and ROA can all happen on a single candle. While it is small to see, on the wave up, when this wave reached its high, price pulled back just below 38.2, setting up a potential trade, and then price continued up. Remember, if you are reading any part of this book and have a question, just ask the question in your forum. I m quite sure that members of the community will be eager to help you Chapter 9: What Have We Learned About? Before we go into the entry and exit parts of high probability trading, I felt it would be good to review the important ideas we have covered so far, in a more succinct form. Let s review the main ideas I ve covered up to this point. 79

76 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Market conditions- time of day, HID, anomalies Risk to reward ratio (optimal.75:1) Win/loss percentage psychology factor (70% or better) Supply and demand where orders are likely to be The most reliable pattern - New Wave, pullback, second push Trend (buyer seller balance) Strength of Advantage ROA using New Waves Dominant pairs EUR/USD, GBP/USD 6-18 month story Daily/weekly story At this point, you can make notes in your computer, or on a sheet of paper. I want you to make your own notes. On that page, you will make a note of things you are observing (like market conditions), and some notes will be rules (minimum risk to reward is.75:1). I m not making a list for you to print. You need to read this section and make your own notes. Trust me on this. It s sort of like taking a test where you are asked to read a story. Then they ask you a bunch of questions about the story. If you didn t actually read the story and experience it to some extent, you won t be able to answer all of the questions. Resist the desire to copy someone else s notes. I have a very important reason for not making a trading plan in level 2. Based on my many years of experience, working with thousands of traders, I KNOW you need to do this step on your own. Then you take your notes, and step up to the plate and swing. Think of a swing of the bat being worth 10 points, and re-reading worth only 1 point. So make your notes and get in the game. If you need to go back and study any subject more, it will become apparent when you take a couple of swings. Our community or your team will give you feedback. Start Making Your List Here in level 2, you are only observing market conditions. Risk to reward is a single decision, so that can be a rule. With respect to 70% wins, this is a psychological factor and an aim of your use of logic. Supply and demand is also something you will observe in level 2. You will get a perfect setup for a buy, but will notice that your profit target is on the other side of a very obvious barrier. You will know this trade is higher risk, but you will take it anyhow, and make notes of what you see and experience. In the end, this is really about being able to see where orders are likely to be. This falls into the category of nuances which are subjective to you and your experience. 80

77 Level 2: SEIZE THE HIGH GROUND, Forex Art of War For now, your trend will be determined by the position of the 21 and 55 EMAs. If the 21 is above the 55, you will only buy. If the 21 is below the 55, you will only sell. When the trend advances, you are looking for a new wave that has an ROA of 18 PIPs or more. Some traders increase that a bit more with time and practice. For now, 18 will give you a higher frequency of trades, giving you more experience. In level 2, your main focus is the application of logic, not winning trades. Your two main pairs will be the EUR/USD and GBP/USD. I suggest you also look for setups on the AUD/USD and NZD/USD. This is only for practice, and will also increase your trade frequency. Several members of the team publish information on fundamentals and we talk about them in the live sessions. Follow this information if you are part of our community. Just observe, and in time, you will begin to get a good sense of how this information is telling us these stories. If you have your own community, start a thread about Fundamental Sentiment. Work together to form conclusions about what is currently driving the market and in which direction. For example, when the markets are focused on something the Federal Reserve is going to say at a particular time, you will see the market likely go into a range the closer we get to that designated time. You ll notice how an event like this becomes the daily/weekly story. Again, with experience, you are going to learn many more nuances. I ll be covering much more in Level 3. Remember that real confidence does not come from how well you know a subject, but rather from the validation of your experience you get from the community. Okay now this leaves only the entry and exit points. Where do I get in? Where do I get out? 81

78 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 10: Where to Get in and Out Dynamic Relationships First I want to tell you that your own personality is a very important factor in the decisions you are about to make. I know that there can be a lot to consider, and just when you thought it couldn t be more overwhelming, the emotions kick in, and sure enough, you are proven wrong. I promise that in a very short period of time, this is going to get much easier. In fact, I suggest that you apply yourself for 3-4 weeks before you evaluate how you are doing. Just put your head down, take trades, make notes, and review your feedback. This is all going to look very different a few weeks from now. You really must know the market and yourself to make this work. The role of personality is critical here. You might see someone like Rob placing a stop loss very close to his entry, and in a very small range. Your reaction might be, geez, I would never put my stop loss that close! Let me interpret what you really said. I feel uncomfortable with the stop loss that close! (Observe the symbols you use to represent your emotional experience) The flip side is that someone else is very aggressive. While you are feeling cautious, looking for just the right trade, they can wait to find a reason to pull the trigger! Who is right? That s my point. Both are. In fact, one trader can be buying, another trader selling (at the same time), and both of them can win, even in a couple of hours. That s an extreme. But certainly YOU can be more aggressive, THEM more cautious, and you can both win! Just like in ordinary life, the more aggressive you become, the more risk you must deal with. There is a limit to how aggressive you can be. But there is also a limit to how cautious you can be. If you are only waiting for the perfect, highest probability trade you can get, you might only trade once every couple of months, or even less than that. I m writing this section to impress on you that it is very important for you to be who you are. Personality is a very important dynamic in trading. So as you begin this process, pay attention to the information you are receiving in the form of emotions. Now the first thing to know about entry and exits is that there are optimal locations for all of them. There is good logic to be applied. What I mean is that we can point to a very good reason (logic) why we would want to place the entry, stop or target at a particular price. So let s get to what is good logic first, and then we ll come back to personality. 82

79 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Optimal Profit Target Follow the black arrows from left to right. Price makes a New Wave down, then pulls back, and then makes a second push. Notice that at the last black arrow down, price stops at the blue line. If you look on the left (first black arrow), price actually went down farther. Each of these candles are 5 minute candles. So when price reached that low at first black arrow, the buyers began to buy. At the end of 5 minutes, you can see where the red candle closed (the blue line). I m just telling you that the 5 minute candle body close is the optimal target. Is it the highest probability target? No. If you move this target higher, it increases the probability that it will be reached. Said correctly, it is the optimal target. You might be thinking, but wait, I want it to be even higher probability. That s fine. I ll be discussing this. You can have your higher probability target. But there will be a price: You will get fewer trades. More on that in a bit. I witnessed this pattern for years. It makes sense when you really think about it. The sellers drove price down (first black arrow, left). As price pulled back, other traders wanted to get in on the action. BUT as price began to reach the low point (where sellers ran out of gas last time), the new sellers will be less confident that price will break even lower. This is the psychology that is moving the market. The simple way of looking at this, is in this way: When the low was made (black arrow left), price moved up until that candle body closed. What that is telling us is that at the end of 5 minutes, the buyers and sellers reached equal buying and selling at that price. In other words, it was at that spot where buyer and sellers reached a 50/50 balance. I call this price resolution. It s a very useful idea that you can carry over to other charts, as well. But more on that later. 83

80 Level 2: SEIZE THE HIGH GROUND, Forex Art of War For now, it is enough to know that the 5 minute candle body (close) is the optimal target. I want to pause for a moment and repeat an important thought. Be careful not to go down the back testing road. I get it. I understand the appeal and the intention. You are on an entirely different level of consciousness here with me. What you need is good and complete logic, and then experience. So you do not want to back test. You want to forward test. Again, like a teacher once told me, find out what everyone else is doing, and go the other way. I m not saying that you should not study patterns in the past. That s a big part of what we do. I m saying not to make the mistake of thinking you can copy a system that has been back tested (yes, I feel this subject was worth repeating). Personality, Entry and Exits In this next section, I m going to show you different ways to place your stop loss, entry, and profit target. Simply pick one that feels right to you, or try them all. Do you recall when you first began hitting a baseball? Can you remember how different every single bat was? I can remember trying to find the one that felt just right for me. These decisions are like that experience. In this next section, I m going to walk you through the complete evaluation of a setup. see if we have a tradable New Wave. First of all, noticed the position of the moving averages. The 21 is below the 55, indicating the balance shifted to the sellers. But this is a new MA cross, or new trend. So again, be careful to confirm that the cross is truly done. That can only happen when the 30 minute candle closes at the green arrow. I placed a vertical line on the chart so that you can follow it up to see that when that candle closes, the MAs are crossed. At this point we would drop to the 5 minute to 84

81 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Notice on this 5 minute chart that there is a new wave at the black arrow. But also notice that this happens prior to the MAs confirming a cross. So we can only trade after the vertical time line, at the green arrow. There appears to be a nice new wave there, so I ll now picture that. In this next step, I have drawn a Fib on that New Wave. In addition, though it is a little small, you can see that I have used another tool (the ruler) to measure the ROA. At the black arrow, you can see that is it 22.1 PIPS, qualifying for a trade. In this same picture, at the blue arrow, I have placed a blue line at the blue arrow to show where the 5 minute candle body closed on this New Wave. So our target is known. Now we will take a look at our stop loss options, and this will determine our entry price. I m going to zoom this picture out just a bit, but I ll leave the blue line for the target as a point of reference. Also note that from now on, I ll use the color blue for targets, green for entries, and red for stop loss. 85

82 Level 2: SEIZE THE HIGH GROUND, Forex Art of War The yellow box outlines the trade area. You can see the former low of the trend at the black arrow. I have placed a stop (red) above that former low price area. I didn t plan this picture in advance. This is just how it worked out. This is the more conservative place for your stop loss (above the former low) position, beyond former high/low. What we would do next is determine the distance from target to stop. Then we would choose an entry that is.75 to target. At this point, I suggest you get manual experience, and don t be too concerned with precision at this point. There are spreads, and fractional PIPs to consider. Just keep this simple for now. Your job is to apply complete logic and practice setups, not to know the price of tea in China = 15 PIPs. Let s call it 16. The risk to reward ratio should be.75:1. Feel free to eyeball this on your chart for now. Essentially you would choose an entry that gives you approximately.75:1. We have a calculator you can use later to be more precise. That would look something like this. Again, working with traders, I would rather their focus be on the logic right now, not getting caught in the minutia (details). In this example I ve been illustrating, notice that about 30% of the ROA is inside of the former low. 86

83 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Also recall that this is a new trend. I ll be covering this in Level 3. When there is a new trend, it is only natural to have more push back from the opposition (buyers in this case). So in this example, since this is a new trend, and the ROA is 22, it is likely that we will get a pullback of 50% or more. I m just exposing you to these two ideas for now. Don t feel like you need to remember them. We ll come back to these ideas and more in level 3. Now you will notice that I placed the stop just above the former low (black arrow). You could have moved the stop up higher, and moved the entry up higher. You would not be wrong to do that. But notice if you tried to enter too high (above 61.8), your order would not have been picked up. So yes, you can be even more conservative, but then you risk your order not being picked up. Again, it s a balancing act with the dynamics of personality (YOU), and good logic. And you will find that balance. Remember not to think too much about this. Just swing the bat, and you will find in short order that this will all make sense to you. Seek confidence in knowledge, and you will delay your progress. MAs not in Position Before we discuss stop loss again, I want you to notice what is happening with the market right now (as I m writing the book). This is a 30 minute chart. As price was moving up, the question would have been, can we trade this? But notice that the MAs do not confirm a cross until later at the vertical line. So prior to the trend shifting to buy, you can see that the pattern we look for already played out. So this is no trade. 87

84 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Will you be able to ignore the MAs later and take this trade anyhow? Yes, it is certainly possible. But you will do that as a result of your personal experience. Here s another setup. This represents a 5 minute chart, which is all we will officially use in Level 2 for New Waves, ROA and entry and exit points. Notice that the ROA is 35. Also just take a quick look and see that about 90% of the ROA is above the former high. Again, nothing to remember, just exposing you to the idea. When most of the ROA is outside of the former high/low, as in this case, it presents us with a little different picture. As you can see, I have placed the optimal target in place. Now you don t have to use the optimal target. You can aim higher than the new high for your target if you want to. In this setup (above), notice that price is more bullish than usual (one of the reasons we have an ROA 90% out of the former high). Now we can see in hindsight in this picture that price did pull back to 50%. But in real time, many traders would have been thinking, this looks so bullish, I don t think it will pull back much more than 38.2%. So let s examine the different choices you might make. First let s look at a more aggressive decision. Entry 38.2, stop beyond former high, solve for target exceeding trend high There are two factors driving this type of decision. 1. You want to get in before price makes another move up. 2. You still want the stop loss in what you feel is a safer position. When considering these decisions, keep in mind that 76.4 is the final stand for this new wave. Usually, 76.4 is going to be enough. In particular when 76.4 is above the former high. The only reason you could possibly justify placing the target so high is that you feel that the move is so strong it will move higher. If you feel that way, it is okay. Be 88

85 Level 2: SEIZE THE HIGH GROUND, Forex Art of War who you are, and make changes based on your experience in a series of trades. Your experience may change how you feel about this. Keep optimal target, enter at 38.2 (first possible), solve for stop This is still a bit on the aggressive side, but certainly okay. You choose your optimal target, which is great. You then go in at the first possible chance at Then you solve for stop to get to.75:1. Note that you are making the judgement that price is unlikely to reach beyond Optimal target, stop below 76.4, solve for entry This setup focuses first on optimal target, then on good stop position (beyond 76.4), and then solves for entry to get.75:1 This is probably the right balance between conservative and aggressive. That doesn t mean I m telling you to do it. You should examine all of these setups I m illustrating and see what you feel best about. It s okay to have more than one way of entering. In other words, use the logic, trade what you see, and then after you have made the trades, take a look at what is working well for you, and what you see well. The community will help with this, too. In a 3-4 weeks, you will gravitate to the ideas that you like most and which work best for you. In essence (for a buy trade), the lower you move your stop, entry, and target, the more conservative a trade you are taking. The opposite would be true when selling. Safe stop, good entry price, solve for target 89

86 Level 2: SEIZE THE HIGH GROUND, Forex Art of War In this setup, probably the first thing you do is place your stop in what you feel is a safe place. Then you likely choose the entry at 61.8 or better, and then solve for target to get.75:1. You also could have ended up with this same setup by choosing a different order: stop, target you think is likely, solve for entry. I know that what I m sharing with you might not seem very specific, but this is intentional. It is important for you to find out how you trade best, not for someone to teach you how to trade. Yes, we teach you the logic and the options, but not exactly what to do. What you need to do exactly will be revealed in a short period of time, by practicing in your forum. What if Price is in a Range? I encourage you to simply do your best. That s all there is. The community will recognize what you are doing well, and what you need to focus more attention on. Usually, your guidelines are going to determine whether or not a range is big enough to trade. For a good starting point, if the market is sideways, you will only trade if the range is bigger than 50 PIPs. And in this context, you must get in and out of the trade (profit target) before price reaches the top/bottom of the range. As you will find, much of this will be decided for you. For example, by the time the moving averages establish in position, price might have already hit the top or bottom of the range. Naturally a range can be subjective. In other words, one trader defines the range in one way, and another trader defines it differently. All that matters is how YOU define it. I didn t make a picture here on purpose. When the time comes, you will remember that you need a minimum range of 50, and you must get in and out of the trade before price reaches the top or bottom. Naturally the moving averages need to have a cross, you need a new wave, and all of the other criteria. I ll talk more about this in level 3, once you have more experience. 90

87 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Why can t you buy on the bottom of the range and sell on the top? You can, but this is not consistent with the high probability logic we are using to reach your first goal of consistent profit making. You might have noticed me writing solve for entry, solve for stop, solve for target. This suggests that you found two of the three, and are now solving for the third, arriving at the.75:1 optimal risk to reward ratio. Manually Calculating Entry and Exits Solve for entry? Whether you are in a sell or a buy, you simple measure the difference between your stop loss and target, and then multiply that number by When you get the sum, add it to your stop for a buy. Subtract if from your stop in a sell. This gives you your entry price. You can round your numbers for now. This will cause some inefficiencies, but is nothing to worry about right now. We ll get that sorted out in Level 4. Solving for your target or stop loss is very easy, too. If you are solving for target, measure the distance between stop loss and entry. The multiply that number by.75. Add that sum to your entry. If you are solving for stop loss, get the distance between your entry and target, multiply by 1.4, and then subtract that number from your entry. This will get you close. I would encourage you to go through the level 2 section again. Write down the rules you think you can use. Write down what you will be observing, and write down the ideas that I said I would be covering with you later (if you want to). In the last chapter of level 2, I ll be discussing the application, briefly. 91

88 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Chapter 11: Community Application, Level 2 Special Note: This section shows you how I have my community designed for best results. Feel free to copy what I do on your own site, with your own team. See the back of this book for more details on our community if you have no one to work with. Your personal forum is where you do this work. Hopefully you did your work in Level 1 and got a thumbs up to move forward to Level 2. If you didn t, I want to strongly encourage you to do this for level 2. If you jump to level 3 before you are ready, you might end up struggling for a very long time, not realizing what you are missing. Level 2 Objective Identify YOUR unique setup, applying complete logic. As part of that, you will be mastering the New Wave Fibonacci Drawing. Many traders have to practice this a bit to get it right. In addition, we all tend to have blind spots in one area or another. Often this can be not seeing that the trend has not actually advanced. All you need to do is practice. Your team will give you feedback on how you are doing. ALWAYS post your trades in real time, whenever possible. Notice that I don t often underline words in this book. I underlined that previous sentence because it is one of the most important things you can do. When I personally coach traders, I require that they post in real time. That means posting BEFORE the outcome is known. With this book and the community, you are really free to do whatever you want. Why did I require this? I think as a trader we must get comfortable in our own skin. Why would you not post in real time? Maybe you would fear looking silly? Trust me when I say that the trader who is willing to make a mistake in front of others has MORE respect from the community than the person who seems flawless. After all, none of us are flawless. So by being willing to make a mistake in front of others, you gain more respect. But more importantly, this is not about what other people think. This is about you making consistent profit. And to do that, you need to show the community WHAT you are ABLE TO DO NOW. I can tell you from experience that if you wait to post your trade until after the outcome is known, you will not post all of your trades. Think of it like holding yourself accountable. 92

89 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Just so you know, when we tested this program for the first time, I posted 87 trades in real time, in a live account, in front of everyone, before the outcome was known. This is a liberating experience. Now that I have that out of the way, feel free to do whatever you want. As Morpheus said to Neo, I can only show you the door. You have to walk through it. How Will I Know When I Have Completed Level 2? As I said, give yourself 3-4 weeks of application before you even think about evaluating what you are doing. If two days ago you still didn t have the New Wave Fib Drawing correct, you are not ready for level 3. If three days ago, you took a trade and the trend was not yet advancing, you are not ready for level 3. You need to have the basics correct, and then about 5-10 trades beyond that. So after you are no longer making logic and technique mistakes, then the community will be looking for a pattern in your trading. You tend to take the same type of trade each time. If you know what you are looking for, put it out there in the community. Ask them to look at your last five trades and get their opinion. The bottom line is this: try to get some validation from more than one person in the community that you are ready for level 3. There are many traders that I trained for as many as two years in our community. They know exactly how this works, as do many others who came after them. I think you can rely on their feedback if you are using the community I designed. If you have your own community following the guidelines in this book, just follow the guidelines in this book. But in the end, no one tells you what to do in the community. They can only make suggestions. You can do whatever you want. In my community, during live trading sessions, when I am there, you can count on me to review questions I see in the forum, and any you pose to me while I am in the live session. Level 2 Procedures There are a few things that you need to do that will help other people follow your work. For example, when you save pictures for upload, in the name, include 30 or 5, which represent the chart time frames. So today is _1_5. The date is obvious. This the next number (1) represents the picture number. The 5 is the time frame of the chart. In this way, traders can see under your picture what it is, without you marking it. You can also label your charts if you want. 93

90 Level 2: SEIZE THE HIGH GROUND, Forex Art of War Keep in mind that files size is often limited. Usually 300k or smaller is okay. I suggest JPEG, GIF, or my favorite, PNG. All will work. Be sure to insert into editor after you upload the picture to your forum. You can upload up to 3 pictures per post. You first click attach to upload your file. Then click insert into editor. When finished, click post reply. You can always edit the post, as well. In fact, if you want, you can edit and post a follow up picture after the outcomes is known. It s up to you. Sometimes traders get a little chatty, and there can be several posts between the time you took the trade and the time it was completed. So in this way you can keep them all together. Then again, you might like the conversation and then the follow up picture. It s really up to you. Try not to post too much. If you make ten post to your forum in a single day, for instance, traders might just tune you out. They want to help, but it s just not practical for them to read so much. That said, always ask a question when you have one. It is best to ask in your forum in most cases. Naturally if it is about someone else s trade, you would ask in their forum. Be sure that you label your chart well. I suggest using rectangles to show your price barriers on your charts. Also label your entry, stop loss and profit target, including the prices. The best way to get a lot of help is to make it really easy for traders to follow what you did. I would go one step farther and use green for entry, red for stop, and blue for target. In the picture above, the trader is choosing to show their barrier as a thick black horizontal line. That s fine, too. Be sure that your 30 minute chart is zoomed out enough so that you can see what was happening leading up to your trade. 94

91 Level 2: SEIZE THE HIGH GROUND, Forex Art of War are the order that we usually look at a trading setup. Successful Traits On the left here, you see his 5 minute chart. He is zoomed in, you can clearly see his Fib, and you can clearly read his stop, entry, and target prices. You can see that the trade is actually using the same chart to picture both the 30 minute and 5 minute. He is actually going through the additional step of adding a label of the time frame, which is not necessary. I suggest you upload the 30 minute first, and then the 5 minute, as these I did notice a pattern in traders that tended to do well, and it might do you some good to know. 1. Whenever they had a question, they asked, willing to ask any question 2. They posted their trades in real time 3. They had no expectation of when their success would come 4. They focused on the process, not the destination 5. They made a great effort to follow what I showed them to do 6. They were consistent in their efforts. Again, 8 hours per day is total overkill. Once you are well into level 2, an hour a day is plenty. How Many Trades Will I Get Per Week? A conservative trader will get 1-2 per week. An aggressive trader will average 1 a day. Naturally the aggressive trader tends to become more conservative, in time, and the more conservative traders becomes a little more aggressive. My final advice is really just to repeat that you should take trades as soon as you can, and ask questions in your forum whenever you have one. 95

92 Level 3: RULES OF ENGAGEMENT, Forex Art of War Level 3 Introduction: Execution and Experience There are three important things going on in Level 3. Develop Trading Plan Learn to Execute Review each series of trades, as you gain experience, modify for nuances you gain experience with. If you are wondering how many trades you need to take to get to level 4, the answer is different for everyone. For the past three years, I have not tracked these results. But in the first group, two years earlier I can tell you that most traders were ready after taking trades. If you target the average of 2 trades per week, you can quickly do that math and see what that means in terms of time. Some have done it sooner. Generally it is going to be trades. Note that it is not all about the trades. It s also about trading in different market conditions, which give you different experiences. More aggressive traders were trading more often, so I created a minimum window of three weeks. 10 trades or 3 weeks was my rule. I found that aggressive traders need more trades and experience than the other traders. So in the end, being aggressive probably won t save you time. In other words, an aggressive trader probably needs to take more trades. Consider that you are building a new neural network in your brain for making these types of decisions. But just like any new habit, it takes time. You need to have the experience to make the impressions necessary. My teacher used to say that Forex trading is a marathon, not a sprint. The first thing you will be doing in level 3 is developing your plan. I would really take your time with this, because you want to get it as right as you can from the very beginning. Over the past three years, I have published little about this process. I worked with each trader one-on-one, careful not to allow bad habits to enter into the process. For example, the first thing you might want to do is go and look at someone else s plan. That would be a natural thing to feel like doing. If you ended up copying them in some way, this would be counter-productive. So I had a new forum just for working on the first plan. 96

