Forex Trading 1006

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Forex Trading

How to Trade the Forex Markets for Maximum Profits

by

:

G. C. Smith

Limits of Liability/Disclaimer of Warranty

The author and publisher of this book and all material contained herein have at all times used their best effort in producing this material. However, the author and publisher make no representation or warranty with respect to the accuracy, completeness, or suitability of this material for use by any individual or entity. The author and publisher disclaim any warranties (expressed or implied), as to the merchantability or fitness of this program for any purpose whatsoever. The author and publisher shall in no event be held liable for any loss, damage or omission by the use of this publication, including, but not limited to, any special, incidental, consequential, or other damages

This publication contains material protected under International and Federal copyright laws and treaties. Any unauthorized reprint or distribution of this material is prohibited.

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VIDEOS

1. Introduction...35

2. Latitude Lines Unraveled...38

3. Platform Setup...41

4. Creating Our Charts...44

5. Analyzing Our Day...54

6. Doing the Math on your PC...56

7. Managing the Latitude Lines...62

8. Point and Figure...67

9. Tips and Tricks...75

10. Real Time Trading - (1)...75

11. Real Time Trading - (2)...75

12. Real Time Trading - (3)...75 Page 2

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Disclaimers

Each individual investor’s success depends on his or her own background, education, dedication, commitment, desire and motivation. As with any business venture there is always risk of loss of capital and there is no guarantee the use of this publication will result in profits or success. The information contained herein is intended strictly for educational purposes. Nothing in this publication should be construed as a recommendation to buy or sell any security or to provide any investment advice. It is possible the author and/or publisher of this book at this or a subsequent time in the future may own, buy, or sell securities discussed. Information provided herein has been obtained from sources believed reliable but no guarantee is made as to their accuracy or completeness. The advice of a competent legal, tax, accounting, or business professional should be sought at all times.

U.S. Government Required Disclaimer – Trading foreign exchange markets on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in the Forex market, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Readers of this publication should also be aware of the following CFTC disclosure rule 4.41 regarding hypothetical performance results:

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN ACTUALLY EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.

NO REPRESENTATION IS MADE THAT ANY USE OF THIS INFORMATION WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

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PREFACE

The material you are about to read is the full and complete version of a condensed report entitled “Forex Trading Made E-Z” The condensed report, consisting of 35 pages, was written in abbreviated form to introduce traders to the author’s strategy and is reproduced here for those who have not received a copy of the original report.

It is important to read or re-read the original report – especially the section on money management since it embodies the original concept I derived from martial arts legend Bruce Lee.

In his movie, “Game of Death,” Lee envisioned a pagoda on a small island where each level is guarded by a greater and more advanced defender. To reach the top he must win at each level.

The same is true if we are to attain the goal of earning $500 per day, starting with as little as two or three hundred dollars. My vision in writing this manuscript is to help you reach your level of success by winning in the Foreign Exchange Markets.

“Forex Trading Made E-Z”

Published by

Adrian Research & Development

Website: http://www.forex-trading-made-ez.com Email: [email protected]

Revision 5.1

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INTRODUCTION

You’re about to embark on a journey like nothing you have ever experienced. By the time you’ve reached the half-way point of this book you’re going to say something like, “Maybe it really is possible to earn $500 Dollars a day!”

Let me introduce myself. I’m G.C. Smith. Perhaps you know me from my previous eBook, “$$500 Dollars per Trade.”

Maybe I’ve met you at seminars we’ve attended. Or maybe we’ve exchanged emails in the past.

Whatever the case, you’re going to enjoy the trip I’m going to take you on as we learn all about how to trade the Foreign Exchange Markets – Forex for short.

It’s now 5:30 PM, Pacific Daylight Time on Sunday, June 10th_{2007. I’m getting}

ready to watch 60 minutes on TV.

But first, I just happened to see an easy trade shaping up on my PC. I see so many of them it sometimes makes me frustrated. It’s like the patrolman watching speeders go by: “I can’t catch ‘em all!”

But tonight I bought a $10 dollar pizza from Papa Murphy’s. If I can trade the Eurodollar against the US Dollar from 1.3355 to 1.3350 I’ll make ten bucks. Using the tactics you’re going to learn in this report I did just that. It took nine minutes. And this isn’t even my normal trading day – Monday through Friday. Okay, maybe I’m showing off. But, now that I’ve got your attention, let’s look at my trade a little closer. Because this trade represents what could be your goal to make $500 Dollars a day – or one million Dollars by next year.