93 Level 3: RULES OF ENGAGEMENT, Forex Art of War Other traders could not see that information. I said, This will take 5-8 days of us going back and forth. I would ask traders questions, and they would write me back answers. And I would keep asking them questions until I felt we had it right. I am going to publish everything here. You can do your best to follow the patterns of success the most efficient path to it. But know that most of us have the natural tendency to take short cuts where we can. I think if you rely on the community, you will be fine. I should say that about two in one hundred traders has something going on that I could not put my finger on. In other words, it was just impossible to help them, no matter what I did. In everything else in life, that number is 6 in 100. For example, in our optimal health program, there was a 94% success rate. For the 6%, no matter what they did, they could not be healed. As you have come to see, I always look to numbers to reveal some insight. That said, I noticed that the 2 in 100 seemed to fall into two personality types: 1. the person who felt they knew a lot and really needed to feel autonomy which came from the do it myself style. 2. The second type was someone who just never wanted to believe that their personal development was the most important factor. They wanted it to be about market information, not about them. Both appear to be the heightened need for control. Remember to just relax and let go once in a while. Don t blindly follow, but don t try to control everything, either. I think we also have to acknowledge that not everyone REALLY wants to be a Forex trader. One of the best traders I knew mastered trading and then just stopped. I was on the phone with him when he realized that what he really wanted from Forex trading was something Forex could not give him. What he really wanted was more along the lines of being a world class poker player. He wanted the recognition that comes with turning $1000 into $1million. He was making consistent profits of 5-15% and more a month in a sizeable account, and it was just not enough to meet that need. He was independently wealthy, so his story will be an exception to the rule. In the first step you are developing your trading plan. And it is not just a trading plan. It is a GOOD trading plan. 99% of those who enter Forex trading NEVER trade with a good 97

94 Level 3: RULES OF ENGAGEMENT, Forex Art of War plan. This is based on my observations of how traders talk and what they do. Once you are trading with a good plan for a little while, you too will pick up on the fact (almost immediately) that the person is not trading with a plan. I would not point it out to the person. They are on their own journey, and that needs to be respected in my opinion. I think most traders with us now get excited about working on their plan. We ll be doing that first. In level 3, you are learning to execute. I say learning because Forex decisions are different from ordinary life. You will find that you feel like doing one thing, and you really need to do something else. I want to share something I think is quite relevant. I can still remember what it was like to be young and a little rebellious about the rules. RULES made me feel less free, if I am honest about what I was feeling (or that s how I experienced it). Ironically, I learned around the age of 26 that the right rules are what created my freedom. And I that didn t bother me because I wrote my own rules. I ll share how I applied this idea with my daughter in Chapter 1. Naturally it is much easier to create the rules than it is to follow them, and that s really the art of discipline. It s not really about will power or getting psyched up. It s about knowing yourself, and finding a way that works for you. One of the keys to good health is drinking enough water each day. Going to the sink and getting a glass of water always felt like a chore to me. But eventually I discovered that if I filled a one quart water bottle and kept it beside me, the water would disappear over a few hours. That s what I m talking about when I say get to know yourself. Learning to execute takes lots of practice. But if you do it enough, it will become your new normal. Once you take 10 trades, or if you take more trades and three weeks passes, it will be time to review. I did this with every trader, every time. I was looking for how well they executed, and I was looking for experience with nuances. There is A LOT that I did not teach traders. But what I did do is watch for them to see it without me teaching it to them. To move them to level 4, I was specifically looking for consistent execution, and enough adjustments for nuances in the market to keep their probability of winning in the 70% or higher 98

95 Level 3: RULES OF ENGAGEMENT, Forex Art of War range. Sometimes the rules would get too rigid and they weren t getting many trades. When this happened, I had to get back together with them, and make some adjustments to help with this. I m going to cover all of this in level 3. Keep this in mind as you work with others. You will find some traders are totally focused on figuring out an idea. You can remind them that nuances are about their experience. And remember it is okay to explore ideas you are interested in. I think that is great! Just keep the perspective that some of this you can learn from knowledge, and most you learn from experience. 99

96 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 1: The Importance of a Plan Welcome to the Top 1% The first thing I want to say again is that 99% of the traders in this industry NEVER trade with a good plan. This is a big problem, since the way we make decisions in ordinary life will not work for Forex trading. So I want you to know that when you complete your first plan, and take your first trade, you are going to leap frog ahead of 99% of the traders in the world. People ask, Vance, how do you know it is 99%? You ll see. Trading with a plan is VERY different. So different, it immediately changes the way you talk about Forex trading. You are going to be developing the skill to execute and making adjustments to your plan as you gain experience and review. But your first job is to execute. Don t concern yourself with anything you don t understand. Just execute. And don t be hard on yourself. If you only execute 50% correctly in your first series, this is normal. Our mistakes show us where we have work to do. The Importance of Your Words I could write a small book just on this subject. But I want to impress on you why it is very important for you to write your own plan. In the introduction, I told you that I asked traders questions to develop their plan. I did this because I discovered that we don t understand each other as well as we think (assume). When I first tested the Forex Art of War learning system in 2010, I gave the traders a plan. In time, I was baffled for a couple of days after something happened. I taught them the setups and gave them the plans. They then took 20 trades. When we reviewed the trades, every single trader got around 50% correct. In other words, they broke a rule in their trading plan about half of the time. This happened over and over. I soon decided that what I was taught them, and what they heard me say were two different things. So in the second generation of this learning system we did it differently. I gave them the logic, they traded, and when they got it right, then we defined their trading plan. In this way, each trader trades what they see, and has a plan written in their own words, avoiding the problem with teaching assumptions. 100

97 Level 3: RULES OF ENGAGEMENT, Forex Art of War Notice how the problem was eliminated. Instead of trying to make sure that everyone understood what I was asking them to do, I let them show me and tell me. It would have been easy to be stuck at the same problem for years. So you are going to be choosing a couple of setups that you traded in level 2. I m going to provide you with questions to answer. Then you will need to rely on the community to help you shape that into your trading plan. Now here is the key: one or more members who already have a trading plan need to understand your plan. More on that later. The Power of a Good Plan When my daughter was 14, I could see that she was pushing for more freedom, and her and I sat down and had a conversation. I asked her what she really wanted. She told me without hesitation that she wanted to be peer level with me by the time she was 16. She wanted mutual respect, and wanted to make her own decisions. I recognized that the time had come where she was naturally craving more independence. I thought about it, and after a day or so, I told her I had come up with an idea. I told her I didn t know if we could get it done by the time she was 16, but that my idea was probably the best way for her to get to where she wanted to be. The first thing I told her was that if she was going to be free, she was going to need to create rules that make her free, and learn, over time, how to follow them. But I emphasized that she would be making her own rules from day one, and not following my rules. She liked that idea a lot. The first thing we did was sit down with a pen and paper and I asked her questions like: how much sleep do you need at night? She replied 8 hours. I then asked, What time do you need to leave for school? Then, how much time do you need to get ready for school? As you see, I am asking her about her life. She caught on right away that we were arriving at a rule for bed time. I asked how much time she needed to fall asleep along with a couple of other questions, and soon we had the right time for her to go get ready for bed and go to bed. So I would then ask, So do you think that 9:30 is a good time to go to bed? She then agreed that it was obvious, and we made that a rule. 101

98 Level 3: RULES OF ENGAGEMENT, Forex Art of War I asked, Do you see that YOU created that rule, not me? She agreed, and was very excited about the process. We took a little time for the next few days to do this with everything. In a short period of time, she had a plan for her life. I also told her that this was a starting point. That experience would require that we make some adjustments. In addition, I told her that the first year, I would enforce the plan and the consequences for breaking the plan. The second year, she would do the plan herself, but I would still enforce the consequences. The third year, she would do the plan and enforce the consequences. With respect to consequence, for example, if she did not follow her plan, she had to run around our block two times. She did not like to run at all, but recognized the punishment was good for her. At times we would review. For example, she was feeling light headed at school by 10AM, and could not concentrate. I suggested that she eat eggs and toast instead of cereal so that the food took longer to digest. That perhaps her body was going into detox mode around 10AM. That worked. Those two years, and even years beyond were not without their challenges. In fact, there are a couple of days I would dearly love a do over. At age 18, my daughter was attending the University of Washington, but with the college credits of a junior (3 rd year). She graduated with a BA at 21. Best of all, she is herself. Now she is 22, and thinking about her double masters in clinical psychology and nutrition. I only asked her to complete the BA. Now I m just dad the sounding board. She and I are very close. During those years, she talked to me about just about everything. In fact, at least one thing, I would like to forget, lol. I don t imagine her accomplishing anything else. It s her life to do whatever she wants. Dad just wants her to be happy, and to do what she loves to do. I want to also mention that when she was still in high school, she was sad at times, and complained that her friends were just not working this hard and they were having so much fun. I would tell her, Sweetie, you just keep going. You will see that you are going to find yourself in a completely different world with so many more options than they have. 102

99 Level 3: RULES OF ENGAGEMENT, Forex Art of War When she was 20, I think she told me exactly that. Dad, you were right, my friends have no idea what they are missing. I think if some of them knew, they would have worked much harder. My daughter was the first in my family to get a four year degree. Check. As you might imagine, when I was learning The Art of War (no easy task), I saw so many of the principles at work in my life in the past. When I created the learning system I call Forex Art of War, you will see that I used that experience with my daughter. Without knowing it, I had been applying Art of War principles. So this is why I ask you questions about your trading, rather than teaching you how someone else was successful, which never works. Can you imagine me trying to teach my daughter to prosper in the world by making her do things that made other people successful? There have been studies that show that kids who go to bed at 7PM end up more successful than those who go to bed later. This is the difference between making a decision based on some evidence, and making a decision based on principles. The others who are not successful are not that way because of the bed time. It s because of how they spend their time. But it would be easy for a parent to make a rule go to bed at 7PM, and believe, based on very strong evidence that this is a good rule. And yet it would be rules like these which would cause children to rebel the most when those rules are not working for them. In this first section, my goal was to impress on you the importance of a good plan. That the plan needs to be based on you, and no one else, and the rewards for choosing this path are not insignificant. Okay let s get to work on your trading plan, and we ll learn more along the way, here in level

100 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 2: Getting the Right Information for Your Plan You might see two other trader s plans accidently or on purpose, and think to yourself, those plans look almost identical. They do look that way, but believe me when I say that no matter how identical they look, they ARE different. If not in word, in meaning. So keep this in mind as you proceed. To do this right, you are going to do a little bit of work, and also will need some help for others. Hopefully you got the thumbs up from one or more members of the community, validating that your setup was consistent and that you are applying complete logic. From your last five trades or so in level 2, you should be able to get a picture of one or two setups that represent what you do well. Here s how I did it. First I looked at the most recent five trades (that have complete logic), and looked for what was consistent and what was the application of complete logic. I usually found one picture to best represent this. It doesn t matter if it is a losing trade. It doesn t matter if it is an odd pair like the AU or NU. The main thing is that this picture represents what you see best, making good decisions. I just took this picture from a trade that one of our level 2 traders took yesterday. You can see the 30 minute chart on the top. You can see the 5 minute chart on the bottom. From this picture and the details he wrote above, he would have all of the information he needs to create a trading plan. The most important is the ROA he listed as 21 PIPs, 104

101 Level 3: RULES OF ENGAGEMENT, Forex Art of War in terms of the information at the top. The rest of the information is on the chart. I can see the trend, the advance, the fib drawing, the entry and exit prices, and so on. I ll be giving you a list of questions to answer. So this is what you need to do. Find a picture of a trade that has the following information, and which you did consistently. Trading in the direction of the trend Trend is advancing New Wave Fib is drawn correctly Minimum ROA is met Entry and exits reflect what you usually do. (previously used the word consistent) If you are a member helping another member with their plan, you need to be looking for this, too. What you want to do is choose a picture, and then post that picture in your forum, and ask for help from other members. What the other member will do is look at your picture, and go back to your level 2 work, and see if they agree that this is the trade you should use. Stay with this until you feel like you have agreement. It s okay to take a good week for this process, though it is possible to get it done in much less time. I m just saying not to be in a hurry. If you get this right, you will be ahead of the game. Get it wrong, and you will be wasting a lot of time. You have a horse in the race. In other words, you have attachments. You are hoping to make money doing this. You might be hoping to do this sooner than later. You might have emotions distorting what you are seeing. This makes it difficult to be objective. The member s only motivation is to help you like someone else helped them. So it is best to get this third party validation. You ll have more real confidence in the process if you do. Remember that confidence comes from experience that is validated. Okay now, if you have that part done, then you are ready for the next step. The top of your trading plan will look like this. 105

102 Level 3: RULES OF ENGAGEMENT, Forex Art of War Vance Williams 6/15/15 Golden Rule: Follow Your Rules If you discover a mistake let your stop or limit hit May note change a rule during a series of trades One trade at a time (add these three to the top) I had a rule: share your trading plan with no one. It would be very difficult to make a program that is community support without you publishing your plan. As I said, in my personal coaching program, traders never saw a trading plan until they made one of their own. But that s just not practical with a self-study program with an important community dynamic. By far, the most difficult part (of the plan) to define are the entry and exits (entry, stop loss, target), and this is not really that difficult. It just may require a series of back and forth questions and answers to arrive at the best rules to begin with. Okay here are the questions. You want to look at the picture that was chosen and answer these questions in your personal forum: (feel free to number these) What hours are you going to trade (should be same hours as your trade) Which currency pairs are you going to trade? You get more practice if you continue to include the AU and NU, but this is up to you Which charts are you going to use, and for what purpose? I would keep this simple for now, sticking with the 5 minute and 30 minute. Perhaps adding the 1 minute for fast moving market. But know that fast moving will need to be defined by you in the future (note that not everything needs to be defined now. In fact, there are good things you are probably doing that you are not even conscious of yet). How do you determine the trend direction? What is your minimum range of advance? Is there a maximum? What risk to reward ratio did you use in this trade? In this next section, you will have three different areas of rules. The order is not important. But you need to determine why did you choose that entry point? How did you determine your stop loss? How did you choose your target? 106

103 Level 3: RULES OF ENGAGEMENT, Forex Art of War For some traders, they go right to their stop loss or target first. For others, it depends on the setup. You can also use words like solve for entry or solve for target or solve for stop if you are actually doing that. What is your maximum risk to equity? I suggest a maximum of 2.5% - I think this may be the first time I m saying to do this in the book. There is a later chapter which has risk to equity in part of the title. Please review that chapter. After you have answered all of these questions, there is one more thing for you to do. Go back to the last 5 trades you took and answer this question: Is there anything else you were doing consistently in your trades which did not get included in this process? If there are things you are watching for, such as high impact data, or even nuances you are watching for, put those under the plan. Just do the best you can. As a member who already has a trading plan, if you are helping someone with this, what you are really doing is making sure that the trading plan is complete, and making sure that you understand what they are saying in the plan. Remember that they are already trading good logic. You are just helping them to define how they made those decisions. If their answer to their entry rule is too long or unclear, ask them to explain, and include a different picture if it helps. As I said, the entry and exit points are usually where you are going to need the most clarification. And sometimes traders overcomplicate the process. For example, their stop and targets are well defined. Yet there is a paragraph explaining the entry, and the entry might be a simple as solve for entry, 38.2 or better. That s the entire rule. It s saying that you can enter anywhere you want, as long as price has pulled back 38.2 or more. You might have 2 entry rules, or 2 stop rules, or 2 target rules. Before I give you an example, I want to remind you that this is not about trading. This is about YOUR trading. Maybe you like the stop loss beyond 76.4, but if there is a strong former support or 107

104 Level 3: RULES OF ENGAGEMENT, Forex Art of War resistance, it s okay to just put the stop beyond the barrier, even if it is not beyond You ll know just by looking at your trades. And maybe this is something you do later after a review as a result of your experience. Always remember that changes in your trading plan are based on a series of trades, and changes are made based only on your experience. There s that rare underline again. Validate that you have it Right Give this process whatever time it takes to get your plan defined. Do not let someone else choose the words for you. They can suggest ideas, but you really need to look at what you did, look at the words you are choosing, and say, Yes, those words define what I did. There will come a point when this process will come to a close. The more advanced traders will keep an eye out for a plan that is not coming together and use some of their expert skills to help out, even calling on me if necessary. So do not worry. You will get the help you need. As much as I don t want to say this, the next step is to publish your trading plan in your forum. I would suggest you make a note of the page, and include that in each trade you take (I ll put this in procedures). The very next thing you do is PRINT and HAVE YOUR TRADING PLAN IN FRONT OF YOU WHEN YOU ARE TRADING. Underline AND CAPS? You need to be going line by line over your trade. I ll talk about that again in procedures. Some traders are under the false impression that they have their plan memorized. They probably do, but when emotions like greed, carelessness and fear enter, the memory does not work so great. Go line by line for each trade and you will achieve your goal faster. Building a New Neural Network When you are following your plan, you are learning to make decisions in a different way. You feel emotion when you win or lose because your defense systems are triggering fear when it looks like you could get hurt, and euphoria when it looks like you have been vindicated of all wrong doing in your life (ha). 108

105 Level 3: RULES OF ENGAGEMENT, Forex Art of War So there is a system triggering emotions. Your brain needs to learn that this type of decision making is normal. This takes time. Your brain is actually made of neurons. If you do something like follow a trading plan, a new network of neurons is formed. If you keep reinforcing that neural network with practice, eventually, the myelin with cover the nerve endings, turning the network to gray matter (physical brain). That s the gist of it anyhow. The goal is eventually to create a new normal. Right now losing 4 trades in a row is painful. But in time, your brain will learn that this will not kill you and that it is perfectly normal. So in the meantime, you will need to be patient with the swings of emotions. Just realize that these feelings are just information. The purpose of this information is to help you navigate. Since you are flying in new territory (so to speak), you will need to learn to allow these feelings to pass. Remember the marshmallow, and a powerful principle: there is no growth without suffering. If that sounds too harsh, put it this way. You don t grow stronger muscles without tearing the existing muscles. If you are going to become good at Forex trading, you are going to be challenging yourself to grow. The best tip I can give you is from physics: for every action, there is an equal and opposite reaction. Our natural tendency is to push away or run from discomfort. What would happen if you went towards the discomfort and welcomed it? I ll let you find out for yourself. My mentor always says that when people finally turn to face their demons, they find a pack of puppies. In my experience, this is true. Coming up next is procedures. I m going to keep this very simple for you at this point. But you need to follow some procedures. In this way, you have the information you need to effectively evaluate a series of trades. Often traders take 5 weeks to complete the series. When we get to the evaluation, we just have no idea what was happening around a particular time in a trade. Perhaps a 30 minute chart was just zoomed in too far. So procedures are VERY valuable, and as I said, I ll do my best to keep them very simple. Okay on to the next chapter on procedures! 109

106 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 3: Level 3 Trading Procedures It is very important to follow procedures and gather this information because if you are missing information when you get to your review, it will slow your progress. At this point we are still ignoring the fractional PIPs, though if you are comfortable, you can include them. In addition, up to now, we have been ignoring the spread. If your spread is 1 PIP or less, you can continue to do this. In level 4, you will need to account for everything because then we are actually talking about bottom line profit. You need to be hitting.75:1 to achieve the optimal risk to reward balance. Things are going to slow down a bit in Level 3 because you are getting more discerning about your trades. But keep in mind that you are going to start seeing more nuances, and this will keep you a little busier. It s also okay to slow down and spend more time with family or with something else you love doing. If you want to begin accounting for the spread, I suggest at this point you continue to ignore the fractional PIPs. Now as I explain this to you, please know that very few traders get this the first time they hear it. So I m going to give you a rules to follow until you see it. Accounting for Spreads The reason why this can be confusing is because buy orders are executed at the buy price (ask price), and the sell orders are executed at the sell (bid) price. To make things more confusing, a sell order closes a buy position, and a buy order closes a sell position. Your chart price should be set to bid. You now have enough information to figure it out, just so you know. So if you have the great desire to really understand it, then by all means study those two paragraphs as much as you like. But you will all understand this eventually. You see, in order for the brain to receive information, there much be a corresponding pattern in your neural network (brain) to receive it. This happens as a result of impressions. It s why advertisers repeat the same commercials over and over again. Ace is the place with the helpful hardware man. You hear that enough, eventually you will think of Ace when you need some help with your house. 110

107 Level 3: RULES OF ENGAGEMENT, Forex Art of War Here s the reason why: If you are in a sell position, in order to close that position, you must execute a buy order. The buy price is higher than the sell price. So if the spread is 2, for example, your trade will be executed 2 PIPs lower. If you were selling at , and you wanted to close the trade at a target at , if you used , your trade would close 2 PIPs LATER. To get the trade to close at the correct price on your chart, you would need to add 2 PIPs. Why? If the spread is 2, when the chart price is at , the buy price will be at Can be confusing, but consider that the buy price has not yet reached Your target has been reached on the chart, but your trade didn t close! That s why you need to add the spread when inputting pending buy orders. But be careful not to add to the distance. It is a common mistake to look at a sell trade going down, so see that price needs to reach , and then to add 2 PIPs to the distance of the trade, making the order Don t do this. In lieu of understanding, I ll give you some simple rules to follow. Any pending buy order requires that you add the spread when placing the order. The simple rule is this: When in a sell, when inputting the stop or target orders, add the spread (in this example, 2) The other rule you need is this one: when placing a pending buy order, add the spread. Many traders call this an entry order from the old days. Any entry is an entry order. So the symbols don t work well. Nonetheless, let me give you an example. Let s say that price has made a New Wave of 22 PIPs, and you are watching in real time and want to enter at a 50% pullback, and you want the platform to execute that for you automatically. On this type of order, since it is a pending buy order, you must add the spread when inputting the order. I don t teach breakouts, but if you bought on a breakout, the same rule would apply. Most traders need to learn to do all of this. The exception would be that if you are trading below your maximum risk to equity, and you are getting the minimum.75:1 risk to reward. In this case, the spread doesn t matter as much. I have traded for quite a while with Interactive 111

108 Level 3: RULES OF ENGAGEMENT, Forex Art of War Brokers. My particular trades usually exceed 1:1 risk to reward, and my spread are very low. So there is no need for me to account for spreads. Using a Trade Calculator First of all, you are welcome to continue to do this manually. I explained how to do this in Level 2. Some traders like to do so as part of their routine. Others are VERY detail oriented and prefer to use calculators. You can get the calculator in the community area if you are a member of the community or on my home page if you are not a member. My suggestion is to learn to use the calculator. It will 1. Save you time 2. Make you more efficient. In addition, there are much more sophisticated spread sheets that you can use if you want to know even MORE about your trading history. If you are someone who is trading cross pairs, which I do not recommend at this stage, in order for your prices to be correct, you must also use the broker s PIP calculator to find out what the PIP Value is. This is actually true whenever the USD is not in the second position (EUR/USD). Said another way, if the US Dollar is not the quoted currency, you need a PIP calculator to get it right. This goes for pairs like the USD/CHF, and USD/JPY. Even some experts are unaware of this fact. We discovered it in our volumes of study and documentation. PIP value is determined by YOUR broker. Okay some procedures I can list. This will help insure other traders can easily follow your trade, and that you have the information you need to make the most of your experience when you review. I ll keep them as brief as I can. Print your trading plan and have it in front of you. Go over point by point for each trade to make sure the trade fits your rules. No matter what you are feeling, if it fits the rules, take the trade. If it doesn t fit the rules, don t take the trade. Always label any barriers on your 30 minute chart. Can also do so on the 5 minute if you like. Often these are the same chart. Make sure you can see context on the 30 minute chart. This is usually 3-5 days of information. On your 5 minute (or in some cases 1 minute) make your entry price label green, your stop loss red, and your target blue. Make sure the labels are big enough to easily read. Automatic prices on horizontal lines or trade orders are usually too 112

109 Level 3: RULES OF ENGAGEMENT, Forex Art of War small to read (if members can t easily read your work, they are less likely to provide feedback). I suggest you learn the calculator. In some cases, the software won t work on your computer. Seek out and find a way to make it work. If you are not a part of our community, someone in your group might have the skills. I put a trade calculator at if you are not a member and need one. You may also want to follow higher target exits for later review. This is up to you. Did price reach 1:1? 1.5:1? 2:1? This is optional. I d rather you keep it simple. But this is good information to have. Be sure to put an arrow on the candle showing where you entered. You d be surprised how many times we look back in time and cannot tell WHEN you entered the trade. The charts I used can display an arrow automatically. Post your trades in real time, before your stop or target is reached. Write information about your trade in the comment area of the post. Be sure to include the ROA, and any information you are noticing. For example, I entered this trade 15 minutes before Consumer Sentiment was being released. Or, I noticed that this was a brand new trend. There might be more opposition, resulting in a bigger pullback. All of this information can become useful when reviewing a series of trades. Some traders post a lot of information with their trade. That s okay. This is a function of personality. Make a note of the page your trading plan is on near the top of the post, i.e. Trading Plan page 51, or TP 51 (put most pertinent information at the top. This will encourage more feedback). When the trade is complete, post a follow up picture showing the result and how that result unfolded. Also add a note about whether price reached your stop or target (not win or lose). I would also suggest that you begin taking pictures of your trading platform orders, as well. I ll tell you why. One morning, I woke up year ago and 15% of my account was gone. At first, I could not tell if this was my mistake or one made by the broker. Finally I saw that the order was executed 100 PIPs lower than the order I intended. Now, that was probably me being careless. But the truth is that I ll never know for sure. From that day forward, I took a picture of my orders and saved that picture, too. Feel free to implement this in level 4. I would keep a personal journal about your emotional experience. Just write down anything you are experiencing. It will be helpful over time. 113