There’s no reason you can’t, as long as you follow the rules I’m going to outline and maintain the discipline it’s going to require.

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Let’s take a look at the chart of the trade. Each bar is equal to five minutes. We’ll explain more about all this later. Note how prices are swinging back and forth? We want that. If they remained flat, no one would make (or lose) anything.

And, they were trending down! We sold 20,000 units (equal to $2 Dollars) using about $500 trading dollars. We entered the trade at 1.3355 and closed it at 1.3350.

1.3355 1.3350

That’s equal to five, so-called, “Pips.” Five pips times $2 is ten Dollars.

Again, don’t worry right now about all the fancy words. I don’t know an awful lot more than you about what all this means – and I could really care less.

But I do know how to trade. And that’s what I’m going to teach you.

So, hold on to your hat, and bear with me as I try to describe what could be a turning point in your life.

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Let’s start by crunching some numbers. How long do you think it would take to double our money if we made five percent a day? That’s right. Five percent a day! Before I answer that let’s go back to my pizza trade. I made $10 using about $500 Dollars. If we were to make five percent on $500 Dollars it would be $25 Dollars (500 times .05). With just one trade we’re almost half-way there!

If we earn five percent a day it will take fifteen trading days to double our money. Hard to believe, but true. Take a look at this table.

DAY START 5% END TOTAL

1 500 25 525 25 2 525 26 551 51 3 551 27 578 78 4 578 28 606 106 5 606 30 636 136 6 636 31 667 167 7 667 33 700 200 8 700 35 735 235 9 735 36 771 271 10 771 38 809 309 11 809 40 849 349 12 849 42 891 391 13 891 44 935 435 14 935 46 981 481 15 981 49 1030 530

Pretty impressive wouldn’t you say? If we could just double our money every fifteen days, the sky’s the limit!

In fact, let’s see what it would look like.

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1st_{fifteen days: $500 goes to $1,000}

2nd_{fifteen days: $1,000 goes to $2,000}

3rd fifteen days: $2,000 goes to $4,000 4th fifteen days: $4,000 goes to $8,000 5th fifteen days: $8,000 goes to $16,000

In just a little less than three months we could be earning five percent on $10,000 Dollars – $500 per day!

Want to carry this a little farther? $16,000 goes to $32,000. $32,000 goes to $64,000. $64,000 goes to $128,000. $128,00 goes to $256,000. $256,000 goes to $512,000. And $512,000 goes to One Million, Twenty-four Thousand Dollars. Is this really possible? Yes! Is it realistic? Maybe! But, not without a great deal of training and discipline.

For example. Right now, would you take $10,000 Dollars and try to double it? I doubt it. It’s too scary.

How about $500 Dollars? “Yeah, I could probably afford to risk that much,” you might say. Whatever amount you start with, that’s when your training begins. And, as you become more and more experienced, you can begin to trade larger amounts with more confidence.

That’s the concept I’m going to teach you.

How to handle ten thousand dollars as if it’s $500.

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CHAPTER ONE - Background

We’re going to start by debunking a bunch of myths.

First off, you don’t have to understand a lot about the currency markets. Most of us know there is a difference in the exchange rate if we take a trip toCanada, or Mexico, or Japan.

If you were to go to Japan right now, a dollar would buy about 110 Yen. You go to a kiosk or money changer, perhaps at the airport, and purchase whatever amount you think you’ll need. That’s easy enough.

But what if you’re a large bank doing business overseas. Your client has just purchased 1,000 new Toyota’s and they need to be paid for with Yen. That’s not so easy. That’s why the Forex markets exist.

Rather than try to teach you all about the Forex business in this guide, simply go to

http://www.foreignexchangetrading.info and click on all the items on the left side. It’s a

free site and well worth visiting. Or, if you prefer, download this excellent publication:

http://www.forex-trading-made-ez.com/power_forex.pdf

Now for some facts. The market is huge. More money changes hands each day than nearly all the stock exchanges combined. That’s not that important to us as traders because we can trade with as little as $100.

There’s no commission charged, as there is at a stock exchange. That’s good. We don’t have to worry about paying extra if we get stopped out of our trade. (I’ll explain later what that means if you’re not an experienced trader.)