110 Level 3: RULES OF ENGAGEMENT, Forex Art of War When you can, review other traders work and provide feedback if you have some. This will help you as much as it helps them. Who learns more? The teacher or the student? The teacher ALWAYS learns more. It s a powerful principle you can apply in this way. If you begin seeing a setup that is different from your trading plan, and WANT to trade it, by all means, go ahead. But make sure at the top of the post, write documented trade. In this way, you signal everyone that you are consciously going off the trading plan on this setup. Notice that I didn t say if you see a trade taken by someone else that you like. This can only be something YOU SEE. Again don t fall into the copycat trap. Do not evaluate your trades during a series. Only make notes about anything you observe. I think that s enough procedures to get you started. The next step is to print your plan and procedures, and take your first trade. Just get it done. Don t worry about making a mistake or winning or losing. You ve come this far, now cross that barrier few have ever crossed! 114

111 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 4: How to Review Trades My first suggestion is to see if you can get someone else to help you review your trades. Remember that this is new territory. Up to even the present moment, I have been doing every single review for every trader. Another trader is likely to be more objective. Ever notice how it is easier to solve others problems than it is to solve your own? That s what I m talking about. We are just too close to the trees to see the forest when it comes to our own stuff. So see if you can get someone who has more experience to pay it forward for you and help out. Then you can do that for someone else in the near future, too. Okay what are we looking for? For the first section of this, the trader remains silent. When I look at a series of trades, the first thing I do is read the trader s plan. Then I literally go through the forum page by page seeing if the trader followed the plan. I write Trade 1 on a piece of paper. I make notes of anything I see. Did they follow their plan in the trade? Are there any areas that need improvement? Did they make notes about something else they were seeing that we might want to consider putting in the plan? It is only natural to feel like we need to make a change when we lose. It is the job of your helper to look objectively at the setup. If you followed your rules, it was a good job. Any single trade is a random event. Always remember that. Reliable patterns can only be revealed in a series. If you did everything right, a single win is still just luck. You have actually crossed over from Newtonian physics, into the world of quantum mechanics. In QM, you cannot predict the behavior of the individual, only the behavior of the group. In this reality, everything is just a probability. Now maybe there is something that can improve. But be VERY cautious when changing your plan. The rule is this: A plan may be changed IF the trader has experience with the nuance being observed. Perhaps they want a different rule, for example when the trend is new. Well, to make that change, they should have been making notes about that in their forum in the series. 115

112 Level 3: RULES OF ENGAGEMENT, Forex Art of War If it is not clear, DO NOT change the plan. very small sample. And keep in mind that ten trades is actually a I literally write good next to Trade 1 and 2, and so on. If I see something, I make a note of that. Next I include the trader. Tell me about the experience. I listen and make notes of anything that seems relevant. I then ask, What would you like to change about your plan. I then evaluate whether or not that is consistent with the rules for changing the plan and consistent with my observations. Remarkably, we are usually on the same page. Again, if there is any doubt at all about a change, do not change the plan. Just make a note on the plan to observe this during the next series. Remember that the goal is NOT to make money as quickly as you can. The end game is making good decisions. In time you will come to clearly see important nuances. You will add these to your plan. You will consistently execute your plan. When these two things happen, you make consistent profit. If you are in our community, ask about a recording of me doing a review with a trader. This will give you a really good inside look at how this is done. If you are not, just do your best. It will work! During the first review, if the trader has not been documenting well (this is natural), the value of doing so will usually become apparent. There are times when we step away from the trading plan for a day. Maybe have the trader go over the trades again. Then we get back together and make any final changes. The changes are made. This is Plan 2, and you head out to take ten more trades. Make a note of the new page that the revised plan is on for your documentation. You can always edit any post with this information. It s okay if you end up with 11 trades or 15. But if this happens, make a note in your forum - post something like this: Trade 2-1 (series 2, trade 1) 116

113 Level 3: RULES OF ENGAGEMENT, Forex Art of War Remember that if you are helping someone with their trades, this is not about you at all. This is about them. Before I begin with them, I pause and close my eyes. I focus on what I want to feel, not a symbolic outcome. I find feelings of confidence, then insight, then presence, and gratitude, with the intention of helping them with their personal and financial goals. That s usually enough and only takes me about ten seconds. By your fourth series, you will have been watching high impact data enough to make rules about them. So be sure to add in rules about high impact data at the end of series 3 or 4. Also note that it is unlikely that your trading plan (rules for trading) will become much more than one page. The chances are very good that the bigger your trading plan becomes, the more you are trying to gain a feeling of certainty, and there is no getting there. What ends up happening is that you get so picky, at the extreme point you rarely find a trade to take. This we call the paralysis of analysis. I will be commenting on this in subsequent sections of level 3. Also, it couldn t hurt to get a second opinion on your series if you can find someone to do it. Keep these ideas in mind. Complete logic Changes based on experience Strengths and weaknesses In addition, they might have broken a rule in their plan, but actually been trading a good nuance that they saw. You should make a note of this when you are reviewing a trade. One of the most difficult parts of learning to trade Forex is having some confidence that you are making progress. This process will help a lot with that. But give yourself 3-4 series of trades before you even take a look at this. In 3-4 series of trades, YOU WILL see a huge difference in your skill level. Always look to encourage and build others up in the your community. Review Multiple Times Glean All You Can I once reviewed series of trades five times, and each time I found something new. This suggests that I should have reviewed more. So you can one-up me in that department. 117

114 Level 3: RULES OF ENGAGEMENT, Forex Art of War Guideline? Keep reviewing until you don t see anything else. Keep in mind that as you are making your first 40 trades, there are going to be changes. But as the changes become fewer and farther between, then begin going back and reviewing several series of trades. Trust me on this, you will discover valuable insights about your trading! Does all of this sound like a lot of work? I guess you could say that the path to success does involve a lot of development. But once you get skilled, this gets very easy. But until then, yes, you have work to do Don t Take Anything Personally I m going to go into a little bit of psychology to wrap up this section. I have a rule: I can take nothing personally (The Four Agreements). It took a little doing for me to get that rule fully engrained, but it is very difficult to offend me anymore. This is something we all need to practice, in my opinion. It makes us learn much faster. People should not fear giving us feedback. As my mentor says, You are not allowed to make up stories about other people. So if someone gets mad at you, your reaction should be compassion. Otherwise, you are taking something they said personally. I can hear my smallest boy saying Lucius said I am stupid. He says it with so much seriousness. I always ask. Are you stupid? He says, No. So if you don t agree with him, there is no reason to be upset. When people say things about you that you don t like, they are just expressing something they feel. What they are saying is not about you. It just came out that way. And I might point out that this shows that we human beings have a lot of work to do in this area. Is ordinary experience primarily a result of our feelings, or are feelings triggering those experiences (stories)? I think you will find that the latter is true. You can see I m struggling with the words above because for me, the only real experience is the emotional experience. But prior to coming into this awareness, my experience would have been expressed in a story. How do we know this is true? Because one is symbolic and the other is not. 118

115 Level 3: RULES OF ENGAGEMENT, Forex Art of War If you really don t care what other people think, you will not hesitate to post your trades. The chances are good that most of us will have some reservations on this subject. The key is always to do the right thing, regardless of what you are feeling. I can almost hear some people thinking that this is gobbledygook. No. If you are going to succeed, you must become more response-able than you are now. This means learning to see the world more as it is. It means accepting that uncertainty is okay. You don t know what is going to happen 5 minutes or 5 seconds from now. It s okay that we are vulnerable. You can die at any moment. The truth is that the future IS uncertain, and you really ARE vulnerable. It means seeing that other peoples stuff is THEIR stuff. It means showing up, being HERE, NOW. I ll end this section this way. Each of us are on our own path. The real world is the world we are experiencing right now. The past and the future can only be symbolized by the mind. By experience, I m talking about what you are sensing and what you are feeling. The sounds, the images the shades of green in the tree - your feet touching the floor a feeling of anxiety. Our current culture is living in a small space in their heads, almost totally unconscious of what they are really experiencing - of what they are sensing, of what they are feeling. I m telling you this, because THIS IS the source of our distortions. Our feelings and senses are bringing us information to help us navigate. But how can we navigate well if we are not conscious of most of it? Something to think about. The best thing we can do is practice being conscious of what we are feeling, and what our senses are telling us. The more you practice this, the less distortion you will experience. I told you that we understand each other less than we think. The truth is that most of us don t even understand ourselves. But your best chance of reading what others are doing is by being yourself. One of my earlier teaches used to say that the most important thing in life is to show up. This is what he meant. 119

116 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 5: Trading in the Zone This is a really simple, but important idea. Traders have heard me often talk about routine. It doesn t matter what you do specifically, but I think it is extremely helpful to have one. For twenty years now, I have been working from home. As you might imagine, I had to learn how to do that. This was everything from learning to be disciplined to actually go to work, to knowing how to divide the work from the home life. In the mid 90 s, I learned and wrote on NLP (Neuro Linguistics Programming). In seminars, we would play the Theme to Rocky and the room would get very excited. Then we would explain that all we did was use a trigger to change your state of mind. While the study of NLP can be quite complex, I m only concerned here with this simple idea. In an ideal world, when you sit down to trade, you want to be focused only on your trading. You want to feel confident about what you are reading in the markets, and confident that you know what you are looking for. We want to be in the zone. At some point in your trading, you will find yourself in the zone. This feels pretty good, too. The question is how do we get in the zone and stay in the zone. I consistently read the market with accuracy. I interpret global fundamentals in minutes, and price in seconds. But this isn t just my experience at work. This is also the result of a routine that I go through that signals my brain and changes my mindset. Let s use a familiar example before I explain what I do specifically. If you have never seen professional baseball players, you should really watch a half hour just to see what I m talking about. But most of us have already witnessed this. You will see much more of this if you are attending an actual game where you control the cameras (your eyes). Okay we start with the player is in the dugout. He is up at bat next. He has his favorite bat. He has his favorite batters helmet. He might even touch his cross or rabbits foot as he gets up and heads on deck (the area just outside the dugout). On the way there, he might spit, he might look out to the field. But usually he grabs more than one bat to practice swinging initially. At some point he drops the other bats and is left with his favorite. It s his turn to go to the plate. He might spit again, tap the bat on his foot. He gets into position at the plate. Maybe he steps back and then steps forward again. 120

117 Level 3: RULES OF ENGAGEMENT, Forex Art of War He might tap the bat on the plate. He might kick the dirt where his feet are going to be positioned. He then crouches down. Maybe one practice swing or two. He might look to the outfield in a particular spot. You get the idea. It doesn t matter what the batter is physically doing. What he is actually doing is repeating a ritual that puts him in the zone. There is no confusion in his brain that the only thing they are about to do is hit the baseball. And this is how batters get in the zone. Well you can do the same thing, and that s what I do. Again, it doesn t matter what you do, only that you repeat the same thing each time before you trade. Now to answer the question, how did I separate home life from work, it was actually easy. I used the Rocky Theme idea. I use music. There is only one place that I listen to smooth jazz, and that s when I m focused on Forex trading. You will hear it open each of my live sessions. When my brain hears smooth jazz, I go right into a trading mindset. But my routine is more than that. I get up at about the same time to trade. I drink water. I grind and get coffee brewing. While the coffee is brewing, I do a little stretching. I m not doing Yoga. I just stretch for a couple of minutes. When the coffee is ready, I head down to my office (apart from everything else in the house). This is where I trade. Before I turn on the computer, I close my eyes and think about what I want to experience emotionally (prayer or meditation would be similar). This lasts about seconds. I turn the computer on. I turn on CNBC. I review what traders have been doing in the community for about ten minutes, looking at my own charts. I see what they are chatting about for a few seconds on CNBC. If nothing out of the ordinary, check. I then read some fundamental analysis. For the past few months, I have been following Market Pulse. I prefer Dean Popplewell and some of his crew. I should say that my source has changed many times over the years as companies and people change. But Dean does a great job of going out in the world, looking at everything, and digesting it into some brief conclusions. He is not always there, or he might not be writing about something relevant to me. I ll also look at the other writers there, too. If you are the kind of person who wants to follow the 121

118 Level 3: RULES OF ENGAGEMENT, Forex Art of War macro trends, check out Mauldin Economics. But you really need to love to read to follow that. I ll check that out if I see any major trends unfolding (2 or more years out). In periods of heightened uncertainty, if I can t get a read on the market (rare), I will then take a look around Bloomberg as well. Which brings up an important point. If you find yourself looking too hard and too long at the information, there s probably nothing there. That all said, I spend only a few minutes on this and now I write my own conclusions which are normally a paragraph about the story currently driving the market. I look to see what has happened since London opened (I trade the first three hours of US open). I look at what price has been doing, and catch up on what price has done since I was last at the charts. Whatever your setup is, one of the most important things you can do is go back to where you left off in your last trading session, and follow price. Follow the trend, the waves, and the setups and see if you can find any trades that setup while you were away. Do this for any and all pairs you trade. If you do this each day before you begin, you will be caught up, as though you never left, and have a much better read on what is happening now. By this time, I am totally ready. I m all Forex trading at this point. If there is no trade setting up, I shift to work with traders, but until I leave for the morning, my mind is totally focused on Forex. It doesn t matter what you do, but I suggest you create a routine. It s the best and fastest way (I ve found) to get into the zone for trading. I think it is also worth saying that I have had to learn to balance life with trading. This is more difficult when we are brand new because there is so much to learn, and this phase can be a lot of fun. When you know exactly what you are looking for (trading plan), this is a lot easier to do. 122

119 Level 3: RULES OF ENGAGEMENT, Forex Art of War Having an Outlet I think part of being in the zone is also managing some other tendencies that some of us have. There are people who display some degree of aggressive nature. This doesn t mean that they are violent or even pushy. The better word is probably eager. If we are eager during trading, this emotion could cause us to see setups that aren t there and to take risk we should not be taking. So where does this eagerness come from? It s probably part of one s personality we were born with. If we find ourselves eager to trade, I think the best thing to do with this information is to find an outlet for that energy. This could be a separate demo account where you trade any setup you like and where there are no rules. This usually works early on. But that part of you that is creating that feeling of eagerness is not going to go away. One trader continued to use this idea well into five figure trading. He followed his rules in his main account, but has a $100 account that he played with. I m a person who falls into this category to some degree. What I did for years was play online free poker. Once or twice a week, this is what I would do. But in the past year, I discovered the Destiny video game. I ve never been a gamer at all. In fact, I talked down gaming, seeing what it did to some people I observed. But that game totally gives me what I need for that part of me. I m always accomplishing something. It can move fast or slow. It s sort of like part of me wants to do something and get a reward for it. Well, that s what Destiny does for me. I also want to share that I began playing at the age of 49. It was painfully slow for me to learn the remote control. I had to call on my trading experience to look for my progress a week or two weeks down the road. It worked. My sons (5 and 7) are better than me, but I m more accomplished in the game because I focus more on strategy and they focus more on fun. But they will pass me someday in the not too distance future. The great thing about Destiny is that we can go on missions together, learn about the game, research things we don t know, and find a way to win, together. And just like in trading, one of the keys to success is a balance between aggression and caution. 123

120 Level 3: RULES OF ENGAGEMENT, Forex Art of War Again, Sun Tzu said, If you know your enemy and you know yourself, in 100 battles you will not be in any danger of losing. In turns out in life that we usually know WHAT to do. It s the HOW that is troublesome. How do we change our behavior? My daughter once asked me what I thought was the most valuable skill. I thought about it and answered, If you have discipline, you can have anything. As a part of that HOW, I think it is more important to find out what works for you than it is to try to train yourself to do something you think you should be doing. I knew I needed to exercise. I would not walk. I would not jog. I couldn t get motivated to do exercise. But then I found Muay Thai Kick Boxing. Prior to that day, I could have thought of myself as lazy. That would not have been true. What was true is that I needed to find the right thing for me. Not only was I not lazy, but I was willing to get beat up for a full hour in one of the most physical sports on the planet. When it comes to developing discipline, focus on finding what works for you. There will be many times where you will have to wait 15 minutes to eat the marshmallow in order to succeed. In those moments, when you feel that discomfort, I ll tell you the trick. Welcome that feeling with open arms. Like it is a long lost friend that you have been waiting to see for a very long time. Let me tell you what is going to happen. That feeling is going to flee from you. It s physics: for every action, there is an equal and opposite reaction. When my mentor shared this with me, I was not convinced. But after doing it, I found he was right. This is a powerful idea. In fact, if you use nicotine, try it just once. When you feel that craving, focus on it, and welcome it, totally feel it, and watch it go away. If that doesn t happen, you are not doing it right. How do I know? It s physics. Don t believe anything I say. Just do it and watch what happens. So if you want to trade in the zone, have a routine you only use for Forex trading, and be mindful of your emotions (like eagerness). And think about ways to vent that distraction in creative ways. Worried about how a trade is going? Are you closing trades early? Turn your computer off, go do something else. Teach your brain (by your own actions) that there is nothing to do. These are just a couple of examples. 124

121 Level 3: RULES OF ENGAGEMENT, Forex Art of War But you have your routine to get in the zone, and then observe emotions that take you out of the zone, and consider what you might do to alter that. Too busy? Gandhi once said to a group of his supporters I need to set aside one hour a day to do meditation. One of them said, oh no, you can t do that! You are too busy Gandhi! And so Gandhi said, Well, then, now I will need to set aside two hours a day to do meditation. Am I promoting Hinduism? No. But I can tell you that if I am very, very busy, the more I pause to consider what is going on in my mind, the more I can get done. And on that note, my mentor got me writing 3 pages each day, a long time ago. Over time, I came to understand that all meditation really is (for me) listening to what is going on in my body and mind. That s all it is for me. I m 100% convinced that I will achieve more when I pause to listen more, but up to this point, I m content with my 3 pages in 8 minutes, and pausing a couple of times a day (for 10 seconds) to decide on what I want to experience emotionally. Why don t I do it? I guess I have what I want and feel I am moving the direction I want to go. That being the case, what motive could exist to propel me to do anything else? Post Your Own Analysis There is a forum in in our community called The Team on Fundamentals. Feel free to create that in your community. This is where your team shares their read on fundamental factors, and how those factors are driving the market. Once you have been in level 3 for a while, you might want to consider engaging in that forum. Get a read on the market from sources you are accessing and share anything you think. Or just ask questions. I want to share a quick story with you. In the first year I was trading, I came to rely heavily on my mentor who was an economist and Forex trader. On Sundays, he would publish the outlook for the week and he was incredibly accurate. As our team of traders grew, I would share that information with the team to kick off the week. 125

122 Level 3: RULES OF ENGAGEMENT, Forex Art of War Well, there came a point in time where my mentor decided to take a two week vacation to China. Well, the next Sunday approached, and as I prepared to meet with the team, I truly felt like we needed this analysis. But what could I do? I ve been in this situation before. And I did the same thing I did before. I stepped up and did my best to do his job. I searched information, and got as good of a read as I could. Then I published that information for the team. As the week passed, I looked back on Saturday and realized that my analysis had been correct. What luck, I thought! Sunday came again. I did it again. The new week passed, and lo and behold, I got it right again! Some things you just don t know until you do it. So from that time forward, I never had to wait for my mentor to publish his analysis again. Often I published my analysis long before he ever published his. But as you can see, I had developed a dependency on his information, and I didn t even know I was capable of doing it myself. After all, he has decades of experience. How could I do it with such limited experience? Well, you never know until you try. And give yourself room to improve and make some mistakes. But I would encourage you to do the same. If you feel like you are going to use the stories in your trading, take a shot at it! So far those who have, have been rewarded for their efforts every single time. Everyone won t do this, and that s okay. It s up to you! 126

123 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 6: When is it time to move to Level 4? As I wrote in an earlier section, it is important that you trade and review many times, training yourself to execute apart from emotions, and making adjustments based on your experience. Here are some guidelines you can model. Generally it will be trades, given a 4-5 week period for each series. So if you take more trades than usual, this might require more calendar time. The bottom line is this: You consistently follow your plan You have made changes to your plan over time (beginning after series 3), adding nuances that you see well. Your winning percentage is averaging near 70%. Most importantly, you have confidence in the logic you are applying, and in what you see. Perhaps you go to review, and for the second time, do not see anything that requires a change. Note that it is possible to be ready for level 4, but having only won 60% in the last two series combined, due to a major change in market conditions. Also note that there will come a time when the psychology of consecutive loss will not apply to you (more than 150 trades with your plan). This will increase your trading opportunities, following the principle that the lower the winning percentage increases the frequency of trades. Many traders will come to see the probability of winning apart from the actual winning percentage. In other words, I can look at any setup and tell you what the probability of that setup winning, is. The logic determines the probability of winning over a longer period of time. Once again, seek validation from other members of your community. Special note: In our community, those with the designation of Trainer are not employees or partners. Trainer is a distinction given to those traders who demonstrate a desire to help others and full competency with material, as well is some people skills. 127

124 Level 3: RULES OF ENGAGEMENT, Forex Art of War Moving to a live trading account is an important step because you unleash the possibility of new emotions into your trading. We d really like to get the execution emotions out of the way, and be trading with some confidence when it comes to what we are looking for in a setup. All of that said, it is completely your decision. So if you are in a bit of hurry, I want to give you an idea of what you will be dealing with. Level 3 is designed to help you train yourself to execute well. This is just practice, getting in the habit of making good decisions regardless of what you might be experiencing emotionally. The second part is developing some confidence in the logic and your method. If you jump to level 4 too soon, you bring a lack of confidence with your method (not enough defined nuances) to some new issues. The psychology is a little different trading a live account. After all of this work, for example, now there is some fear and pressure that can enter. There are countless scenarios, but a common one might be that your spouse or partner has been supporting you in this endeavor, and now the rubber is finally meeting the road. Has this time been worth it? Or it may just be that you are risking real money, no matter how small it is. It can feel different. So I would encourage you to be confident in your logic, method, and execution before jumping too quickly to level 4. In the sections of Level 3 which follow, I m going to explain ideas that were a little premature in level 2, and share some of the most common nuances that traders will gain experience with. Some of which you will encounter in your own experience. 128

125 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 7: High Impact Data Sentiment - Holidays In my work with traders over many years, I have come to see that there are some ideas that can be taught, and other ideas which must be experienced. In addition, not every trader will see what another trader sees. Over the years, I came to see that you can teach the logic which is common to all traders, but the nuances must be incorporated as the trader takes trades (gaining experience). Also, in the interest of not putting on too much at one time on the trader, I moved some information to Level 3. Having a different rule for trading a new trend is an example of the former. Not trading during a period of hyper volatility is an example of the latter. High Impact Data As I have written previously, I would trade all high impact data your first 2 or 3 series. It s good to get direct experience with variable spreads or changes in pricing, and know what it is really like to trade during these events. I still get new traders asking if they can make money during these events. I think you need to see for yourself what is really happening. Even if you have the greatest price reading skills on Earth, and the discipline of a Shaolin monk, how is that going to help you when you try to sell at and the platform says I can only give you a price of ? Most brokers are going to need to manage their risk as well. Remember: in hyper volatile situations, the broker might not know what price is until it moves 20 PIPs or more. So the broker must manage this risk. Even if they were willing to give you a price, they can t if they don t know what it is. In addition, two of the biggest brokers in the US (FXCM and Oanda) have variable spreads. So imagine high impact data coming in 15 minutes. You are interested in selling, but their traders who have buy orders begin pulling those orders, not wanting to get caught in the potential fireworks. So you see the price on your chart at , but the spread jumps to 8 or 20. This is because the buyers on their books are pulling their orders. There are no buyers in between you and the spread. So do you want to enter a trade at a cost of 10 PIPs instead of 1? Note that FXCM (in recent months of observation) are more consistent and smaller spreads during these swings. 129

126 Level 3: RULES OF ENGAGEMENT, Forex Art of War This is an issue with dealing desks. At Interactive Brokers, you are much more likely to have your orders executed. They are more like an ECN. The main idea behind the ECN is to remove the dealing desk, always giving you access to a broader market of orders. This eliminates the swings in variable spreads, for example, and probably enables orders to be filled that otherwise would not be filled by a dealing desk, i.e. no buyers. Why not just learn with someone like Interactive Brokers? Well, it is a very complicated platform to use. In addition, their minimum deposit is $10k. For most traders execution, and experienced management like they have (as well as lower cost) will be a later stepping stone. Since we are concerned only with the skill of consistent profit making in my program, I treat that as a post level 4 issue. There is a lot of data being released each day. We tend to focus only on the data which has been deemed high impact. I usually rely on the Forex Factory Calendar for this information. They do a good job of listing what the high impact data is. This is data that the market has deemed could move the market. Our team posts this information daily as well. We further separate this into two categories 1. Likely hyper volatility 2. Possible hyper volatility. Which brings me to my next subject. Avoid Known Periods of Hyper Volatility Hyper volatility causes what I was talking about above. It causes high spreads, market movement so fast you can t get your orders filled, and so on. How do we know that information is likely to be hyper volatile? Simple: the market is focused on it. At this very moment, as I am writing this, it is 11:14 AM ET on June 17 th, At 2PM ET, FOMC Meeting Minutes will be released, followed by a press conference at 2:30. The entire market is focused on this event. It is dominating the story. Every story has a central conflict. Will the hero save the day or not? The story today is will the Fed raise rates? Will they be hawkish in their statement? That doesn t mean that every time the Fed speaks this will be the case. It s just this period in time. But if you are in the zone, you will know that the market is focused on this 130

127 Level 3: RULES OF ENGAGEMENT, Forex Art of War information today. So the rule is simple: if the market is focused on it, there is a greater likelihood of hyper volatility. Pretty much a given is Non-Farm Employment, and is released (usually) the first Friday of each month. Two days earlier ADP (a private gatherer of similar information) gives their estimate of jobs. ADP can also fall into this category. From time to time a different event develops. The key is to see when the market is focused on the event. Since September of 2015 to present date, very often any information around 4:30 AM for the UK has a greater potential to be more volatile. We don t tend to see gaps during this time, but the moves have been stronger. This is subject to change. Use HID to Your Advantage Back in 2004 I was trading with my first mentor, who was an economist and Forex trader from Eastern Europe, we were in a Position trade on the EUR/USD. Non-Farm Employment data was about to be released. Like we were husking corn without thought, we moved out stops from 125 to 250 PIPs. I should point out that this is the only context of moving a stop loss in this way that ever made sense to me. In other words, doing this on a short term trade would be out of the question. We were in trades for days and sometimes weeks. Anyhow, I asked him if he was concerned that the trend could reverse. He said, No, a single piece of economic data rarely changes a trend. Over the years, it could almost be said that a single piece of data almost never changes a trend. 131

128 Level 3: RULES OF ENGAGEMENT, Forex Art of War So here s how you can use that information if you find you see it well. Imagine that you were considering a trade as the red candle was pushing down at the black arrow. But at the close of that candle, HID data (not deemed hyper volatile) was going to be released. If this is the EUR/USD, and the data being released is for the USD, and that data is negative for the USD, price is likely to temporarily rise, given you a great entry, but at the same time, not changing the trend that has been happening up to this point. Note that I m ignoring the moving averages for the purpose of illustrating this idea. So you set an order 50% or higher or enter at a really good price with a market order (real time), and wait for that light speculation to shake out and return to the trend down. More about Stories Technically there is a long term story, a medium term story, and a daily/weekly story. Long term is a third story, but one we aren t currently trading. If I was trading long term, I might be in a trade for many months. Why would I tie up my maximum risk for months when I can make the same amount of money in minutes or hours? I think you want to know what the medium term story is, and you want to know what the daily/weekly story is. Those two stories are always being created. The conclusions that you arrive at are referred to as Sentiment. The Market Does Change Prior to 2007, we were more confident in the medium term. In 2008, we lost our future. What I mean by that is that we could not see the future (no confidence in any vision). For years, and really all the way up until September of 2014, there was no long term future or medium term future. It was only then that we had sufficient evidence that the markets may 132

129 Level 3: RULES OF ENGAGEMENT, Forex Art of War one day be free again, the interest rates might rise, that quantitative easing (printing money/creating liquidity) might stop. That markets might diverge (greater returns from holding USD vs Euro), from what seemed like such tight controls by the central bank. Prior to September of 2014, we had no idea. Would the USD lose its status as the world s reserve currency? Would the Euro go away? Would the financial markets crash again? What does all of this debt really mean? If you go back in our member archives of recorded live sessions, you will see this evolution. You will see that we were monitoring the DOW movement. We referred to days as risk on or risk off. This meant that investors would change from one strategy to the next, literally on a dime that morning if there were reasons to be concerned about the future, or reasons to be optimistic. In the later months, there was an index that was exactly that. You had one button for risk on, and another button for risk off. For us, risk on was selling the USD. Risk off was buying the USD. Said another way, if investors felt good about risk, they would move money out of the US Dollar, and into other risk instruments. This causes the USD to go down (or EUR/USD chart up). Until everyone became aware of this correlation, it was a great advantage to us on our team that observed it. And that s the other reason to be on a good team. A good team can help you see these changes coming. In addition, you can gain confidence in the change faster. If you think about it, it is one thing to observe a new behavior. It is quite another to have enough confidence in the behavior that you are comfortable risking any significant money. The way all of that unfolded in real time was interesting, I think. In September of 2014, we began to believe that the US was stable enough to one day raise the Fed interest rates. This was followed by Japan adopting an every man for himself policy of unprecedented quantitative easing. This was in early November of This devalued the Yen vs. the USD 4600 PIPs in 8 months. In January of 2015, a Swiss bank made a unilateral decision so dramatic that it almost bankrupted the largest retail Forex broker in the US. Price moved 1500 PIPs in two minutes. 133

130 Level 3: RULES OF ENGAGEMENT, Forex Art of War I saw the writing on the wall in October 2014, but I set my sights on January (following the holidays) to begin trading the market like it was a free market again. Now it is June and we haven t missed a beat, keeping our finger on this pulse. The medium term story is stronger US Dollar, weaker Euro. The UK has been preparing for a better tomorrow better than most (I think). I have maintained that they could surprise everyone and at some point the EUR/USD would be going down, and the GBP/USD would be going up. This sentiment is going back and forth, with the central bankers in the UK staying very consistent with their policy (no hint of rate increase). Update: shortly after I wrote this section of the book, the UK, in fact did join the rate race. So what is the medium term story? The medium term story is what we see out about 6-20 months. Now keep in mind, we can t really see that far. But we conclude that the market is likely to be bullish for the USD or Euro. The Daily/weekly story is focused on developments that are happening today and this week. Yesterday, the Fed information dominated that story. The market was expecting something from them that would indicate a rise in interest rates in 2015 some confirmation anything. They got nothing. But nothing turned out to reinforce the idea that a rate increase is less likely. This caused USD selling, and confirmed that we will stay in the USD correction that began around the second week in April. This was after the long rise of the USD since September. So the medium term is USD bullish, but currently in a correction. Daily/weekly confirmed more of a correction. Personally I like to trade in the direction of the current market sentiment. My first mentor referred to this as fundamentals and technicals being in agreement. You certainly don t have to use this in your trading, but I think it is relatively easy to follow with a little practice, and will give you more confidence, especially when you have money at risk. If that seems a tad overwhelming, just remember the routine I shared with you. I determine all of this in just a few minutes each morning. And I want to share one more thing on this subject. Be on the lookout when there is heightened uncertainty about what the story is. You will see analysts reaching for conclusions. If you have tapped into your usual information and can t get a read on the 134

131 Level 3: RULES OF ENGAGEMENT, Forex Art of War market, the chances are 90% that there is greater uncertainty. I wanted to point this out because you want to see when there is greater uncertainty be conscious of it. In this way, you avoid confusing a lack of confidence with heightened uncertainty. They feel similar, or one can lead to the other. Bank Holidays Pretty much anytime Wall Street is closed, is going to be a day you can expect different behavior. This is a point of logic you must keep in mind. If you are trading with a broker like Interactive Brokers, you must be very sensitive to the holiday schedule for each currency. If it is a European holiday where banks are closed in Europe, and you are trading the EUR/USD, you will not be able to execute any orders. Brokers like this will have a schedule. With most brokers (dealing desks), they just keep on filling orders. Summer Time For most of July and all of August, behavior liquidity is likely to be less (less volatility) and behavior is like to be a little different. Why? Because this is the time that a lot of major players are just unplugging with their families. Given the choice, I would simply take all of August off from trading. The full kickoff would be the business day following the Labor Day holiday in the US. Christmas Time I stop trading from around the 20 th of December to the first business day of the New Year, and for the same reason. Major players are just unplugging to spend time with family. Same result, as well: likely lower volatility and different behavior. Remember that human behavior is your source of good logic. 135

132 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 8: Pattern Potential Writing the first edition of any book, I always have a feeling of darn it, this could be organized better. My first few books were very organized and edited well. But in this first edition of this book, I m feeling like I just need to get it done. The main goal of the first edition is to have all of the most important ideas in one place. I can organize better in a second edition if one is needed. I don t want to wait another month or two. Besides, your experience with the book will likely prompt a number of revisions. That said, I need to move on with the rest of the ideas that need to be covered in level 3. I ve done my best to organize them in a way that makes sense now. Pattern Potential This is a simple idea that is often overlooked. It s the idea that you need to trade what is there, not what you want to be there. This all comes back to logic. This is a picture of a setup on the GU that unfolded last night. This is a 5 minute chart, and the ROA is 31. You can see the start and end of the New Wave. Then I use lines to show the wave pattern of the New Wave, the pullback and the second push. The first move up to the end point is what makes everyone who is not in the trade interested buying. At some point, price will pullback, and this is where interest will increase in buying, driving the second push. Because the second group of traders (getting in on the pullback) are influenced by the first pattern (move to end point), they will be less certain of a move higher. This will usually cause a stall, and often price will not even break that end point before correcting. 136

133 Level 3: RULES OF ENGAGEMENT, Forex Art of War So the pattern potential is the end point, based on the psychology that is driving the price movement. Where it is not so simple is when the trader is inexperienced and is looking for a trade, rather than waiting for their trade. Instead of trading the market psychology, they end up trading their own psychology. Make sense? But let s look to real life examples. I grew up in the country for part of my childhood. Not to offend anyone, but our perception as pre-teen kids was that most city people lacked common sense. They would come to visit our town on the weekends. What was really going on (as I know now) is that they lacked experience with our environment. I grew up in gold country. So the tourists would see fool s gold and ask if it was gold. Then they would find more and ask us again. Then we would tell them what the old timers told us: you ll know it when you see it. But the truth is that we had experience with it. We had seen it and touched it many times. They were in a new environment, lacking any experience, and therefore seemed odd to us. Now for a more specific example. We would joke about the great white hunter. Where I grew up, this meant that someone was eager and clueless, while being overly prepared with the tools. Where they grew up, hunting was a word that brought up the imagery of walking and finding. Hunting in our world was mostly sitting and waiting. So the great white hunters would be walking through the brush maybe trying to flush out a deer or find one. They looked like idiots to us. But they were just inexperienced. The deer could smell them long before they were ever going to spot them. To get a deer, you must first have an area where you have seen one. Since deer are creature of habit like us, then on another day, you have to simply pick a spot and wait for him. You might wait all day and not get a shot. You might wait two days, three days, and still not see him. But this is how it is done. Trading is the same way. You just need to know what you are looking for, and wait for it to come to you. 137

134 Level 3: RULES OF ENGAGEMENT, Forex Art of War Now you might say about the pattern potential in this picture: But this looks very bullish to me. I think it is going to move even higher! You might be absolutely correct, but I want to point out that you are trading a different pattern. You are trading the bigger trend up. Can you do that? Yes, but you would need to know the logic and have it defined before you could take any meaningful risk. This takes experience, and your definition of bullish will be different from every other trader. Why does this look bullish? If you can see it, define it, and practice it, you very well could aim beyond the potential of the New Wave. But I thought you said we could aim beyond the end of the Fib in Level 2. I did. But that is a little different. Most of you are going to aim within the territory of the end point. Some of you are going to aim higher. That s personality. But I m speaking to those of you who have been aiming within the pattern potential and are now seeing the potential of price moving even higher. The advantage of seeing this bullish nuance is that you can have your stop tighter and catch more trades. But you need experience and definition (of bullish) to do this. Most traders who start off aiming higher, end up changing, recognizing that their real first goal is consistent profit. There is no need to aim for more if that is your goal. If you are relatively new, you still may not quite grasp what I m saying. I m saying that there are logical reasons traders get into the pullback previously illustrated. And there is a logical reason they don t always advance the trend higher than the end point. Give yourself time. This is a question of consciousness. Some insight I can provide, and some you become more aware of as you gain experience. 138

135 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 9: Total Risk Margin Leverage - Security Total Risk is the idea of limiting your overall risk to a certain percentage. You are managing your overall risk, and this directly impacts your profitability. But how do you know what that percentage should be? If you listen to the mainstream culture in Forex, you will often hear it depends on your comfort level. Sorry, but that s ridiculous. The amount of your total risk is a function of your win/loss ratio. Why? Because your win/loss ratio determines your drawdown potential. Your drawdown potential is the number of trades you can potentially lose in a row when something changes in the market place (something you could not anticipate). Now that we know that, we can ask this question: when you do lose, how much do you want to lose? Let s talk about the numbers. In an 80% area of wins, you are looking at 2-4 losses during a drawdown. In the 70% area, you are looking at 4-6. In a 65% area, you are looking at To illuminate this a little, if you are winning 80%, for example, and you are a trend trader, you are probably seeing a market going into a range before you get hit with too many losses. As a break out trader with 80% wins, you are probably experienced enough to see and have defined when a break out is likely to be a false breakout. In other words, the changes impact you less. But keep in mind that the higher your win/loss ratio, the fewer trading opportunities you will get. So remember that balance you are working towards. But risk to equity is more like doing math. Fine tuning it comes easily with experience. So let s imagine you are like many traders, using the comfort strategy. You are not actually comfortable, the emotion of greed is causing blinds spots in your risk assessment. So you risk 10% per trade. Well, if your win/loss ratio is 72%, are you okay losing 50% of your account very quickly, only to realize that now you must make double the amount to get back to where you were? Think about it. If you have $10,000 and are risking 10% ($

136 Level 3: RULES OF ENGAGEMENT, Forex Art of War per trade at 1:1), without being picky about the actual numbers, in five losses, you are now at $5000. But now when you risk 10%, you are only making $500 instead of $1000. Not only did you lose 50% of your account, now you must go twice the distance (not the same distance) to gain your money back. It s like losing twice. But if this happens to you, know that this road has been traveled by many traders that came before you. You simply needed to learn the hard way. That s all. Some lessons require a painful experience in order to sink in. If it happens, it was a mistake in your method of operation. Learn from it, correct it, and leave it in the past. There is some subjectivity with regards to risk to equity, to be sure. But not THAT much. I have found it is very good to give the guideline of a maximum risk to equity of 2.5%. So in level 3, this is what I suggest you do. To be very clear, this means that at any moment in time, you are at no more than 2.5% risk. So if you have $1000 in your account, the most you can risk AT ANY TIME is $25. I should also point out that you should be consistent. If, for example you risk 1% in one trade, and 2.5% in another trade, this could seriously throw off your bottom line number. Perhaps, for example, you lost 2.5% on that trade, but gained only 1% in a trade that hit your target. I say maximum, because often you will be close to 2.5%, but do not want to exceed it. Part of the reason for this is that there are inefficiencies, depending on your amount of equity. I ll discuss that in Level 4, where you are dealing with real money, and are less likely to be trading such large sums of pretend money. There are some advanced strategies that you can learn and employ later. For example there was a trader I learned from that had been trading Forex for 33 years (in 2005) had a technique of increasing the risk with each loss. So he might have begun at 1%. If he lost, he increased to 1.5%. If he lost again, he increased to 2%. It could be argued that this is a way of helping to manage the drawdown factor. Personally, I view this as managing personal psychology more than I see it managing risk. I like it simple. My total risk is always close to the same percentage. My rewards can vary depending on what the market presents me. But it is rare that I will hold a position longer. I d rather take the gain and look for another trade, than wait for more and potentially lose what I have. But that s me. 140

137 Level 3: RULES OF ENGAGEMENT, Forex Art of War As I said, there are very advanced strategies that are beyond the scope and goals of this program. But you will find them in time when you have interest and experience. When you do, hopefully I will have given you the tools to properly evaluate the functions at work so you can decide if an idea is really good for you. At this point, set your maximum risk to equity to 2.5%. Once the entry and stop price values are entered, the calculator will tell you how many contracts you can trade. You can find a place to download the trade calculator at if you are not a member our community. Contract Size First of all, as a reminder, (for all practical purposes) a Contract and a Lot are the same thing. I use the word contract. You are trading a contract for the money, not the actual money itself. The most common are $1k contracts, 10K contracts, and $100k contracts. If the USD is in the quoted position, as with the EUR/USD and the GBP/USD, then the value of the PIP is easy to determine. A single 1K contract, moving 1 PIP has a value of ten cents.10). $10k contract is $1 per PIP. $100K is $10 per PIPs. So if you bought with 5 $10k contracts, each PIP of movement up or down the chart will be worth $5. As I wrote in an earlier section, if the USD is not in the quoted position, you must go to your broker to find out what the PIP value is, or you can t actually manage the risk. Another reason to stick with the four pairs for now that I recommended. Margin and Leverage We ve heard these words a lot since the crash of If you just listen to the mainstream information, you would think 1. You can make more money with more leverage. 2. You are more at risk with more leverage. Not exactly. What is Margin? Margin is the amount of money you must put on hold to cover a position. We also call this used margin. It is subtracted from your balance and set aside. What is left is called useable margin, which suggests that it was all margin in the first place. 141

138 Level 3: RULES OF ENGAGEMENT, Forex Art of War So just imagine you have $5000 in the account, and you must put $1000 on margin. That means that you have $4000 of useable margin. If you happen to use that up on a day you totally lose your mind, you get what is called a margin call. This triggers your position(s) to close and your $1000 (on margin) is returned to you. But margin calls can happen without such catastrophic implications. After the crash of 2008, we needed to get very precise in very uncertain market conditions. So there were times when we could see a potential move of only 7 or 8 PIPs targeting.75:1 with a 2.5% max risk. What we found out was that this was about the limit of our useable margin. Keep in mind that I m referring to the 50:1 leverage we are limited to in the US. Here s how that works: The smaller your stop loss, the greater the number of contracts you can trade. As you increase the number of contracts, your useable margin decreases. At a point in time, you don t have enough useable margin to execute that trade at that percentage of risk. At the time, this was the GU, and the limit was 8 PIPs. I say at the time because these numbers fluctuate. Above is a chart at FXCM showing you what the requirements are. I highlighted the pairs I am suggesting. This is on a $1k contract. So PIPs are valued at ten cents. You increase by 10X to get to 10K or 100k contracts. Notice how the margin requirements are different. To give a more specific example, let s say that you had $5000 in your account, and you set your maximum risk to 2.5%. That means you can risk $125. How much margin will be required will be determined by the number of contracts you trade, which will be determined by the size of your stop loss. So, for example, if your stop loss is 25 PIPs, you could trade five 10k contracts. Because each 10k contract has a PIP value of $1. So five 10K contracts would have a PIP movement value of $5 (per PIP on your chart). So a 25 PIP stop would result in a $125 loss. If you were trading the GBP/USD, the margin requirement would be $340 X 5, which 142

139 Level 3: RULES OF ENGAGEMENT, Forex Art of War is $1700. That leaves you $3300 in useable margin. Now cut the stop loss in half to 12.5 PIPs. This now doubles your margin to $3400, leaving you only $1600 in useable margin. As you can see, if you tried to cut that stop loss in half yet again, this would double your margin requirements to $7200, and I remind you that you only have $5000 in your account. If you lower your max risk (to say 1%) this would provide more useable margin, and allow you to get even closer (though getting into ranges this small then expose you to the noise factor). Isn t it interesting to find these borders of our trading world? One of my points was that you could be using a small stop, running right on the edge (maximum useable margin), get a margin call, and really not lose that much. Now let s address some questions. Is leverage good? Leverage is a tool. Did the government (in the US) do us a favor by lowering our leverage from 400:1 to 50:1. Did they save us? Not really. If you were trading with FXCM (who almost went bankrupt when the Swiss bankers pulled their stunt), and they went bankrupt, you would have lost your entire account. I know people will tell you otherwise. They will talk about segregated accounts, but trust me, you will LOSE all of your money if the broker goes bankrupt. There are some possible exceptions. But the best bet is to choose your broker wisely. This can only be done by taking a look at the value and the management of the brokerage. So there is that risk, though it might be small with a major. Has it happened? Yes, in 2005, Refco (at the time the largest retail Forex broker) did go belly up. And yes, me and my friends lost around $300,000 in total money. Here s the point. Back when we had 400:1 leverage, I could keep 75% of my money in an insured bank, 25% in the brokerage account, but trade the 100%. I had enough margin with only 25% on deposit. When you lower the leverage to 50:1, you lose that ability. What is leverage? In this context it is simply borrowing money. In our example above, we were trading $50,000 with only $1700 on margin (25 PIP stop). That means we borrowed $48,300. Do they charge interest? Yes, but the daily rate is not very high. And on that subject, note that on Wednesdays at 2PM ET (until 2:15), if you are in a trade at that time, you pay triple the interest. In essence, you are paying for Saturday and Sunday on Wednesday. There s rollover every day at that time, but on Wednesday it is triple (maybe 143

140 Level 3: RULES OF ENGAGEMENT, Forex Art of War there is movement just before that time?). Also of interest, if you are trading with Interactive Brokers, for example, during that period (of any day), you will see your trading platform just go blank. Those are unfamiliar with this fact probably skipped a heartbeat if they were in a trade the first time they saw this. This is not usually the case with dealing desks like Oanda or FXCM. Do we need leverage? For Forex trading, we sure do. If there were no leverage at all, there would be little or no speculation at all. It simply would not be attractive. Think about it. Let s say you had $10,000 and put it all on the EUR/USD. Let s say that price moved up 20 PIPs in profit for your trade. You just made $20 for your day s work. See what I mean? Even if you take it up to $100,000, now you have made $200 for your work. Does higher leverage put me more at risk? No, not really. Not for a skilled Forex trader anyway. If you are limiting your risk to 2.5%, using that 25 PIP stop, for example, you don t even need the 50:1. You used $1700 of your $5000, and still have $3400. So if it dropped to 25:1, you would still be okay. The threshold at 2.5% is around 20:1. And then you are still okay if your method enables you to increase your stop loss size. But the point is that if I have $5000 in my account, my total risk at 2.5% is $125. That s true whether I have 400:1 or 25:1 leverage. So no, leverage does not increase the risk. Did they save the irresponsible people? I think those guys are going to lose their money no matter what anyone does, but yes, they probably diverted them to some other latest greatest scheme to make fast money. I think what the government was really doing was trying to shut down hedging strategies. There were thousands of people following complex hedging strategies without really knowing what they were doing. There came a time when almost all got a margin call when the market moved well outside of the normal parameters. This is what happened in the movie Margin Call with Kevin Spacey. It s similar to what happened to the banks, which was the last step towards the financial cliff. If you are over exposed to risk, eventually your luck will run out. For the skilled Forex trader, all of this is just drama in the background. I know I let a tiger loose in the background. The catastrophic risk of a broker going bankrupt is real. That s not the only risk you do not control. There were traders who lost their entire 144

141 Level 3: RULES OF ENGAGEMENT, Forex Art of War accounts when the Swiss made the decision to unpeg from the Euro last fall. In fact, legally traders were responsible for money lost that they didn t have on deposit. Companies like Oanda covered those losses (the amounts which exceeded that which was on deposit). Did our team lose anything? No. Years earlier when the Swiss made the decision to manipulate the currency, I took it off of my chart and suggested everyone else do the same. I don t like betting on a fight that is fixed. Did we miss out on making money trading the Swiss Franc? I suppose. But that s part of making decisions. Where you can avoid catastrophic risk, you must. For this reason I don t trade the Yen either. The Bank of Japan has a long history of manipulating their currency, and to their advantage, I might add. So I m saying that there are things you can do to minimize these risks, and we take those steps on our team. In the big picture, the chances are small that a major broker will suffer complete failure in the US. But it is possible. I feel pretty good about the majors that are left, which survived the incredible movement following the Swiss bank decision. They survived the crash of 2008 as well. I think in the future we will begin seeing insured accounts with dealers. This is already the case in the UK. According to Interactive Brokers, funds are segregated and much more secure. They are the preferred choice of professional fund traders, as far as I know. Perhaps on this issue, you can take some comfort in knowing that there is less risk when you are ready to trade larger amounts. 145