Instead of a commission, a small spread between prices is leveled just like when you change money at the airport. For example, my pizza trade entry price was actually 1.33562. I had to make slightly more than $10 dollars to net ten.

The most important thing I want to impress upon you at this time is risk control.

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You’re going to make money. But you’re also going to lose money. How much you lose will determine your net profit. Always keep that in mind. You must control your losses if you expect to make the kind of money we discussed earlier.

Lastly, this is a “hands-on” trading manual. I’m going to train you to make money the same way I trained many pilots to fly jetliners.

That’s right. For many years, as an airline captain/instructor, trained by Boeing, I taught other airline pilots how to fly jetliners.

So what’s that got to do with trading? Just this.

When it comes to flying airplanes, you want to do it in the safest way possible. And the same thing is true when trading! You want to do it in the safest way possible.

Much of the material will be very specific. Much of it will be repetitious. But that’s how you learn. Don’t try to outguess the strategy. Everything you’ll learn has a purpose. Keep an open mind and you’ll do just fine.

You don’t have to be smart. You don’t have to have a degree in rocket science. You just have to follow the rules and procedures. Just like flying a jetliner!

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CHAPTER TWO - Finding a Broker

First things first. We need a broker to handle our transactions. This is a little dicey for me because I use a broker I consider one of the best: OandA. Not everyone agrees. It’s just my own opinion. And I don’t receive a dime for referring you to them. You may already have a broker of your own, but if not then give them a try. For one thing all the info you’re going to learn and see in this report is from their platform.

On the other hand, if you’d like to check out additional brokers, there’s a pretty good collection of opinions at http://www.forexpeacearmy.com

Here’s a review from that site that expresses my sentiments completely. From: Nick in Brisbane

Date of Post: 2006-10-27

Review: “I've been using OandA for almost 2 years and haven’t experienced any major issues

with their service or platform. Their charting software is not the best but the most important things for me are tight spreads on the majors and reliable execution of orders.

The bitching that goes on here about wide spreads during data releases just confirms my opinion that most would-be traders here are novices with very limited experience or knowledge of the mechanics of financial market places. During volatile market conditions all brokers have to face and deal with widening spreads from their liquidity providers. That’s the nature of the global interbank market. For some reason all the "Johnny come lately" trade-from-home

novices that frequent this site think that for some reason brokers such as OandA should bear the cost of this volatility by guaranteeing fixed spreads.

Trading currencies intra day is not a get rich scheme but a highly skilled niche skill. If you can’t devise a way to make money without betting on split second volatility during data releases then go and find something else to do.”

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What he’s saying is there is widespread trading based on news events. For example, if you think an interest related report is coming out that is going to move the markets, you jump on it.

But let’s be honest. Do you think you can catch that kind of trade consistently when your competition is big banks with millions of dollars?

I don’t trade news stories. Never have. It’s just not worth the grief if you’re on the wrong side. So I would strongly encourage you to refrain from that kind of trading unless you have a really good crystal ball!

Now that we’ve got that out of the way, let me be more specific. I only trade the Eurodollar/US Dollar (EUR/USD) pair, but my strategy works with any currency pair. If one currency gets stronger than the other then the numbers go up (or down). To tell you the truth I don’t really understand why. The less I know about economics the less likely I am to be influenced one way or the other!

I just know how to trade the numbers!

Now, this is very important. On most days, at precisely 08:30 AM, Eastern time, and then again at 10:00 AM Eastern, a variety of reports usually come out that can shock the markets. We want to avoid holding a position around those times!

Once again, for the few moments before and after these times, avoid trading. When the fireworks are over we go back to our regular trading pattern.

We make our profits on small, consistent trades that add up to five percent per day. We don’t shoot for a big killing that might expose us to devastating losses!

If we don’t reach our goal of five percent, possibly because of a very slow day, we don’t try to make up for it. We simply wait for tomorrow to continue our efforts.

We’re not in a hurry. We’re not greedy. We know we’re going to the world series even though we’re going to lose a lot of games on the way!

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Before I finish beating this issue to death, there is one more thing you must take into account and that is the meeting convened, usually eight times a year, by the Federal Open Market Committee (FOMC). This is the group (commonly called the Fed’s Fund Rating) that defines interest rates.