142 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 10: Level 3 Fibonacci Tool The chances are very good that even before now, you have seen me drawing a Fib on the 1 minute chart. We did not do this in Level 1 or 2 for important reasons. I think you need a little bit of experience with logic and execution before you do this. Drawing Fibs on 1 Minute vs. 5 Minute The New Wave Fib is an incredible and accurate technique. It would be very easy for someone who is very detail oriented to go off the rails, though. What do I mean? In a trader s quest for better and better knowledge, once you are at the 1 minute chart, you are only one step away from a tick chart. And once you get to the tick chart, you will rarely find an ROA big enough to trade. So if you have the wrong mindset about this, the Fib can lead you right to the paralysis of analysis. I always tell you that you are trading the behavior, not the pattern. So you begin turning to the 1 minute all of the time, looking to see if the behavior has already played out. You find, more often than not, it actually has. It is good to be precise up to a point. And this is the issue. What is THAT point? Ultimately it will be defined by each of you, but I will give you some guidelines to follow. Remember that we make our decision not on precision, but on best information. So when do I use the 1 minute and not the 5 minute? You use the 1 minute in a fast moving market. It is fast moving market that you will eventually define for yourself. How? Experience. Some will define it by the amount of movement in a period of time. Perhaps the new 5 minute candle has moved X PIPs. In the end, you will be tuned into what is happening, and you will know WHEN this fast moving market is happening. I m sure you will see many different ways to define this being used by other traders. The most important thing to remember is that this is not about a rule (symbol), it is about what you actually see (reality). Use the 5 minute chart for drawing your Fibs unless you think this is unusually fast movement. You will find your way with this, trust me. Just practice. 146

143 Level 3: RULES OF ENGAGEMENT, Forex Art of War I know this seems nebulous. But that s only because you lack experience. 100% Level of Fibs This is a really simple idea. You are trading the movement of a New Wave. You are trading movement. Price moves, pulls back, and you get in for that second push. What does it mean if price reverses the entire length of the New Wave? Quite simply it is telling you that sellers (in this case) are just as strong as the buyers. In fact, nothing takes the wind out of the buyers sails (or sellers) faster than seeing 100% of their efforts reversed. In this picture, the black arrow shows the 100% retracement point (start of wave). The Importance of the 76.4 Level First off there is some debate about whether to use 78.6 or I m even tempted to put a picture of one of these geniuses arguing for But I m going hold off on this. They argue that 78.6 is backed up by the golden ratio. I don t dispute this. That s where the number comes from. It s why I chose the 21 and 55 EMAs. They are actually part of the Fibonacci sequence (3, 5, 8, 13, 21, 55, 89, etc. etc.). And before the book is done I might tell you a little more of what I know about the Fibonacci sequence. It s cool stuff. But all of that said, the glaring reality is that hour after hour, day after day, price pays attention to the 76.4 level, not the 78.6 level. Usually 76.4 will be the last stand for movement of a wave or a trend. 147

144 Level 3: RULES OF ENGAGEMENT, Forex Art of War This is classic what you see here. The trend is down. I have drawn two Fibs. The first on the left touches off 76.4 to the PIP. But there is only one place where price resolves (candle closes) above the 76.4 level. That s the last wave before price begins to correct (black arrow right). I don t think I need to explain this anymore. There are many ways that you could apply this idea. For example, what if you were in a sell at the first back arrow, holding the position? This could define your exit, could it not? What s really going on is that at this price level, the buyers are showing almost as much buying interest as the sellers. That s the behavior that is most important to observe. The 76.4 level just helps us to see and define it. I ve been asked if this is price action trading? Yes and no. Yes, I am reading price action, but no, I m actually seeing the behavior, not the candles (buyers are showing strong interest). You will be getting a lot of practice following waves. Something else you can watch for now. Notice that the rules for this technique are not very subjective at all. 148

145 Level 3: RULES OF ENGAGEMENT, Forex Art of War 76.4 Level and Trend Reversals This next technique is a little more subjective, so does require more practice and experience. But the market will tell you if you have it right. This is a 30 minute chart (where we read trends). The black arrow shows the 76.4 level. In this particular example, the MAs appear to be turning much higher. But if you look at the gray vertical line, you will see that a cross of the MAs are not actually confirmed until price is well below the 76.4 level. So part of drawing this is looking for that convergence of the MAs and the 76.4 level. Let s see another example. In this picture (right), you can see price touching right off of 76.4 at the black arrow. What else do you see? Price closing below 76.4 and then going back the other way at the green arrow? Doesn t this contradict what I m telling you? No. First of all, few things work 100% of the time. The answer is context. At that green arrow, that long red candle is created by HID at 4:30AM ET coming out of the UK. So at that time, the information would be less reliable, to say the least. Now I want to bring you back to the first picture to show you something useful. 149

146 Level 3: RULES OF ENGAGEMENT, Forex Art of War Stop Orders Can Move Price Significantly You will often hear me talk about where stops are. I ll come back to this again in the book. But this is a good spot to show you. Notice that I put a rectangle beside the black arrow. Imagine you are a buyer at this time. You must have your stops somewhere, right? Sure some of the buyers have stops higher. But that area just under 76.4 is where you will find those orders. This is what causes this rapid movement flying by the rectangle. It looks like a pile of sellers, but the reality is that part of that fast movement is stops being hit. In order to close buy positions, stop (sell) orders are placed. So you can get good at seeing where these orders are and where price is likely to move a little more quickly, and potentially farther. Backing up a bit, if you have drawn the Fib correctly, a close of the Fib beyond the 76.4 level is likely signaling or confirming a trend reversal. The important part of my telling you about the HID at 4:30 AM is that you want to be using all of your tools. If you are in tune with the daily/weekly story, you would know in real time that a move over 76.4 at that time doesn t have the impact on your decision it would at another time. The more experience you have, the more effective you will be at reading the context. But keep in mind that there will be times when you just don t know, or when even the best read doesn t work out. That s just part of trading. Just get in the habit of reading when there is increased risk. For example, HID coming up could be part of it. An hour before London could be a factor. Coming up on London close. It may sound like a lot, but at a point, you will realize there are not that many factors, and this can get boring for many people. 150

147 Level 3: RULES OF ENGAGEMENT, Forex Art of War Level 3 - Chapter 11: More on Stops A little earlier I touched on some catastrophic risk. There is something that you must learn, beyond the question of doubt at some point. NEVER exceed your maximum risk. This rule takes for granted that you never trade without a stop loss. Come to think about it, maximum risk takes on a new meaning when trading without a stop loss. Now some traders can accept this fact. Others have to learn the painful way. You are just going to get hurt enough until you learn this or the pain forces you completely out of the market. You cannot succeed without limiting your risk. You just can t. And even if you are the one in a million that makes millions doing it, you are probably not the rare one of those who can keep it. If you find yourself constantly chasing this idea, and you can t break away from it, you are in the wrong game. Try the World Poker Tour instead. ALWAYS TRADE WITH A STOP LOSS, ALWAYS Stay at or below your MAXIMUM RISK. Okay I ll move on. Since we are on the subject of stop loss, I might as well talk about a couple of other stop loss ideas. Moving Stop Loss to Break Even This is probably a level 4 topic, but it could be a later level 3 topic. I m going to stop short (he) of saying that you should not move your stop to break even. Maybe it will work for you. I get it. I did it for quite a while. The idea is that you are in profit, and you don t want a winning trade to turn into a losing trade. Or maybe you are in a small profit and just want to eliminate the risk. If you are in a small profit (say a few PIPS) and move your stop to break even (BE), you are going to be sorely disappointed by how often your stop gets hit. In fact you might find yourself trading for hours in many trades only to make nothing. Price fluctuates a lot in this market. So that makes no sense at all. Not to mention that your risk to reward ratio gets tilted. If you are moving your stop before you match your risk, you are violating a principle. This leads to smaller gain and bigger losses, and that hits your bottom line. 151

148 Level 3: RULES OF ENGAGEMENT, Forex Art of War Okay now you could move your stop to BE once you reach.75:1 or 1:1. How does that work out in time? Your experience might be different, but here was my experience: I d make money, and then move the stop to BE trying to get more money, and then half the time or more, price would come back and hit my BE for zero. So instead of making money each time I hit.75:1 or 1:1, I would just make zero. So for me, in the end, I just became someone who would prefer to bank the money and look for another trade, instead of trying to get more and end up getting nothing. That said, I can see there could be times you might move your stop to BE. Perhaps you are coming up on HID (not hyper volatile), and instead of closing the trade, you set it to BE. One time, I was half way to my target, and price stalled in a tiny range for a while. I didn t want to close the trade, but I didn t want to leave my desk with my trade at risk. So I moved it to BE. At least I wasn t wondering if I was going to lose money while I was away. But these types of things really need to be defined into your plan. You don t want to be making decisions on the fly. Remember that you can always document trades separately from your trading plan and try out anything you like. Trailing Stop Loss Trailing stops are sort of the same thing for me. Would I rather take the profit I have and look for another place to enter, or lock in some profit, and potentially lose some of what I already made? I can usually tell when price is getting exhausted and more likely to correct. Why not just close my position, wait for the pullback, and then get in again? Then some traders like to close a portion of their position. So maybe you hit your first target and close half of the trade. Then you move your stop forward and see if you can let the profits run. If you are interested, you will just have to try it out and see how you like it. But I suggest you do this AFTER you reach your first goal, which is consistent profit making. Stops Hit by Variable Spreads I touched on this before, but if you are using a broker like Oanda, the price on your chart might not move at all, and you can get stopped out. Or price reaches your target, and does not close the trade. The likely culprit? Variable spreads. 152

149 Level 3: RULES OF ENGAGEMENT, Forex Art of War Consider price is at , you are in a sell with your stop at Some important HID is about to come out. Price is only moving a couple of PIPs up and down on your chart, and suddenly your trade closes. That s because buyers with the dealing desk started pulling their buy orders, until the buy price of available buyers hit your stop. Personally I think this is ridiculous. But the mainstream culture is so uneducated, they aren t really noticing that much. You d be surprised by some of what I have seen. About 18 months ago, we were trying out a big broker (I won t name), and after a few days, we noticed that their candles were closing 2 minutes after everyone else s were closing. This changes the timing of trends. This changes buyer/seller resolution levels. It changes A LOT and much more so if you are relying on any indicators (which we are not). Anyhow, I was so surprised to see this happening that I asked a friend to double check. I thought I might be imagining it. Even then, we got someone else to check, too. By the third check, we were sure it was happening and called the broker. The customer service rep had no idea what we are talking about. They put me on with a supervisor who also had no idea what we were saying. I searched the Internet and found not a single reference. Keep in mind that this is one of the five largest brokers in the US. So not one of their 13,000 clients were aware of it. Really? My point is this: don t assume anything. We just moved on to another broker. Slippage Slippage has not been a big problem for us, but it does happen. It s the difference between the price you want and the price you get. Perhaps you thought you were gaining 14 PIPs, but when the trade closed, you only got 13. Sometimes price moves that fast. But it s all part of the industry. If this happens a lot to you, then you need to probably change brokers. The slippage we don t like is when price is moving fast and our stop orders cannot be filled. This tends to be more likely around events deemed likely to produce hyper volatility. But whenever you have a question about execution or anything really about your trading platform, be sure to ask the broker to explain what happened so you can learn from the experience. 153

150 Level 3: RULES OF ENGAGEMENT, Forex Art of War In this section, I just wanted to cover more information related to your stop loss, or the execution of your exits in general. 154

151 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 12: London Sentiment, Price & Story Context I want to talk next about a pattern I have observed for a long time. London Sentiment and GBP/USD Traders I have been observing the Pound traders for over a decade. I can tell you that those who trade the GU (GBP/USD) tend to be speculators. The GU tends to fluctuate more than the EU, and when it trends, it moves farther. When I say that GU traders tend to be speculators, I m saying that they are like you and me. They are looking to anticipate which way price is likely to go. How is that different from the EU, you ask? Well, both the Euro and US Dollar are both reserve currencies. So a large amount of volume moves in and out of those currencies for different reasons. Imagine for example, in August of 2014 that you were worth one billion USD, and your money was in Euros. Well, if you still had all of those Euros in the bank, you would not be a billionaire anymore. Only in words. In buying power, you lost 25% of your fortune. So part of what is going on is that those with a lot of money are taking steps to not lose money. There are other reasons, obviously, but you get the idea. The GU traders tend to pick the direction of the market before anyone else. Sometime they even go it alone, thinking their time has come for a big Pound bullish rally. I ve also noticed for years that whatever direction price is trending from the start of London open (3AM ET) to the start of the US session (8:30AM ET), price tends to continue to move in that direction. I call this London Price Sentiment. London Sentiment, for short. Notice the big money is UP on the left. Then look at what happens from 3AM-8:30AM. Then what follows in another move in that direction. If price is back almost in the same place it started by the time the US opens, 155

152 Level 3: RULES OF ENGAGEMENT, Forex Art of War this will be a strong indication that GU traders cannot make up their minds. I would encourage you to follow this each day, and gain some experience with it. Is the Story the Same? This is definitely an idea that you will need some experience with, and not an idea for the trader who pops in once a week to see what is happening. But it is also a simple idea. People ask me all of the time: does this barrier in the past matter? It happened again just this morning. One of our team members asked about this barrier right here. It is rare that one piece of information means anything without more information. We call this context. What is the story? What is the EU doing? How big is this trend for the day so far? What is London sentiment? What time of the day is it? Do we have any HID coming up? What day of the week is it? What is the story? What I really want to know is this: At those black arrows, what was the story that was driving the market at the time, and is the story today a different story from 5-10 days earlier? If you were here with us, you would know that the fourth black arrow from the left was the point in time that the Fed came out with a slight change in tone with respect to their monetary policy. There are three main stories on this timeline. In the time from the far left, to that fourth black arrow, this was the market showing some apprehension about what the Fed might decide to do. So price fell into a range during this period. When the Fed released the data (6/17/15), it was interpreted as bearish for the US Dollar. That is a good sized run up of 225 PIPs. Over time, we got more information about the story. Greece with no solution to a possible default, US economy coming on very strong. More talk about a stronger US economy. So let s answer the question. When price was coming into this barrier this morning, does that barrier matter? 156

153 Level 3: RULES OF ENGAGEMENT, Forex Art of War First off, any obvious barrier is going is going to invite orders, no matter what. But in this case, the story that created those four black arrows have nothing to do with what is happening today. Knowing this could give you an increased advantage. Not only in terms of price direction, but knowing you will get buyers in that area and could get a better price as they push back. You will notice that I put two green rectangles in this picture. How come I m paying no attention at all to these areas? Well, at the big green rectangle, at that exact time (4:30AM ET), HID was released for the Pound. That was a period of heightened speculation. Price moved down, and then back up into that range by the time the US opened. What about the tail to the left of the first arrow? I rarely pay attention to a single tail or wick. What about the small rectangle? It s not very much movement. But what is clear taking all of that away is that the area in the black arrows creates a strong area of 50/50 buyer/seller interest. That s what great barriers really are. The are areas of 50/50 interest. It is near these areas we are likely to find the most orders sitting. Advanced Reads and Timing I ll be talking more about this idea. Let s follow what happened just a little later in our story. In our picture above, at the black arrow on the far right, price was hitting that barrier at 7:30AM. The picture to the left is zoomed in. You can see that the 8:00, 30 minute candle is closed out of that 157

154 Level 3: RULES OF ENGAGEMENT, Forex Art of War range. So that candle was created between 8-8:30AM. So we know price was dropping during that time. Remember that. Now let s shift to a Pound chart. First notice the 8AM candle on the GU 30 (black arrow left). It is trailing the EU, right? But wait! I thought the GU speculators led the pack? Usually. But in our story, they have been wanting to buy buy buy. So what is happening is that the EU (USD) is dragging them down. sell. What is the London sentiment? Well, if you go back 10 candles (5 hours) to 3AM, price is DOWN 45 PIPs since London opened. This is pointing to a But there s more! At 8:30, the market is watching for Core Durable Goods (HID). Let s zoom to a 5 minute chart to see what that looked like. So you can see price making a move up between 8:30AM and 8:35AM. Do you recall what I told you before? One piece of data almost never changes a trend (or sentiment). I want to remind you that I m sharing ideas with you. I have a lot of years of experience doing this. You don t need to know all of this to make consistent profit. In my one-on-one training, I would tend to share this when the time was right for the trader. Here I just want to get the knowledge put down in words. Notice where the 8:30AM candle closes. It is up high in the range. Let s look at the EU 5 minute and see what we see. 158

155 Level 3: RULES OF ENGAGEMENT, Forex Art of War The 8:35 is the blue doji.* Look at how the sellers reject any move into the range, and look how low the candle closes. If you put all of that together, and there is nothing unusual happening with the Pound, this is the USD moving the market, and the Pound is trailing. You would have also seen this happening on the AU and NU. Again, do not attempt to imitate me. I m going to share a lot of with you. If you do not SEE this with experience, it will not be something you do in your own trading style. Before I show you my entry, I want to show you something else. Earlier I mentioned that the GU speculators had been buying, and were getting dragged down. In this next picture, you see all of the buying. What I was looking for was this: Where are there likely to be stops? They had been holding onto the range before this drop. So I decided that the majority of the stops were just below that (red rectangle). That was at So it was likely there that price would pick up some selling momentum as those stops were hit. My plan? After entering, *A doji is a candle formation where the open and close price are very close to one another. 159

156 Level 3: RULES OF ENGAGEMENT, Forex Art of War my plan would be to allow price to hit that area, and then when the momentum slowed, exit the trade. I entered when the 8:35AM candle closed. I exited just before 8:45 when momentum slowed at The reality was that stops began being hit about 7 PIPs higher, but the strategy was sound. The total move was about 30 PIPs, risking about 13. Once again, don t push yourself to do all of this. Not much has changed about what I see in a long time. This would cause me to conclude that I have pretty much arrived at the best information I can access. I need to come back to our other questions from earlier. I was asked if this barrier mattered. In reply I asked these questions: What is the story? What is the EU doing? How big is this trend for the day so far? What is London sentiment? What time of the day is it? Do we have any HID coming up? What day of the week is it? We covered the story. We covered what the EU was doing. We covered London Sentiment. We were trading during prime hours. If price was coming into this area around 160

157 Level 3: RULES OF ENGAGEMENT, Forex Art of War London close, it would be a great excuse to close out positions for the day, driving price up. We discussed HID and used it to our advantage. We even talked about how far price had moved for the day, which was about 45 PIPs, since London open. Why is that significant? I encourage you to looking back in time a bit at this. How much does the GU or the EU move in a day when trending? The answer is certainly more than 45 PIPs. In fact, anything all the way up to 100 in a day for the GU is okay. I m not going to spell out any specific numbers beyond that. You need to follow it. The exception would be if price moved into a range. During some weeks price is trending more, some weeks less. What you want to know is this: within the current story, what is the average daily movement? Even if you use an indicator on a short period of time, it will never account for the story happening. So don t get too excited about something that tells you average daily PIP movement. To give you more insight into this, if it is 10:30 AM ET, and the GU has moved 180 PIPs, it s probably not a good time at all to enter a trade. I call extended trends long in the tooth. Does the GU usually move over 180 PIPs a day? No. Again, focus on what is usually going on. Does the GU usually move more than 45 PIPs? You bet it does. This chapter is definitely one of the more advanced chapters. After you have traded for a few months in Level 3, review this chapter again. After a few more months, review it again, is my suggestion. The more experience you gain, the more you will see what I see. 161

158 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 13 Part 1: More on Trends Part 1 I ve already been talking about nuances, but I wanted to write a chapter that was specifically focused on nuances that might be associated with your entry and exit prices. One of the most common questions I get once a traders gets a little experience is this: which is a better entry, 38.2 or 50%? You already know what I m going to say. It depends on the context. Young Trends Remember that there are many moving parts, all of which can impact one another. But that s okay because you are going to use experience, not knowledge, right? Okay. The general idea is that when there is a new or young trend, there is going to be increased opposition. Why? Because typically you have the opposition still wanting price to move the other way (previous trend). Naturally this works a whole lot better if you know the story. For example, if the GU traders are thinking buy, and it s a new trend down, there is more likely to be buyers in that area. We define the trend starting point from the point where the moving averages cross. Remember that we are asking the question: do I get in at 38.2 or wait for a better price? This is a GU 30 minute chart, which we must look at first. You can see that the trend confirms a cross at 6:30AM. This is important to know because when we drop to the 5 minute, we need to know WHEN we can enter. 162

159 Level 3: RULES OF ENGAGEMENT, Forex Art of War This is the GU 5 minute. As you can see, from the price of the MAs cross to 6:30, we have about 51 PIPs of movement. This IS NOT a young trend. There are other nuances to this, but I ll give you some guidelines. Under 40 PIPs is young opposition is more likely. Over 50 is less likely to have opposition. As you can see, at around 50 PIPs into the trend, the sellers get moving on the second push just shy of a 50% pullback. And keep in mind that on younger trends, since there is more opposition at the beginning, you are less likely to get a New Wave ROA that meets the minimum distance of 18. Let s look at another one. I m not picturing the 30 minute, but I have a horizontal line showing you the price of the cross, and then a vertical line show you the time of the cross at 3:30. So after that time, it is okay to enter. The trend is young. There are only 34 PIPs since the cross to the end of the New Wave. As you can see price pulls back just a little more than 50%. This makes sense. Remember that what you are learning to do is see the buyer or seller advantages, see the strength of that advantage, and how you can best manage the risk. 163

160 Level 3: RULES OF ENGAGEMENT, Forex Art of War If you can imagine, there are many nuances to this. For example, even a very young trend that has just broken a strong range is less likely to have opposition. A trend 60 PIPs in maturity, if approaching an obvious barrier, is more likely to have opposition. I ve come to think of everything as energy and waves. But more importantly, I am looking at the interaction of the waves. The better you can see the relevant waves, the more easily you can calculate their influence. Always remember that you are already a master of probabilities. If the computer between your ears knows the variables and their values, the answer will come easy to you. You saw me walk through many of these in Chapter 11. Here is an example of price coming into an obvious barrier. If you look closely, you will see a strong blue candle hitting into it, showing that price was VERY bullish as it approach the barrier. But this example shows you that a new risk factor (or probability factor) has entered the picture. Risk is increased, probability is decreased. But this could be offset by better prices for your entry and exit points. There were obviously other factors that caused the sharp drop, following the brief stall at the barrier. While we are looking at this range top, I want to point something out to you. Notice that at the green arrow the MAs cross. This brings up a question. Can we trade in this range? You will see better with experience, but the answer is maybe. It is about 65 PIPs from the top of the range to 164

161 Level 3: RULES OF ENGAGEMENT, Forex Art of War the black arrow. It is 30 PIPs more to the bottom of the range. If you can get a setup and get in and out before reaching the range bottom, the answer is yes. You could. Just getting to that decision point, without additional considerations would involve a trend advance with sufficient ROA that meets the parameters of your plan. But if a new wave hits the bottom of the range and then pulls back, you are back to the same scenario you were in when price hit the top of the range. How small of a range can you trade? That will be defined by your setup requirements. Are the MAs confirmed crossed? Is the trend advancing? Do you have the minimum ROA? Do you still have room to get in and out before price reaches the bottom? Notice that the MAs in this picture are closer to the top of the range. This would make it easier to catch a sell trade in this range than it would a buy trade. But if price were to go sideways right where price is for a long time, the MAs would cross lower, making the reverse true. The main point is that you do not need to define a minimum range. Your plan will define that for you. I m often asked, When is a trend too long? I really look at things in terms of daily movement. If the market is not waiting for something, the GU will likely move 90+ PIPs in a direction. The GU move this morning, in a climate of slightly increased uncertainty, was 134 PIPs. Prior to London close (the barrier), it was 97. So the rest, that followed was a bit unusual. 165

162 Level 3: RULES OF ENGAGEMENT, Forex Art of War I ll discuss when we might avoid big trends when I discuss what other traders call overbought. I realize this is a lot of information to absorb, but again, this information is intended to compliment your experience, NOT teach you what to do. But most of you are sure to consider some of the ideas in this chapter as you gain more experience. 166

163 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 14: More on Trends Part 2 In this section I m going to focus on the idea of when a currency pair might be overbought/oversold, or showing trend weakness. What is Overbought or Oversold? If you have been in the mainstream culture for a while, you might think that overbought/oversold is when the RSI goes above 70 or below 30. That s fine for beginners. It s just that if the RSI is very high (say 90), and London closes, price is more likely to go sideways for a while. Your RSI reading is determined by the number of candle bodies you choose. So if you are choosing 9, for example, when the market goes sideways for just six hours, price returns to 50 (neutral). And yet there was not much buying or selling. There was a bunch of buying and then a lot of people went home. My point is that the indicator cannot tell you an accurate story in that context. And this is the problem with just about all indicators. In this picture, notice in the blue rectangle on the chart, price is really not moving at all. But RSI climbs from 30 to neutral during that time. Notice at the long black arrow on the left, how much money and movement it took to drive that RSI below 30. Then look at the black arrow on the right and see how much less money is driving RSI over 70. Why? The key word is relative. It s a relative strength indicator. I like that. In fact, I think we should have relative stochastics, relative Bollinger bands, and so on. Anyhow 167

164 Level 3: RULES OF ENGAGEMENT, Forex Art of War The idea of overbought or oversold is worth touching on. I ll just use the word overbought from here forward. What is overbought? For me, this is just the market running out of gas. All of the money that is usually available to move has been expended. This is not usually one brief and strong move (like repositioned money), but rather very strong trending. But at some point, a trend is so strong that everyone who can get in, is in. This is overbought. Consolidation vs. Range To get back into the trend, traders must take some profit and wait for a pullback. In this picture, to the left, you can see that price has moved 222 PIPs. Then you can see a period of consolidation. Consolidation is a little different from ranging. Ranging is usually the result of periods of heightened uncertainty or simply because both markets the pair represents are closed. Consolidation is when no one wants to pull out of the trend, but they don t have money to put into the trend. Think of it like taking profit and then going back in, taking profit and going back in, in that range. They are gaining energy for another move. Eventually, if a trend gets very big, a change will occur in the market that causes a correction, just as we see on the EUR/USD chart in the middle of March Divergence Divergence is also touted by some to be quite magical, and oddly enough is often read using an RSI. The first question, I think, is what is it? Strictly speaking, the definition is simple: weaker advance. 168

165 Level 3: RULES OF ENGAGEMENT, Forex Art of War On an Elliot wave diagram, divergence occurs when wave 5 breaks the wave 3 price level. The idea of divergence comes from the trend getting longer, but the strength growing weaker. So traditionally, when wave 5 beaks the wave 3 low, you have divergence. Please note that I consider it the same wave IF price has not retraced to 38.2 or higher. That s why I m not using those smaller pullbacks. They only moved back to Okay so that s what divergence is. But what do they use it for? They use it to determine when the trend is becoming more exhausted. Well if that s the case, there is a flaw in the idea of divergence. As I explained in an earlier part of the book, sellers often lose conviction as they get near the former wave 3 low. This being the case, often wave 5 does not break the wave 3 low. Let me give you a much, much simpler way of looking at this and you don t need any indicators. You can tell if it took more money to create the 3 wave, or more money to create the 5 wave. If price is near the 3 wave low, then you can call it divergence for all practical purposes. It s trend weakness. 169

166 Level 3: RULES OF ENGAGEMENT, Forex Art of War Here is one way I like to see trends weakening. This is called a diagonal triangle. I actually picked this up from Elliot Wave Principal years ago. But when you think about it, it s really the same idea as my buyer/seller resolution levels. You connect the most prominent areas on the top and bottom. In my own work I have experienced that you need 3 touches on the top and the bottom. I prefer the most relevant price points I can find, as illustrated here. You might recognize this chart from before. There is also a similar pattern they call an ending diagonal triangle. The difference is that in an uptrend like this, the last touch at the top would have a blue candle body closed above, and then a red candle body closed back inside. I used to see more of them. Since they are so rare now, I didn t find one in the little bit of time I allocated for looking around. So what do we take away from all of this? Well, I like images like the diagonal triangle best to show a trend weakening. I would use the 3 4 and 5 waves, and the pattern potential as your guide instead of anything you read on divergence. After all, once you see that a weaker pattern is advancing the trend, then you see it all of the time. Sometimes price corrects after this, but I ve already shown you how to access better information. My main intention was to bring some clarity to popular ideas you are going to run into. 170

167 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 15: Price Resolution, Orders, and Anomalies Part 1 Price resolution is an important idea. I follow price resolution usually on the 30 minute, the 5 minute, and once in a while on the daily chart. It answers the question: in this period (candle time frame), where did price close (resolve). On this 30 minute chart, at the black arrow, price closes below the key level. A key level is a price, if crossed, indicates a change in advantage for buyers or sellers. In this case, I always prefer candle closes. However, if price comes out of barrier with enough strength, it could indicate an advantage for the sellers (in this case). Usually you will see this on the 5 minute chart. What is a strong move prior to a 30 minute candle close? You can start with 15 PIPs, and adjust based on your experience and other observed nuances. I also want you to notice something. When that 30 minute candle closes (at the black arrow), the body of the candle is bigger than the tail or wick. A good portion of the candle body is closed out. The more it is closed out, the more weight we would give it as a factor. You could call weight, value. Look at this example. At the first black arrow (30 minute chart), you can see that blue candle has a very weak close above the barrier with a long wick. The most important thing for you to see is not the body of the closing point, or the wick. The most important thing to see is that there are SELLERS in that area. Buyers lose conviction, and price pulls back 171

168 Level 3: RULES OF ENGAGEMENT, Forex Art of War considerably. At the second black arrow, price closes above decisively and this is followed by very little selling, and more buying. But also take a look at the lower arrow. Do you see a pin bar or hammer candle pattern? If you do, you are not seeing what is really there. What that pattern represents is buyers. You see that there are even more buyers (the tail) just below that barrier than there are sellers above the barrier (wick top left arrow). And more is not the best word to use. It is better to say that the buy orders outnumber the sell orders. Why? Because volume is relative. It could be 10 million pushing down, and 11 million pushing up. Price will move up. Or it could be 20 million pushing down and 22 million pushing up. Price will move up about the same amount when the numbers were 10 and 11. This you could call relative volume. Note: I almost always draw barriers on the 30 minute. The reason for this is because closes on the 30 minute have more weight/value than closes on the 5 minute. Does that mean a 4 hour or daily chart has more meaning than a 30 minute? That depends on the story. I m following the daily/weekly story, and secondarily the longer term story. If you were using 4 hour or daily charts, you would be considering the longer term story first. One of the things I ve noticed about people: Their lives are driven by their stories. So it is a very reliable place to go when you are wanting to predict behavior. Will someone vote republican or democrat? Let me get to know just a little about one of their stories, and the prediction will be easy. Are rich people greedy and riding on the backs of the poor? Are liberals making more and more people dependent on government? Are they passionate about social justice? Are they proud to be a gun owner? Do they believe that life begins at conception? Or are they more passionate about a woman s right to choose what to do with her own body? 172

169 Level 3: RULES OF ENGAGEMENT, Forex Art of War I m not saying one is right or wrong. I m just saying that if I know their story, the answer will be easy to predict. What about Independents? Well, you can be independent in your views, but you cannot have representation in America as an Independent. When it comes to real power, there are only two choices at this time. What does this have to do with trading? Know the story. Predict the outcome. Sentiment is that potential leaning one way or the other. Now first let s look for buy or sell orders. Where are they? And you can look for this on the 30 minute or the 5 minute. This is a 5 minute chart, and granted, this is a range. It doesn t matter. You can see where the orders are. On the top rectangles you can see where the sell orders are located. On the bottom rectangles, you can see where the buy orders are located. Again, these are areas where it is easy to see where the orders already are. And yes, you are looking at tails and wicks. Can you use it? 173

170 Level 3: RULES OF ENGAGEMENT, Forex Art of War Look at this. This is a 30 minute chart. Notice the buyers at the two black arrows. Then notice what happens later when price reaches that area again (black arrow on right). Price does not go lower until sellers eat up the orders sitting in that area. Here s another example. On the left, price resolves with a candle body close. The sellers see this, and they don t even try to push lower at the black arrow. Why would you sell into those orders if you knew they were there? You need a pretext. You need new information. You need something to happen to change what is happening. Now you might say, Vance, the market was probably closed, and that s why price is higher on the right. It s true, this is probably when the markets for this currency pair were closed. But that still doesn t change the fact that there are more buy orders in that area than sell orders. Where there are the likely to be orders is sometimes call supply and demand areas. That simply means that there were likely buyers or sellers in a particular area. 174

171 Level 3: RULES OF ENGAGEMENT, Forex Art of War Take a look at this (30 minute). You can see at the black arrow that sellers gained a big advantage. The red arrow shows where orders are likely to be. Why? Because the sellers know that buyers will have to fight to get back into that range. Let s take a look about 5 hours later when price comes back to that level. 175

172 Level 3: RULES OF ENGAGEMENT, Forex Art of War Price comes in strong where the red arrow is pointing. But then the buyers run out of orders, and the sell orders in that area just keep getting executed. Likewise, if you look at the very bottom of the chart (black horizontal), you will see that there are not enough sellers to overtake the buyers at that level. I think it is very helpful for you to see where these 50/50 areas are. This is defined now by the upper barrier (gray), and the lower candle body closes (black) Technically speaking (slang), time periods should not define this balance. But my experience is that they usually do. And you could use other time frames. These are just the tools I use. Hours later the sellers take more ground (black arrow). For a little while, the buyers fight back (green arrow), but that 30 minute candle closing below the level got the sellers excited. You might remember this previous example. That move at the green arrow was the area I traded in Chapter 11. That big move by the buyers was based on some HID. I didn t buy that Core Durable Goods was going to change anything. So I got a great price. I should also point out that usually risk is increased when you enter the trade in the range it broke out of. I ll be touching on that. 176

173 Level 3: RULES OF ENGAGEMENT, Forex Art of War Try to pay attention when wicks, tails, or even candle bodies are created by HID. It may be something that you ultimately take into consideration in your decisions. At times of HID, there can be heightened confusion and speculation. They can change their minds just as fast as they made their minds up, or more slowly. Nonetheless, often this period must be discounted. These moves, I often consider anomalies. They are just individual events that don t have much to do with the story. Let s talk about some of those. Anomalies What I am illustrating here are the lack of gaps. Gaps occur when price moves a little bit faster than the broker s system can keep up with. There can be big gaps and small gaps. Gaps you can see and gaps you don t see. And gaps you see that don t actually exist. This is an FXCM data feed. They are obviously telling the system to open the next candle at the price the previous candle closed at. Blue candles close on top, red candles open on top. Red candles close on the bottom, and blue candles open on the bottom. I know they are fudging this because I used a couple of different brokers who didn t do it. It looks pretty this way, but does not tell you what actually happened. If this were really quoting price, there would be gaps (small ones usually) following the open and close prices. I don t really care that much. I just wanted you to know that they are changing this in the interest of appearance. So that s an example of little gaps you might not see. 177

174 Level 3: RULES OF ENGAGEMENT, Forex Art of War This is a larger gap that you would see during very rapid price movement, but most common on Sunday when your dealer opens. You need to know that the Forex market NEVER closes. Banks that have direct feeds can move money around whenever they want. Back in 2005 I used to monitor an S & P provider, and you could watch the Forex market move all weekend. I couldn t execute trades, but I could watch it move. What you need to know is that the gap you see on Sunday is not really a gap like other gaps. It s just that your dealer closes on Friday. Price keeps moving over the weekend, and then when they turn their systems on Sunday, if the price is different, there is a gap (with most brokers). I think this is an example of a gap which does not exist. Since our team has members in many parts of the world, some traders have gaps when none of us do. It means their particular broker was not able to monitor price for that period. And yes, some of them have had to change brokers because of poor system or data feeds. For me, gaps mean nothing more than that the broker did not or was unable to quote the price in the space that creates the gap. While I am aware of many gap trading strategies and on what they are based, none of that means anything to me. So I m not telling you about gaps so that you can use them. I m telling you about them to suggest you ignore them. I would like to see the small gaps between candles. I d rather see what is there. But the rest? I don t care. Because the Forex market is open over the weekend, and your dealer is closed, it is critical in real accounts that you do not hold a position over the weekend. I ll come back to that in level

175 Level 3: RULES OF ENGAGEMENT, Forex Art of War We ve already talked about some other anomalies. You might remember this example in the bigger green rectangle. In terms of the main story, that area was a period of time that shot down during HID. It can be disregarded. It is unique information that doesn t fit with the bigger story. Repositioned Money This is a technique that our traders often use. I call it repositioned money. On occasion, some data is released that is significant for a currency. On the far left, price makes a rapid move down 186 PIPs without any meaningful retrace. Not even Banks or major investors basically shift (in this case) money from Pounds to US Dollars, hence reposition. There is no speculation involved about anything short term. They are just changing directions in a big way. It s not easy to teach, but from watching, you will recognize when this happens. When it does happen, we tend to ignore everything in the green rectangle and start measuring our New Waves from the next advance of the trend, as seen at the 3 black arrows on the right. 179

176 Level 3: RULES OF ENGAGEMENT, Forex Art of War What is all of this about? Getting in the habit of seeing what is usual vs. what is unusual. This takes some time and experience. But anomalies in general are just events that show up in patterns that have nothing to do with the prevailing story in the markets. 180

177 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 16: Price Resolution and Orders Part 2 In this section I m going to do more on price resolution and orders, and mainly focus on trend lines. I think it is important to understand where they are useful and where they are not. Trend Lines There was a time when I took trend lines to an extreme. In fact, at one point, I had so many lines on my chart, I published the picture as a work of art. There were so many lines, the image looked 3 dimensional. The most attractive thing about trend lines is that it feels sometimes like they are telling us what is likely to happen, but they usually aren t. I ll explain it this way: trend lines are created by the price resolution levels of buyer and sellers. There are basically a few types Supply and Demand (TD points) Picking the lows or highs of tails and wicks Freehand on most relevant areas Saying it a different way, trend lines are created by connecting the points where buyers/sellers reached a 50/50 level of interest. You might have noticed that I tend to refer to price resolution using candle body closes. I think this is best because I think you need a little bit of time for the buyer and sellers to execute back and forth to determine where that 50/50 level is likely to be. That said, sometimes the wicks and tails can be quite relevant. In my experience, you can use either. You will see me connecting wicks/tails for TD points, and everything else I tend to use candle bodies unless there are a lot of wicks/tails in an area. Don t worry too much about soaking this all in. You will find your way if you simply follow the program. On a scale of 1-10, I m going to give trend lines a 5 in value. And really it has little value when it comes to your first goal of consistent profit making. But I know some of you are going to gravitate to trend lines and fall in love with them. Some people just do. So I ll share some of my experience. 181

178 Level 3: RULES OF ENGAGEMENT, Forex Art of War Supply and Demand points, which I renamed from TD points are very interesting creatures. These were introduced by a man named Thomas DeMark (TD). It s really the one thing I took away from his book, The New Science of Technical Analysis when I read it in I wouldn t discourage you from buying it, but know that Mr. DeMark has created new words and new terms, and without defining them. So to decipher TD points completely I had to read many times, how words and terms were being used to home in on a reasonable definition. Anyhow, you ve been told, lol. If you love to read, and love a challenge, his book might be something you would be interested in. Though I call them Supply and Demand points, I always make it a point to give him credit for the information. Here are the rules, which are not really subjective at all (which is interesting). Rule #1: A TD point can never be one of the last two candles on your chart. Rule #2: You use the first two points which qualify Rule #3: Supply points must have a price equal to or less then on either side. Demand points must have a price equal to or greater on either side. Rule #4: (I added) you must have a least two candles between TD points Rule #5: Lines above price must be horizontal or descending. I call these supply lines because they represent selling pressure pushing down. Lines below price must be horizontal or ascending. I named these demand lines because they represent buying pressure pushing up. Naturally if you want to learn these, practice in your forum and ask others in your forum if you have it correct. In the video series (community area), you will see me showing these rules step by step. Here, I will show you at least one example, but focus on how we might use the information. 182

179 Level 3: RULES OF ENGAGEMENT, Forex Art of War If you want to learn this, you will need to go over each of the rules and see how each of the rules determined the points at each of the black arrows. Please note that 95% of the time I use these S/D points on a 30 minute chart. In addition, more often near a place where the trend is potentially reversing. It makes sense because it is more of a precision tool to measure the balance between buyer/sellers. I ve talked about the importance of the key level (50/50) which is defined here by the gray rectangle. It is true. This is an important area for the sellers to get below. Particularly if they can resolve price below in a 30 minute period. You can see at the candle close in the green circle, they are pushing for it. Then the next candle shows buyers pushing back hard with them closing out some. But do these demand lines gives us clues about the balance of buyers and sellers early? Yes, they can. Look at the black arrows on the lower right. They are pointing to lows of tails, showing us that as the first tail and then the second tail are telling us that there are an increasing number of buy orders occurring in the market. The break and close under the demand line is showing us that there has been a change to more sell orders. Personally I like to use this information as a heads up, but still prefer sellers to move below the gray area, showing a real advantage over the longer period of time in that range. What would be sweet is to have that candle in the green circle on the right close below the demand line and the gray area. You won t see that happen a lot, because most of the patterns you see are being created by this struggle between the buyers and sellers. But when price reaches a supply or demand line, you will most often see a 50/50 struggle right at that point, usually down to the fraction of a PIP. So what is 183

180 Level 3: RULES OF ENGAGEMENT, Forex Art of War most important? What the supply or demand lines can tell us about the buying/selling pressure/balance. Again you don t need to really know this, but you might be interested. This is really the same chart. First I used the most recent two tail lows to create the lower line. Then I copied that line and looked for what I thought was a price resolution area and dragged the line up to the green arrows. Then I duplicated the same line and took it to the next level of price resolution. This can be subjective, which is why you need to be careful not to give too much weight to the technique. What can I learn from this? Well, when the low is made at the black arrow on the right, I can see that when price moves up, it could run into more sellers at the middle black line on the top right, with another batch of sellers around the upper black line if price were to climb up there. That s pretty much it. 184

181 Level 3: RULES OF ENGAGEMENT, Forex Art of War I ve made a slight change here based on my own experience. I prefer the candle bodies (longer period of resolution). But all the explanation remains the same. My picture here clearly shows that there is more selling interest in the area of the middle line than there is at the upper line. But one thing I should point out is that the sideways movement near the top right was because this currency pair s markets were closed. Two things 1. The sideways information can be meaningless. 2. When London opens at the top right of this chart, the story that is driving the market might change. This is a good time to remind you that ANY system must always be subject to changing market conditions, something traders who use (symbolic) systems seldom account for. How do I use this information? 185

182 Level 3: RULES OF ENGAGEMENT, Forex Art of War Usually I will use this information tell help me see what is developing. Notice that the trend line is almost redundant. But if I see a close below the upper green demand line, this would tell me two things 1. There is more risk to buy now. 2. The trend could be correcting or reversing. At the lower green demand line, a close below is telling me that the sellers may be getting ready to break that key level (gray). I potentially have a trade coming. I could say more about trend lines. This is a wedge, illustrating that the market is grinding into a smaller and smaller range, but even if you had never seen a wedge before, you would eventually draw one all on your own using this information I ve given you. And you would know that buyer conviction and seller conviction are both getting weaker. Then when it breaks one way or another as it did here, you would recognize that something had changed. In this picture, the sellers showed more pressure. 186

183 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 17: More on ROA There are nuances to ROA. For example, the ROA may be getting smaller or bigger. The ROA might be mostly inside of the range, mostly out, or in the middle. Here s an example of that. You see price is breaking the lower range with a pretty good ROA. But in order to take the setup, you must enter back inside the range. It is lower risk if you have the entry point outside of the range. But you might say, There s no way to do that. Yup, you are right. Don t get me wrong. Team members do it. I m giving you the guideline. What you later see and understand will be unique to you. And an obvious exception would be the trade I took yesterday where I entered inside of the range because of the HID and the USD moving up across the board. Now you might be perfectly fine with this setup in the future in certain contexts that you have observed. But we have to start somewhere. At this point, follow your trading plan and observe. But I can tell you, in a general sense, that your trade will be more at risk if you enter inside the range. 187

184 Level 3: RULES OF ENGAGEMENT, Forex Art of War support/resistance). This picture suggests that if the ROA is sufficiently outside of the range (say 50% out and 50% in, you have room to get in the trade outside of the range. Again, context in the market is a factor, but I m only asking you to observe your own trades. Look at every setup that comes along. See the context in the market, and then look to see how much of the ROA was inside of the range (or former This is a GU 5 minute chart (above). I have placed a horizontal line on the candle bodies, showing where the area of price resolution is for buyer and sellers. Yes, the former high (two candles to the left of vertical line) is higher than the horizontal line, but this is what I do most often. And you can see that the horizontal line represents about half of the ROA, giving you an opportunity to get in the trade, secure your stop below that that former price level, and get an optimal target. It is no coincidence that the pullback occurs right to my horizontal line. Again, this is where buyer and sellers reach a 50/50 level. This is another common look you will see. Notice that the ROA is mostly outside of the range, and is 58. It s common to see, but nonetheless falls into the category of unusual when you take into account the ROA. I suggest in Level 2 that you set a maximum ROA of 55. But also observe the relationship between the ROA and the percentage of the ROA which is inside of the previous range. It would seem that the more the ROA is outside of the former 188

185 Level 3: RULES OF ENGAGEMENT, Forex Art of War trend high/low, the better it would be, but this has not proven to be the case. But there s something there, so keep your eye on it. In general, the larger the percentage outside of the range, the less likely you are to have a pullback once it gets going and reaches your max ROA. These are great times to watch for HID (non-hyper-volatile) which can temporarily push price back your way and let you in. Even a stall at that point leading up to HID can get you in. What? No HID on the horizon? You might have to call it a day. Ultimately this is not about whether the ROA is half way out of the range, or 25% out. This is about your experience, and the overall context of what is happening. I want you to see this, since you are going to looking for your trend advance and ROA. It is quite common to be stopped out by pre-london moves (before 3AM ET) Most of the head fakes happen between European open and London open (one hour). This is an example here. It s a little earlier than that, of course. It goes without saying that in Asia, people are different, so they are going to have different behavior. This will result in false readings with your logic. But I wanted to show you a really common setup that gets the stop hit as much as it wins. 189

186 Level 3: RULES OF ENGAGEMENT, Forex Art of War I want you to notice these two New Waves on this trend up. They look about the same, but the first was is ROA 33. The second wave was an ROA 31. Because of the ability of the New Wave technique to read the strength of moves, you can easily see that the second wave is weaker (having fewer buy $$) than the first wave. This is also something you can watch in real time, and looking back in time. The general idea is that if the new waves are getting bigger, the trend is getting stronger. If the new waves are getting smaller, the trend is getting weaker. Trend = buyer/seller advantage in a given time frame. In our case, 30 minutes, looking at the daily/weekly story. It stands to reason that younger trends will tend to have ROAs getting bigger. More mature trends will have ROAs getting smaller. That said, I wouldn t put too much of your focus on this. This is not going to be something that helps you every day in terms of predicting if there will be a stronger or weaker wave that follows. If you could just wait for a bigger wave, everyone would be doing that. But watching this behavior will cause you to get in the flow of the movement. I have a lot of infrequent patterns I could show you, but I could not get comfortable saying use this once in a great while. The main thing is to trade and learn all you can from each series of trades. You will find that you are doing things, and only later you become aware that you have been seeing an awesome nuance in your method. 190

187 Level 3: RULES OF ENGAGEMENT, Forex Art of War Chapter 18: Community Application A big part of the volume of information in Level 3 has been about application. Keep in mind that this book is packed full of great trading knowledge, however, the real value of the book is in what you do with the knowledge. This is actually a training program more than an educational program. So while the book can be read in hours, you are looking at weeks and months to complete the training program. Training requires that you take action, get feedback, and act on that feedback, just like anything else in life. You will find that you will be able to use the ideas in this program to accomplish some of the most difficult tasks in life. How do I eat better? How do I sleep better? How do I exercise more? No longer do you need to subscribe to a program. You are unique. You need to get to know yourself, create a training program, and begin. And the first training program you create is not likely to succeed. You will need to make notes and review, and find a way to achieve your goals. But if you don t have a plan, you don t write anything down, and you aren t at least consistent in your efforts, you aren t likely to change anything. Now that you are in level 3, you are going to have more time. Instead of trading any setup you see that looks good, you are defining what you are looking for. This is going to free up a lot of time for you. Naturally some will have interests. I have included a lot of knowledge in level 3 for you to consider and follow on your charts. The first step is to simply execute your plan. If the trade fits your plan, take the trade. If it does not fit your plan, do not take the trade. This will probably take you up to three series to get right. Some will get eager, taking trades with their sight slightly distorted by emotion. Some will not take a trade for the same reason. Again, go line by line through your plan and see if the trade fits your plan. If it does, take the trade. Let s imagine for the next 5 months, you feel very strongly that you have your plan clearly in your mind, and also feel there is no need to look at it. I believe that you just wasted 5 months. Remember you are building a new neural network for decision making. Recalling a single memory is not at all reinforcing this network. Go line by line each time, and just get this done, is my suggestion. 191

188 Level 3: RULES OF ENGAGEMENT, Forex Art of War If you see a trade you like, but it doesn t fit your rules, feel free to take it, but observe the procedure of writing documented at the top of your comments, and describe what you see. This could give you some good practice with nuances. If you are just plain eager to trade all of the time, then do what I suggested and take up online poker, or a video game like Destiny. This is just an emotional need you have, and trying to get it fed in Forex is just going to be counter-productive. Remember that half of the battle is getting to know yourself. Okay 90% of the battle is getting to know yourself, lol. Level 3 is about defining your plan, executing that plan, gaining experience, becoming aware of nuances in your method. The process I have explained in Level 3 is designed to help you get a good plan, execute that plan, and learn from your experience. In this way, your ability to execute and your ability to assess probabilities and risk go way up, and you end up finding a balance. This will happen naturally if you follow the program. If you find you are sitting for a few weeks without taking a trade, you need to share this with someone and see if your plan is too rigid. When is the right time to move to level 4? This is easy for me as a mentor because I have followed a trader through the entire process. Some take longer, and some are faster. What do I look for? Well, traders will begin seeing different nuances. Maybe they see that they need a different entry rule in a context. But the trader does this based on their own experience. This will show up in their comments. I think I need a rule about not trading during Non-Farm. They were trading, following their plan, and got stopped out in one minute on the release of that HID. The best thing that I can tell you as you are doing this self-study/community supported program is this: make sure that you make changes to your plan based only on your experience, not something you learned from someone else. This was your baby the moment you created your level 3 trading plan. No one can teach you how to trade, just as no one can ride a bicycle for you. There is the logic, and then you practicing and learning from the experience. 192

189 Level 3: RULES OF ENGAGEMENT, Forex Art of War When to move to level 4? Some traders are seeing nuances by the third series. Some don t even begin thinking about nuances until 7 series. Remember that 8 hours a day of focus time will not get you completed faster than 2 hours. In fact, with the imbalance you will experience with family and health, it is very likely to take you much longer to become successful. When we do not attend to all of the values that are important in life, we unconsciously self-sabotage. I m just trying to cover some of the bases here. The more you work on yourself personally, the faster you will reach your goal in Forex trading. I have suggested The Four Agreements. I also suggest The Power of Now. It s probably one of the best books I have ever read on being present, with far less of the spiritual mumbo jumbo you usually get with that subject. I m not meaning to offend anyone. I just think that if you are unconsciously biting your fingernails and you become conscious that you are doing it, you now have more consciousness. If you are more conscious, you will know when you can bend or break a rule, such as walking under a ladder. Always remember that everyone thought the world was flat not that long ago. Take counsel, but remember that you are your own authority. It might be good to also keep in mind that with all our advancements in the field of nuclear energy, all they are really doing is boiling water with those nuclear rods. And that s probably a good place to stop. Because the final level is called You Are in Command, I m not going to say not to read level 4, but I can tell you that it simply doesn t apply to you right now. But I think most will read ahead anyhow. I probably would, lol. Naturally any feedback is welcomed and appreciated. Did you find errors? Did I miss an important idea? Just let me know! 193

190 Level 4: YOU ARE IN COMMAND, Forex Art of War Introduction to Level 4 In the introduction in level 2, I mentioned that one of the core 3 Art of War principles is this: You are in Command. Independence Over the years, I have noticed a pattern in life. I noticed that whether it is a parent/child or student/mentor relationship, there comes a point in time. In my experience, it appears biological. We see it in a relationship with our kids. As they enter their teens, they can become rebellious, even seeing the parent as someone who does not care, and this can eventually cause both the parent and the young person to be quite at odds with one another. Years ago, I was training a trader a man who I had a great deal of respect for. He was quite talented, had a PHD, and was independently wealthy. I want to be clear that this was not a person who went to school, got a PHD, and went out into the world. This was someone who became very successful, and pursued a PHD in the field of psychology later, to learn more insights about life and himself. We had a wonderful time working together, and he contributed to several important ideas that you benefit from today in this book. I never name him, because he asked me not to. But we worked together for about a year. Then one day, he told me he was going to be away for a while, going off to do some things on his own. I didn t think a lot about it. I thought maybe he was talking about a month or something like that. Well I didn t hear from him for just over a year. Then out of the blue, I my phone rang, and it was him. He said, Vance I have been meaning to call you for a while and share something with you. I was very happy to hear from him and had no idea what he was about to tell me. He said, You may not know this, but when I left a year ago, I was very angry at you. I replied, No I didn t know that. He chuckled happily and continued, Yes I was. I came to the conclusion that you had not taught me how to trade, and I was angry. So I decided to do it my own way. I came up with my own system, and posted my live trades in a public forum for a year, in real time, to hold myself accountable. I made it work and became successful. The reason why I started out 194

191 Level 4: YOU ARE IN COMMAND, Forex Art of War laughing is because when I did become successful, I realized that I had done what you told me I needed to do, and not only that, much of my trading method is based on what you taught me in the early parts of the program. But more importantly I came to see that it wasn t the information that was the issue. I saw that I was blaming you for not being successful. I was not taking personal responsibility. This was apparent in my words and actions. He paused, and I thought about what he said. My mind went right to I was not taking responsibility. You see, I had assumed that someone so accomplished in so many areas of life would have been doing so. As my daughter, Jordan hit 16, 17 and 18 years of age, I realized that there was a pattern in these types of relationships. At some point in the teacher/student relationship, the student needs to break away. If no one is breaking away, life will break you apart. I then looked back on my own life and saw the same pattern with two of my teachers I loved the most. I realized that prior to the unfortunate events that separated us, I was, in a way, dependent upon them. When I began with the Forex Art of War teaching program years back, I kept this in mind. I knew that I would need for traders to maintain as much independence as possible, always pushing for their autonomy. Largely this has been successful. There was one incidence where I had a total falling out. I saw it coming, I recognized what was happening, but there was little I could do. Maybe I ll get that phone call one day. In the case of that trader, they found themselves pressured to produce, something you want to avoid completely. Like many of the most important moments in our lives, we don t tend to see these things coming. They usually catch us by surprise. Level 4 is not just about trading a live account. Level 4 is also about fully taking ownership of your Forex trading. Absolutely no one else can tell you how to do it, what to think, or how to succeed at this point. If you don t make this shift, part of you will always be waiting for that next idea that is going to make it all work. And the truth is that you don t need any more ideas. You need to rise or fall completely on your own. You still have a few things to learn, which I ll be discussing. Just remember that as you go forward, you are still likely to fall, learn, and get up again a few times especially when you 195

192 Level 4: YOU ARE IN COMMAND, Forex Art of War push outside of your current comfort zone. You just have to be willing to do it. This is why it is important that you limit the size of your account right now. You want to have flesh in the game, so to speak, but nothing that would harm you or your family s lifestyle if you were to lose it. You want to begin making the transition from learning, to creating. You have always been creating your future, but your future in Forex is completely in your hands. Do not think of people in Forex (including me) as your teacher. We are people on equal ground. The best thing that myself or anyone can do for you now, is be a sounding board. Most of the time we will not even need to tell you anything at all. Most of the time you just need to express what you are experiencing. Did I teach you how to trade in this program? No. I taught you the variables that affect your probability of winning a trade. I taught you where to look for the best information for your decisions. I taught you how to retrain your mind to make decisions in a different way. That was a small part. You did everything else. Does a great racecar driver imagine that his teacher is responsible for his victory? No. Does an Olympic athlete standing on a podium say, I cannot accept this gold medal, my coach is really responsible. No. If you look at anything great, the coach plays an important role in the success, but in the end, it is really YOU. I taught you WHAT and HOW, but YOU did it. And now there is not much I can teach you. You need to rely on your experience and your tools. So I m saying that now, this is your baby. By now you are used to me going right to the psychology, and you understand that there is nothing more important than how you use your mind, when it comes to getting the results we want in life. This next point is VERY IMPORTANT: It is really important that you are under no pressure to produce results. It works in competitive situations, and where rewards are linked to straight forward objectives, but it is well known that there are two situations it does not work well for as an incentive. 196

193 Level 4: YOU ARE IN COMMAND, Forex Art of War 1. * Improve skills and encourage innovation 2. *Foster competence Hmm.. isn t that what you are doing here? But the more obvious problem is that if we are pressured to produce, we tend to narrow our focus, and the first thing to go is holistic thinking. You don t have time for the best path. You have to get this done now. The best place to be is to have no time limit at all. Hopefully you are building this skill while not needing to rely on the skill in the foreseeable future. And this is not about time. It s about having the right mindset. You ll notice that level 4 does not have very much content compared to the previous two levels. The reality is that there is not much I can teach you about trading a live account that I haven t already shared with you. That said, let s finish up. * Trevor Warden, head of reward strategies, Hay Group 197

194 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 1: Choosing a Broker and Starting Small I know some traders are going to be looking to this section to find out which broker I recommend, but I m not really going to recommend anyone. Instead I m going to give you some ideas that will help you to choose. I am not in the broker business. Neither I nor my company makes any money from a broker when anyone trades a live account. When choosing a broker, most new traders consider the size of the spread to be the most important factor, but this isn t even close. Spreads are a factor up to a point. The first issue is that there are countless marketers who are ultimately being paid by the brokers to post information on the net and in popular forums. This makes it difficult to tell who to listen to and who not to. My best advice to start with is this: Take a little time and choose who you want to open a live account with. Your first account should be a small amount of money that you can afford to lose. This gives you a minimum of a few months to learn more about who you will ultimately use as a broker. So for at least a few months, it doesn t matter who you use, as long as you like them. There are going to be some limitations. The best execution and safety is usually going to require a bigger deposit. Probably a minimum of $10k USD. So as I mentioned in an earlier chapter, many smaller retail traders will need to work their way up. There are several types of brokers to choose from. You have an ECN (electronic communication network), you have the dealing desk, and then you have these hybrid types. You might be thinking, Vance, just tell me where to start. Well I have, for the most part. But understand my hesitancy. You might be in the US or in Singapore, or in Malaysia, China, or Estonia. There s just no way for me to give you any concrete recommendations. The best place to start is with team members. Some of your fellow members have done a lot of research about brokers, and can save you a lot of time. I don t mind who they recommend, as long as they (themselves) are not introducing brokers (IB s), making money from the broker. That will give you a place to begin. Ultimately you need good execution at good prices, and you need to feel comfortable with the management. 198

195 Level 4: YOU ARE IN COMMAND, Forex Art of War About a year and half ago, my partner and I were deciding where to make a sizeable deposit for a trading project we were embarking on together. We looked at execution and costs. Both the dealing desk we liked and a more ECN-like broker were in the running for the account. In the end, we felt more comfortable with the latter just because they had stronger management and were not taking the other side of trades. We must have felt very strongly because we went with a broker where it is anything but simple to operate their software nothing like the simple button pushing you are accustomed to with the dealing desks. It was really just a matter of a learning curve, which took a couple of weeks to gain confidence using. So my best suggestion is to take a little time each week and learn about brokers. Try out their platforms, ask questions, and before long, you will not only know what your choices are, you will arrive at your best choice for you. How Much Money to Begin With I m often asked about how much to begin with. I always refer to money that you can afford to do without. But if you are looking for something solid, begin with a maximum of 2% of net worth. If $300 is more than 2% of your net worth, then begin with $300. If you are in an area of the world like Asia Pacific or other developing economies, then start with much less. There are definitely some lessons you can encounter moving to a live account. One example I have seen a lot is that the trader has some success early on. Perhaps his/her first two series they make 10-20% per month. This can create a cycle that begins with the vindication of shame. Here s how that works (and you can look back on ordinary life to confirm): You have some validated success (like the earnings). Others congratulate you on that success. You know that very few traders actually make it to where you are. This makes you very happy. You have proven yourself (oops). It s that one moment that changes everything. You have proven yourself? It may be difficult to see, but you had nothing to prove. Or did you? Did you fall short in the past? Were you not good enough? Does this event prove that you measure up? When this happens, the happiness moves into euphoria and pride (shame vindicated). It is here that we have a problem, and one of our most obvious examples of how feelings distort 199

196 Level 4: YOU ARE IN COMMAND, Forex Art of War what we see. You begin to exude great confidence. There s only one problem. You feel more confident about everything. You feel like you understand the world much better, and even feel you can talk confidently about subjects you really aren t that familiar with. But on a practical trading note, the issue is that you now believe you see MORE on the charts than ever before. And perhaps you do. The problem is that what you see is not part of your trading plan. It s not part of your experience. But it sure feels like you know what you are doing, and this is the problem. My first teacher said about this, When you feel invincible, it is the beginning of the end. Not everyone experiences this of course. I m just providing an example of why you need to start small. Others might get cold feet, and be overly cautious. We have not seen this much in our program because of the daily focus on execution. In addition, you may not have had a significant draw down experience yet. Intellectually you understand it, but if you have not experienced it yet, it can be very painful. And you don t want to have that experience for the first time with any significant amount of money on the line. Remember that losing half of your account is actually worse than you first imagine. Not only do you lose half of your account, you lose half of your earning power. So simplistically speaking, you lose half your money, but must do twice the work to get it back. Your total risk is now half of what it was when you began, which means your earning potential per trade is now half. So limiting your losses contributes greatly to your earning power. The idea situation is for you to trade a few series of trades with a small amount and examine that experience. In 2005, I bought a brand new Hayabusa. If you don t know what that is, at the time, it was the fastest production motorcycle in the world (top speed 207 MPH). I had experience with fast bikes, but from the moment I said down on this bike and accelerated a bit for the first time, I felt fear. Part of me knew that I was just one wrong move away from death. My trading experience helped me to be safe on this bike. I made a couple of rules that I didn t have before. Not 200

197 Level 4: YOU ARE IN COMMAND, Forex Art of War only could I not drink any alcohol and ride this bike, I could not ride it if had been drinking the night before. But the point I want to make is that this cannot be your first motorcycle. It just can t. There are too many lessons to learn on smaller bikes that would be unforgiving on a bike with this amount of power. We are talking about a significant increase in risk. Ride the smaller bike for a while, and work your way up. Make mistakes when mistakes are not so costly. Bottom line? Choose a broker soon, get to trading live, and begin your own extensive education about brokers. You have time to find out what your questions really are, and the answers. 201

198 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 2: Be More Stealth Post trades after the outcome is known. Up to this point, I have encouraged you to post all trades in real time. As someone in level 4, I m going to ask you to stop doing that. You don t know who is watching you trade, and you certainly don t want someone reading the newsfeed (or your community forum) and trying to copy what you are doing. That s fine for other sites. There are lots of EAs people can follow. But our program is about being fully skilled, and there is no room for that. Also do not post your Level 4 plan in your community. At this point in time, your plan is your plan. Again I am suggesting this for the same reason. Just so you know, everyone who has tried to share their system point by point, in my experience, has caused not only the other trader to fail, but the trader who shared fail as well. Why? Who really knows? But here s what I have observed not just in Forex, but in life. A winner + a loser = two losers. Why? I have theories about that. Some that are based in quantum mechanics. But they are just theories. What I really fall back on is this: if you want more in life, you must become more. As so many of my teachers taught me growing up, there is no growth without suffering. This is no different from growing a muscle. To get more muscle, you must tear the existing muscle. Who are these guys who want to be big and strong without lifting any of the weight? Careful Answering the Wrong Questions As a level 4 trader, you are going to get questions from less experienced traders. I ll keep this really simple: you did the work. If their question has to do with their current objectives in the program, answer away. If it doesn t, don t. But I leave that to you. My mentors have said that we do not have the right to deny people their opportunities for growth. Are you really helping them by giving them information that has nothing to do with what they are currently working on? Try to keep in mind that anything which is proven to work, which requires a change in behavior, we find these numbers: 80/15/3/2 Whether it is weight loss or home based business, 80% will not get any results. 15% will get some results. 3% will reach their goal. 2% will shine and exceed all objectives. The same will be true here. I m not talking about you. You are already positioned in the top

199 Level 4: YOU ARE IN COMMAND, Forex Art of War You just have a little more work to do. I m referring to the 80. But make no mistake, many of the 80 do not fail for lack of effort. How do you know them? They cannot focus on their current objectives. And of course, they keep eating the marshmallow. To summarize, post your trades after the outcome is known. Keep your level 4 trading plan to yourself. Be prudent when answering questions from less experienced traders. 203

200 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 3: Live Trading Risk In this section I ll just talk generally about other risks and ideas. Allow Three Series of Trades As you begin trading your live account, it is likely to feel a little different. It is very common to feel fear from the risk. Up to now, it has all been demo trading. Even though you didn t always feel great when you lost trades, now if you lose, it could mean that you are not successful. Perhaps more than the money, you could lose face? I understand this, but if this happens to you, it is coming too soon. You have never traded a live account before with your method and plan and the work you have put in. You need to give yourself at least three series of trades without evaluating yourself at all. Remember, there are still lessons to learn and grow from. Accept the Risk I can remember first trading real money. I struggled a little with it. Then someone gave me a tool, and shortly after, I realized that I do what they showed me in ordinary life. They said, Accept the loss in advance. I didn t understand it at first. Are you okay if you lose $X? Can you accept that? My answer was yes, I can accept that. And when I did that, I was far less affected by the developing and unfolding trade. It may be that you will use this tool later as you increase the account size, but most traders will find this tool useful even now. Besides, it is a good habit to get into. All you can do is your best, and your best is always good enough. Do not Celebrate Wins or Mourn Losses This goes right with everything I m telling you. If you do celebrate your wins, you must also mourn your losses. My suggestion is to practice doing neither. You might have to go to this rodeo a couple of times, but you ll get it. A big win? Move on. Do not celebrate it. Why? Because you are reinforcing it in your brain that winning is good and losing is bad. You need to get in the habit of looking at your results over weeks and months, not hours and days. In ordinary life, this is what we do, so this is what our brain is programmed for and seeks out. You need to get used to losing 3-4 in a row from time to time. 204

201 Level 4: YOU ARE IN COMMAND, Forex Art of War How Fear is Created In the 90 s, one of my mentors (Jim Britt) explained to me how fear is created. He said that we experience fear in the present by taking a painful event in the past and projecting it into the future, anticipating that we might repeat it again. The process of doing this creates fear. This is the kind of fear we choose through our learned processes. In our culture, this is totally normal. But that doesn t mean it is smart. I mean if you are doing something that you have control over to create something you don t want, perhaps you might think about changing that. But like all habits we have engaged in for a lifetime, they take time to change. The best solution is to be present. But that s like saying that the best way to lose weight is to eat less and exercise more. You know WHAT to do, but not HOW. And the solution is always learning about yourself, and retraining. What does it mean to be present? It means that you are not in the past or the future. You are here, now, using the best information you have to make your decisions. And until you push that button and execute the trade, nothing real is happening. So there are two things. 1. The fear leading up to the trade. 2. The fear that you can experience when in the trade. I have had the uncanny knack of being able to avoid the first. When I climbed onto a zip line platform and prepared to cross a gorge, 300 feet off the ground, traveling at 70 mph, for 700 meters, it wasn t real to me until the moment I left the platform. So I wasn t scared at all. But the moment I left the platform, I spontaneously yelled ohhhh mmmyyyy Goddddddd! I just want to point out that I executed the decision flawlessly. As far as being on that line flying through the air at that height, at that speed well.. the deed was done. There was nothing left to do but wait until the end. And trading is like that. Once you enter the trade, your work is done. Sure, you may define moves during a trade later, but that will come. I did the exact same thing on the Scream that lifts you up 21 stories and drops you. The result was exactly the same, including the words I chose to scream, lol. I would also add that we experience fear when we are confronted with a situation that is new for us. The simple reason? Not to sound dramatic, but one of your brains primary jobs is to keep you alive. So it is natural to feel fear in a new situation. If you are making the 205

202 Level 4: YOU ARE IN COMMAND, Forex Art of War conscious decision to do something new that you think is good for you, fear tells you that you are on track, one of my mentors says. Not everyone feels the same. But to whatever degree you are experiencing these emotions, remember that the key is to execute. Do not judge yourself. Only evaluate your execution after a series of trades. Make notes, but do not analyze during a series, just as before. Risk Tolerance I mentioned this once before in the book. Now I need to talk about it more. To me, risk tolerance is about that moment that your emotions change your behavior. We all have it. At least everyone I have met. It s not the moment you become afraid. It s the moment your behavior changes. I can t count the number of times that traders have had success, and then when they increased the size of their account, suddenly they began to lose. Sometimes it is obvious that they changed something. But usually the emotions are distorting things so much that the trader cannot even identify what they are doing differently. This is why it is great to have a record of what you have been doing in the past (your forum). Let me give you a simple, real life example. I ve never been a fan of heights as you might have gathered. I just don t have much experience in high places. Two summers ago, I was happily painting my house. My house is very high on two sides. Well I was going along, happy as you please painting, standing on my ladder. I was balancing on my feet, paint brush in my right hand, and paint bucket in my left hand. I was doing just great until I reached some magical height off the ground. From eye level, it was about 15 feet. Drop down one rung on the ladder and I was fine. Step up to that next rung, and my brain decided we were in mortal danger. The only way to minimize the fear was to stop balancing on my feet and wrap the arm that held the paint bucket around the ladder. Even then I was not comfortable, but I was well enough to continue. I guess my brain had worked out that 14 feet was okay, but 15 feet was pretty serious. The only thing I want to point out is that at 15 feet, my behavior changed, and so did my results. I was much slower. I moved slower and reached less far with the brush. That s 206

203 Level 4: YOU ARE IN COMMAND, Forex Art of War what I m talking about. When the emotion gets strong enough to change your behavior. That s when you reach your risk tolerance level. At some point you are going to find this level. When you do, you need to trade near or under it. How do we get over it? You could get a good mentor that can coach you on this, but while you are working on that, just know that your brain has to get used to the idea that you are not really doing anything different. So let s go back to my analogy. It was about 30 feet across that wall of my house. So on the rung of the ladder that put me at 15 feet, once I spent all of that time going from one side of the house to the other, I was much more comfortable. So the answer is: you get used to it. You will notice again that it is not any different from anything else in life. You can play around with this a little, too. For example, risking 2% of $50,000 is the same risk tolerance level of risking 1% with $100,000. So if you find that you are over your risk tolerance level, instead of taking money out of the account, you can lower your risk to equity. More than one way to skin a cat, as they say. NOTE: This is beyond the scope and goal of this program, which is consistent profit making. As of Sept 2015, I am providing life coaching, which deals very effectively with these issues. You can look for me on Facebook. Search Vance Williams Life Coaching. Capital Management Also, if you get to the point that you are trading more money, with lower max risk (like 1%), if your funds are not secure with the broker (they usually are not), you can leave half of your money in an insured bank, and trade your brokerage account as though all of the money is in the trading account. As far as how low your stop can go (smaller stop, more contracts, less useable margin), that s going to depend on the broker. But you should be fine at 1% max risk, trading 2%. But work out the numbers so you only have what you really need in the brokerage account. Remember, when you CAN eliminate risk, do it. 207

204 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 4 Live Trading Plan Live trading also comes with a few new rules. Close Positions for Weekend You need to know when your broker closes on Friday, and you need to make a rule to close any open positions. You already know that your stops and limits cannot be executed over the weekend because your broker is likely closed. So you are at great risk here if you hold a position over the weekend. The market could open on Sunday with a 100+ PIP gap, and regardless of having a stop loss of 22 PIPs (or whatever), you will lose the full 100, almost 5X the risk. So this is just not a risk we ever take. So make a rule in your plan that will not allow you to have an open position when your broker closes for the weekend. As most of you know, I don t even trade on Friday. It s a day that has less consistent behavior than Monday-Thursday. On that note, be sure to go back through your trading and look at the Friday and Sunday trades. I stopped trading on Fridays for two reasons. 1. Investors and traders are closing out and taking different positions before the weekend. This happens throughout the day on Friday. In addition, the last Friday of the month can be exceptionally different, and the first Friday of the month, we have Non-Farm Employment data. 2. When I stopped trading on Fridays years ago, I noticed that I was much more tired on Friday, and that my sharpness wasn t what it usually is. By taking off Fridays, it made me even that much sharper on the four days I trade. With respect to Sundays, since the main currencies are the Euro, US Dollar and Great British Pound, and those markets are closed on Sunday, this is no different from trading at off hours during the week. In addition, sometimes Sunday gaps can play with the market psychology as well. Bottom line? I really enjoy three days off If You Discover a Mistake, Close the Trade If you enter a trade, and discover that you made a mistake of any kind, make a rule to immediately close the trade. This seems obvious, but sometimes if you are winning, that little voice in your head can tell you to stay in. But your trading is about good execution, not luck. Perhaps the flip side is true. Perhaps you made a mistake, and now you are in a loss, but hoping to get back to zero. Again, close the trade. You made the mistake when 208

205 Level 4: YOU ARE IN COMMAND, Forex Art of War you executed the trade in the first place. Don t be in denial. Just accept the mistake make a few notes, and move on to the next setup. Be Careful About Bank Holidays For most traders, this is not an issue. For example, this is not likely to be an issue if you are trading with a dealing desk. But if you are trading with Interactive Brokers, for example, and the Eurozone is having a bank holiday, if you are in a EUR/USD trade, your orders cannot be executed. So double check with your broker. If they do operate like IB, then you need to have a list of holidays for the entire year as part of your plan. Being in a trade for a holiday in this circumstance is probably much worse than being in a trade for the weekend. Why? Because price is much more likely to move significantly before you can execute your orders. Again, this won t apply to most traders. Immediately Close any Windfall At some point, you are going to enter a trade, and find you have made much more suddenly than you expected. Perhaps the market makes a rapid move before you put in your profit target. When this happens, my suggestion is this: WHEN you discover a windfall, close the trade. More often than not, we feel like staying in the position. More often than not, we lose some or all of that position. Again, this was just luck. Get luck off of the table, and get back to skill. Be grateful and don t play with it. Records of Trading Platform On a procedural note, you are probably already doing this, but if not, it is critical that you take a picture of your orders each time you open and each time you close a trade. I m referring to the trading window where you see the orders, not the orders on the chart. As I wrote in in a previous section, you don t want to find a big loss and not be able to tell exactly what happened. From time to time, it is natural to become a little careless. It s part of the learning process and emotional challenges. This usually happens when you are doing very well. You feel like you can afford to slack off a bit. But the truth is that you should always follow whatever procedures you have. If you can t, you might want to think about closing the trade or not entering in the first place. 209

206 Level 4: YOU ARE IN COMMAND, Forex Art of War Accounting for Spreads There are two parts to this. First, in a previous section, I explained how to deal with the spreads. If you are trading with small stops and targeting.75:1, it is important to account for your spreads. In a sell trade, or a pending buy trade, this is a factor. In addition, fractional PIPs can be a factor. You have to decide how much. Sometimes they are stretched apart, for example. If your target ends in a 9, and your entry ends in 1, you are actually a whole PIP off, almost. You can make this simple by using the fractions in the calculator and you are done. When your trade is complete, just divide your gain by the pre-trade equity. It will tell you how much you made. So if the account is $10k, and your max risk is 2.5% or $250, and your reward is.75:1 (1.87%), that sum is If you made $173.20, divide that by the starting amount (10k) and that would give you 1.7%. If this is happening, you need to make adjustments. You need to be closer to that balancing point of.75:1 (1.87%). The exception is contract inefficiencies which I ll talk about next. If your stops are not that tight, your R/R is closer to 1:1 or higher, and your cost to execute trades is low, this is not as much of a factor. This will tend to be the case as you increase your experience and the amount of equity you can trade. In another chapter (Mastering Market Behavior), I show you an example of what I m referring to. Contract Inefficiencies There is going to be an element most traders are going to be dealing with at the beginning of Level 4. Most will be starting with under $1000 to get their feet wet. Many are going to start with $300 or $500. But I want to demonstrate where the inefficiency occurs that throws off your bottom line at lower equity levels. Let s say your equity is $500. If your stop loss is 14, with a max risk of 2.5%, you can trade 8.9 1k contracts. The only problem is that you can t trade fractional contracts. Your 1k contract represents the smallest increment. And you can t round up because this exceed your maximum risk rule of 2.5%. So you have to round down. Now you could change your stop loss to 15, giving you 8.3 lots, but I suggest you do not do this. I don t think you want to change your setup (risk and rewards) to manipulate the inefficiency. You want to trade 210

207 Level 4: YOU ARE IN COMMAND, Forex Art of War your best, and live with the inefficiency for a while. Yes, the bottom line will be off right now, but it is something that will be rectified as you trade more money. For example, if your equity is up to $2200 and you are trading 10k contracts, instead of trading k contracts, you can trade 36 1k contracts. When your equity is much bigger, this is even less of an issue. In addition, as you gain experience, and begin to master market behavior, this probably won t matter at all. Again, I ll touch on that in a later chapter. Closing Trades Early At some point you are going to run into circumstances where you feel you should close the trade. Perhaps price goes for a period without hitting your stop. London closes, price is now in a range. Whatever was going to move the market was already brought to bear. Should you close out? That s something you need to decide. What if you are in a great setup, it has almost reached your profit target, but price has stalled a bit waiting for some HID? This is something that you also need to take great care in deciding. But be sure you know this: decisions need to be made in advance, not on the fly. When you are in the thick of it, you just can t rely on your mind the same way. Emotions, can alter what we think is happening, and cause us to make serious mistakes. In summary, trading live is a little different. Pay attention and be careful to do what you have learned how to do. 211

208 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 5: Mastering Market Behavior Part 1 Adding New Setups I am asked frequently why I don t teach some of the advanced methods. In other words, setups that I know are pretty good. The answer is that I did this for years. It simply does not work. A fully skilled and experienced trader can trade just about any method with success, it seems, and someone who doesn t fit that description can t make money no matter what you show them. By now you should be quite convinced of this reality. And I confess that I have a desire to show you how the Fibonacci sequence lays out on a 30 minute chart. It is fascinating. It is so compelling that you might be convinced in one viewing that you can do it. But you can t. I tried teaching it over and over again for years. So I m going to stick with what I know works. In the next chapter, I m going to explain how this is more likely to unfold in the long run. But there is no question that most traders are going to want to experiment with other setups. You see something well, and you want to try it or incorporate it into your trading plan. The bad news is that you can t just add it to your plan. You ll see what I mean if you try it. Since you don t have experience with the setup, it won t take more than 2-3 losses in a row, and you will abandon the idea. And yet it might be a good idea. The issue is one of confidence, and that requires experience and that comes from validation. If you don t have confidence the pain will change your mind. The good news is that you already know how to do it. During level 2 and level 3, you learned a skill for doing this. First, what are the variables involved in your setups? Trade it for a while (minimum trades). What are you seeing well? Is the logic complete? If you find that you like the setup, the next step is to pick the best examples, and begin to define it, just as you did at the beginning of level 3. The final step is to begin documenting that setup. Maybe trade it a minimum of 30 times. If you have traded it for a while, and defined it well, then you will have a very good idea if you want to add it your trading plan. Letting Profits Run? Changes might not be all about a new setup. There might be circumstances where you want to pull your stop loss to break even coming into HID or some other logical reason. Be 212

209 Level 4: YOU ARE IN COMMAND, Forex Art of War careful you aren t just doing this to make yourself feel better. There must be a point of logic in play that you have experience with. What about getting more out of your trades? At a point in time, when you have enough experience with your method, you are going to see the potential (more on this in the next chapter) of a setup. But to help your eyes tune into this, I suggest following all of your trades after they close. If you closed at.75:1, did they go farther? Study the variables and the context when you can. Your mind will begin to identify when these moves have greater potential. But in the end, the variables themselves will determined the potential of every setup. What if Conditions Change During a Trade? Again, if it is within the boundaries of your experience, you have possibility. What am I referring to? Well, let s say that you are in a trade, going in the direction of the US Dollar, and suddenly everything is pointing towards a stronger USD, and price is moving across the board that way. You still have 10 PIPs to go to reach your target. Do you extend your target? You can only know from experience. Me? I rarely do this. I like getting in, sticking with my plan, and getting out, regardless of what is happening. There is ALWAYS another trade around the corner. That said, you do what you think you should do, and when doing it, be careful not to increase your risk to your live trading account. Keep your testing separate from the hard work you have done. 213

210 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 6: Mastering Market Behavior Part 2 It s natural to want more, I think. A new trader is going to think about expanding into more setups, but this is not really how it unfolds in the end. I talked about pattern potential earlier in the book. Once you have mastered market behavior, it s no longer about risk to reward ratios or any of that. There is an optimal stop, an optimal entry point, and an optimal target. The buyers or sellers have an advantage, and you can measure that advantage. This might mean that the stop loss is 13 and the target is 15. Or maybe the stop is 14 and the target is 14. Or maybe the stop is 9 and the target is 17. You see the variables, the strength of the advantage, and the optimal entry and exit points. I ll give you one example, but you will find countless examples in the live sessions. What was the story? The Greece solution was in the hands of parliament, which would vote the next day. A yes vote for changes seemed unlikely. London had been selling since the open. GU traders had been buying, optimistic about a future rate hike on the heels of remarks from their central bank recently. The USD was gaining strength across the board (GU chart down). Only the GU traders were resisting the drop. After they failed to push price up over and over again, and were slowly losing ground, I sold. I put the stop at the most recent swing high. That s the highest blue candle wick below the red stop loss line. I targeted just above 50%, knowing that the buyers who had been stopped earlier would be 214

211 Level 4: YOU ARE IN COMMAND, Forex Art of War adding more contracts at that 50% and just above, getting an early start on another move up. Price hit my target almost to the PIP, filling the target orders, and then buyers made another strong move up. This is not an unusual example of me doing this. Those who have watched me for years will tell you that I do this very often. I rarely trade counter trend. But here I read the story, the market variables, and identified the optimal entry and exit points. In this example, you see me targeting 31 with a risk of 19. Usually my risk is closer to 13 and my target closer to 15. But as I said, I m making the decision based on the information the market is giving me right now. So there can come a point in time where you define your setup a little differently. I m not so much trading different setups, but rather the same setup in different ways. In the end, there is really only one type of setup: Either the buyers or sellers have an advantage, you can measure the strength of that advantage, market conditions are congruent, and you can see the optimal entry and exit points based on where orders are likely to be. Let s go over that point by point in the picture. I determined that the story was leaning towards sellers (market conditions), and so was London sentiment. The USD was moving significantly for the other pairs I watch. The GU was trailing that movement due to buyer optimism. GU was showing more and more selling and then began dropping through range levels (I entered). The optimal stop was determined by how high the buyers had been able to push price in the previous 2.5 hours (previous swing high). There was no question about the strength of the USD pushing price 215

212 Level 4: YOU ARE IN COMMAND, Forex Art of War down. The question was about when the buyers would be pushing back strongly again, which I determined was just above 50% of the entire move up. As I was taking this trade, I explained that this was a tad aggressive. There was no reason to target so much. A 1:1 target of 19 (instead of 31) would work even better, making a good profit and be more likely to be reached. All of that said, keep in mind that no one can teach you to do this. This will evolve in time from your experience. I want to point out that I am not making decisions on the fly. I still do once in a great while. This is a mistake I freely admit. But when you are new to doing this, you need to be even more careful. When you find you are able to read the market very well, be conscious of what the potential of the move is, and don t attempt to get all of it (as I did here). And most importantly, always define your decisions into your plan, let your plan be the decision maker. Different Profit Style At some point, you might be trading enough money so that the picture changes slightly. This is mostly likely when you reach your risk tolerance level, in addition to gaining enough experience that you begin to master behavior. Now you see all of the variables, you get a good read, you can see the advantage, the strength of that advantage, and the optimal ways to manage the risk in that circumstance. Let s say for example that you like trading the GU. You have $66,000 in equity (or whatever). Your maximum risk is $1650 at 2.5% MR (max risk). 216

213 Level 4: YOU ARE IN COMMAND, Forex Art of War Perhaps you can get a 13 PIP stop and target 15 PIPs in the setup. This makes your potential risk $1650 and your reward about $2016. But what if you are happy with $800 in a trade? If you can get two of these trades a week at $800 per, for you, that might be good. That means you can do a couple of things. First of all, you don t have to worry about maximum risk that much. Secondly, you can move at least half of your money into an insured bank account. This is just an example of how your trading can evolve. I want to share somethings else, but also caution you at the same time. A Word of Caution There is another type of person who is learning to trade specifically so that they can trade other peoples money and share in bigger rewards. There is a lot I can say about this, but this almost always fails. In fact, I don t know of an example personally where it worked. Probably the most significant reason is because the person is not trading their own money. If they were, they probably would not have moved so quickly to increase the size of the account. So those who want to trade others money likely tend to pull the trigger on that plan too soon. That aside, when you are successful, even in a smaller account, people know it without you telling them. They can see it in your confidence and how you talk, even if they don t know how. I have been approached countless times with a request to trade other peoples money. This is millions of dollars. Tens of millions really. I have always said no. Why? I don t have any experience trading other peoples money. Is there a difference? I have seen more than one great trader doing extraordinary, and when he opened up to the idea of trading other peoples money, eventually, it all imploded. In fact, one of them is thought by many to have been setting people up for the long con. Personally I don t think this is the case, and I guess we ll never know. I think the dynamics of trading other peoples money are different. I m willing to bet that a good percentage of the criminals featured on the show American Greed didn t start out as criminals. There must be pressure to produce and create greater returns, generated by those who are marketing the fund. Investors are likely to be asking questions about the 217

214 Level 4: YOU ARE IN COMMAND, Forex Art of War returns. Expectations are created. It s not difficult to imagine you are doing extraordinary and have a new lifestyle. Then a change in the market happens, and you lose a significant amount. You know you can get it back in time, but if you report the loss, you will lose investors, making it more difficult to make up. This would be even more so the case if you have been showing good returns, I think. Whether you wait to report for a while, or skew the report in some way, the moment you do that, you are on the path to prison. I m just sharing a thought. What I have told others is this: if you want to trade others money, then make sure you get some training from someone who knows how to do that well. I am only helping you prepare with skills to trade your own money. But I want to emphasize that when you do well, you will be asked to trade significant money. You need to be prepared with your answer. If you do want to pursue a future as a fund manager, then you should begin your education in that area right away. I m not intending to create a negative mood here, I just want you to be safe. I m not saying not to do it. I m saying to be sure that you know what you are getting yourself into. 218

215 Level 4: YOU ARE IN COMMAND, Forex Art of War Chapter 7: The Final Chapter I ve taken a break for a few hours before writing this last chapter. I wanted to think about what else I wanted to include that I did not already put in my notes. I m pretty sure I ll need to edit once or twice and that will give me the opportunity to fill in a few blanks if needed. With that in mind, I ll close out with some final thoughts. Trading is Not a Team Sport There are many advantages to being a part of a team while you are learning, but when it comes to making these decisions, you are completely on your own. There was a time when we imagined we could be on Skype together, share our conclusions, and have an advantage. But in the end, every time this was tried, it turned out to be counter-productive. In addition, if you jump on Skype during the learning process, the content of discussions are lost, unlike your forum where it is captures specifically for one of those reasons. But it is good to stay connected to a team. From time to time data feeds can get corrupted and you see that much more quickly if you are interacting some with other traders. But you don t interact with them so they can help you with your trading. It s really just moral support, and more importantly, if you are inclined to do so, you can help others. You can encourage them to keep going and share your experience with them. So while your trading decisions are yours alone, you can still be part of a community that values your contributions, and validates some information that you see. Perhaps they even fill in some blanks. And we do often compare notes on how the story is shaping up. This morning the whole FX world was focused on Yellen. Every information source I read had nothing relevant to say about Greece. And yet for the first time in two years, that story had actually changed. The parliament voted for austerity measures. Something, on the previous day, no one thought was even possible. Up to then, it had been an old fashioned Mexican standoff. Something didn t feel right, so I did my own search and found the vote. I was trading the wrong story! Now it was too late for me, but I sounded the trumpet at that moment, and others did benefit. What was thought to be a dropping market never dropped again, but rose by 44 PIPs before going sideways. 219

216 Level 4: YOU ARE IN COMMAND, Forex Art of War The story had changed. Something fundamental about the story had changed. For moments like these, it is good to be part of a community like ours or one you developed working with your own team. But other traders cannot help you make decisions now. The best thing you can do is to have someone who is a good sounding board for you. I ve done that for all of the traders up to this point. What is a good sounding board? Simple. They are PRESENT and listening to you talk about your thoughts and feelings. If they are only listening for you, and not for themselves, if there is anything they can tell you, they will be inspired to tell you. This really doesn t have to be a trader. I have someone like this, and they know little or nothing about trading. The bottom line is that you know what you need to do. Sometimes having someone to be your sounding board just helps you to be clear about what that is. The Most Difficult Part of Trading There is no question that the most difficult part of trading is getting past the experience of losing 3 or 4 trades in a row. This is why it is important that you fall back on your logic and your trading plan. As long as you rely on what is in your head, you can have no confidence in what you are doing. Your experience will likely be similar to that of other traders. You will find yourself feeling like you are doing very well, and then you lose 3-5 trades. As each subsequent loss occurs, you feel more pain and doubt. This is only natural. It will be like flying a plane and going into a cloud bank. You just can t see anything. All you can see is the information on the panel in front of you (or what is going on in your imagination). You must to LEARN to trust that information in front of you. That takes practice. Accept the loss before you take the trade. Accept ten losses, and just keep moving forward with the conclusion of each trade. It s the most difficult thing in trading to do, but you have to do it. This is also why I strongly encourage you to begin with a small account. The process is painful enough without it being a financial disaster, too. Be careful not to have a knee jerk reaction to this process. Yes you can cut some of those losses with filters (criteria that voids a trade), but this will limit your frequency. Be slow to do 220

217 Level 4: YOU ARE IN COMMAND, Forex Art of War this. It s not the right move. Some losses are part of trading. If you are going to win 72 out of 100, there are going to be 28 losses. Be slow to change your plan. Get feedback from someone you trust. Always evaluate in a series, using hindsight. If you do, that will turn into more foresight. How to Gain Confidence If you are ever going to make any meaningful money, you are going to have to gain confidence in your plan and in yourself to execute. I think of gaining confidence just like gaining trust in a new relationship. You have to respect the other person, don t get in a rush, and don t make assumptions. You have to really care (treat trading with that same level of importance). So gaining confidence in trading is a little like that in my mind. You need experience with your plan. You can t judge your plan or yourself by a few experiences. You need a long series of experiences not only to see what is happening, and how you can improve, but also to actually see that you have made improvements. If you trade too much money, too quickly, the fear will undermine your confidence building. If you get away from your trading plan, you can destroy your confidence. After all, you don t have any experience doing something else. You might feel like you do, but you don t. You need to be careful (not careless) to do a good job. Stay on track. Execute, make notes, and keep a brief journal about your experience. You might be fascinated by what you read that was happening a month ago. You might even find that what you remember happening, and what was actually happening were two different things. When it is time to review, go over your trades, over and over again. Now that you are in Level 4, each time you review a series of trades, review several other (prior) series at the same time. More than You Bargained For I have been told over and over again that what traders have learned on this journey helped in many other areas of life. I m not surprised. If Forex trading had not given me so much insight about life, I don t think I would have been captivated for so long. But it has, 221

218 Level 4: YOU ARE IN COMMAND, Forex Art of War especially after incorporating the Art of War principles, and making the breakthroughs in psychology. Forex trading made me learn to see myself as I am, others as they are, and the market as it is. It taught me that I don t know what will happen. It taught me that the greatest victories come from struggle, no different from a seed breaking out of the darkness of the ground, or a new baby chick hatching from its egg. This experience taught me that it was not knowledge, but consciousness that made me excel. And it made me remember that in the most difficult tasks, to break them into the smallest steps possible, and execution would become easy. I was finally taught not to celebrate my wins or mourn my losses. Life is great just the way it is, and there is always more potential to grow if that is what you want. I could go on, but you get the idea. Forex challenged me to be the best I can be in this life. I was trading Forex when almost no one knew what it was, and platforms were barely stable. In fact, if you can imagine, the day I entered Forex, I did a Google search for Forex training and it returned only 500 links! I was here before there was an ounce of regulation in the US. It was probably a little like the Wild West, or the days of the Gold Rush. I was here when Refco went belly up and everyone lost their accounts. They were the largest retail Forex broker in the world. I was here in 2008 when the global financial markets almost collapsed, and in 2010, when we became heavily regulated by Dodd/Frank. I was here when Fukushima was on fire, with six nuclear reactors built on an earthquake fault. I traded the long years from 2008 to 2014 when the world markets were on life support from the central banks. I was here in September 2014 when the patient began to breathe again. It s been an incredible journey, and I have only one thing to tell you, and I mean this sincerely. There has never been a better time to trade Forex. If you are really skilled, you have an incredible advantage, and the systems are safer than they have ever been, in my opinion. I think it is just a matter of time before the accounts in the US are fully insured. They are already that way in the UK, as I understand it. 222

219 Level 4: YOU ARE IN COMMAND, Forex Art of War I hope you have a great experience, too. It won t be easy. Nothing worthwhile ever is. But if you follow the steps I have outlined for you, even if you decide not to be a Forex trader, my prediction is that the experience will lead to a richer, fuller life, no matter what! Remember that no one really knows anything for sure in this world. I think like me, you have permission to be whatever you want to be. I take that permission freely from the knowledge that everyone in authority thought the world was flat just a few hundred years ago. The king. The church. The sciences. I will continue to work with traders for the foreseeable future, even though I decided to stop personally coaching traders (one-on-one) in March of I know my work has been cost prohibitive to so many in developing parts of the world. I truly hope this book helps you at least in some small way with your goals. To each reader, I leave you with this: I hope you reach all that you aspire for. I am inspired by you. As my mentor said so well, as we aspire, we inspire others. Thank you for that. In the next section, you will find instructions for laying out your own community, or plugging into the one that I created. Best wishes, Vance Williams 223

220 Level 4: YOU ARE IN COMMAND, Forex Art of War How to Set Up Your Own Training Community After this section, you will see me describe the community I created, which also include hundreds of hours of recorded videos, tools, and oversight from skilled traders with this material. I did not write this book to sell memberships to my community. I wrote this book to leave behind a path for you to follow as I transitioned into my true passion, which is Life Coaching. You will need the functionality of a forum where each of you can create your own topics. You will title the topic by our name or a moniker. So instead seeing a topic for EUR/USD or something like that, the topic will be Vance Williams L1 (for level 1). This is what I call your form desk. It s where you do your work, and the information yourself and others will access for feedback and future reviews. So when you search this particular forum, all of the topics are names of individuals. As someone makes a post, the most recent appears at the top. My community was custom programmed, so it is a combination of special pages, forums, topics, and is a social network with a news feed. But you don t need to get that complicated. If you have a team of people who can do this with you, all you really need is one forum and the topics under that forum. I would suggest that you limit the number of topics. If you get too many topics, then the group loses focus. I suggest having a topic for team fundamentals where everyone can share their conclusions. I also suggest having a team update topic where anyone can post any developments or updates they have. It might seem good to have topics for each level of my book, but my experience is that it is best to keep all of that flowing in the topic of the individual doing the work. When you move to level 2, change the title of your forum to Vance Williams (your name) L2. This way, those who can provide you feedback see your new post and the level you are working on. You can probably do this with as few as two people, but the more you have, the more feedback you will get, which is very important. Everything else, I included in this book already. 224

221 Level 4: YOU ARE IN COMMAND, Forex Art of War My Community If you don t have a team to work with, you can find my community at The community existed before this book. I personally trained everyone one-on-one in the community setting. So traders worked together but I guided each of them. In addition to a personal forum and the community to trade and work with, you will also find 100 s of hours of my live sessions that were recorded, step by step sessions going through this book, and can even access current live trading sessions Monday-Thursday. Since the current members have been with me for a year or more, you are likely to get excellent feedback on your journey to success. Please know that there is a small free per month (under $10) to provide your forum and help cover costs. Best wishes! Vance Williams PS: If you are going to start your own group. That s great. Just do your best to follow what I outlined in this book. Encourage each other and do your best. You ll get there if you give it time. 225