This has a huge impact on the currency markets. DO NOT try to trade during the few minutes before and after the report is made public, around 2:15 PM. Eastern.

To obtain the dates, go to:

http://www.federalreserve.gov/monetarypolicy/fomc.htm#calendars

End of issue!

One last thing. Here is a website that will give you the actual time and date of all significant world reports:

http://www.forexpeacearmy.com/forex_news_calendar

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CHAPTER THREE - Money Management

Before we get into the actual tactics of trading the Forex markets we have to cover what I consider the single most important element of trading: money management.

We can be the best trader in the business, but if we let our losses exceed our gains we’ll end up being a loser!

I often compare trading to gambling. I write about it extensively in the last chapter of this program manual, “Forex Trading Made E-Z.”

It’s called “gamblers mentality.” If you gamble and make money you believe you can make more if you just keep betting more and more. Some gamblers even feel guilty about winning so much in such a short time – but that’s another story.

When you gamble at a casino the odds are pretty much even. Less than one percent at the dice table. That means you should lose only one dollar for every one hundred wagered.

So why is it 97% of the people go home broke? Do I have to answer that, or do you know the answer already.

It’s called greed.

And that’s what you must overcome if you are going to be a successful trader.

Here’s what happens if you’ve been making money at a casino and start to lose (which is inevitable). First, you begin to lose control. You bet bigger and bigger as you lose. You toss aside whatever strategy was making money for you when you were winning. You start “chasing” your money.

Any idea of making a profit is abandoned. You’re only thought is getting back even. Until, of course, it’s time to go home.

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And that’s what this chapter and the Forex markets are all about. You’re already home and the markets are still open. Forex is a 24 hour casino, right on your PC! And, unlike internet gambling, it’s legal.

Nevertheless you must accept the fact there are millions of traders out there – like a vast casino – that all have the same idea. “Make a bundle of money, and go home.”

Well, we’re going to rise above that “herd mentality.” Just like a cattle stampede you’ve seen in the movies. Do you want to be a part of that?

I didn’t think so.

So, here’s how we handle our money, plain and simple.

Let’s go back to my pizza trade. I made $10 using about five hundred dollars. Let’s see . . that’s two percent on my money ($10 divided by 500) (duh!).

But what if I had lost $10 dollars? That’s two percent also. Would you agree that’s a reasonable amount to wager to earn two percent or more? If our win/lost ratio was 50% we would break even. If we can just increase our edge to 60/40 we can make our 5%. Now, let’s say we actually had $1,000 dollars in our account. Our profit and loss would be just one percent. Are you starting to get the picture? We don’t have to “bet the farm” to make two percent. We just have to do the math!

And the Forex markets allow us to do that. We know exactly where to get in and where to get out to make or lose two percent. And many times we’ll lose much less than two percent – often just breaking even – which is fine with us.

Remember, our original goal is to make five percent per day. And that brings us to the hard part. What do we do when we’ve made five percent?

We quit for the day. “But why quit when we’re making money?” you might ask.

Let me ask you a simple question. What are you going to do if your very next trade is a loser? Are you going to quit then? Once again, I don’t think so!

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Now can you see what I’m getting at. Our overall goal is to double our money every fifteen days. So, maybe it takes eighteen or nineteen because we had some bad days. What’s a “bad” day? It’s when we lose ten percent of our money. That’s $50 on five hundred. Once again, we quit for the day if our losses total ten percent of what we started the day with.

Some traders will argue that’s excessive. But, as we’ll see, our strategy is so strong that it’s rare to have a “bad” day. Plus, a good trader will always quit long before that. The next day we start out like nothing happened. We have a fresh mind and attitude and pretty much know our strategy will overcome our losses.

We’re not trying to “get our money back.” We’re not beating ourselves up because we had a losing day. We’re in control!

Now, let’s recap all this.

1. We never risk more than 2% on any one trade.

2. We quit for the day if we’ve made five percent on our money. 3. We quit for the day if we’ve lost ten percent.

4. We also quit at 3:00 PM Eastern no matter where we are simply because the markets slow down around that time.

If you start your trading day like I do at 8:30 AM Eastern (5:30 AM Pacific) – because I’m retired – I’m usually done within 2-3 hours. Often in less than an hour!

If you have a day job you might trade after dinner instead of watching TV! Of course when and if you make a go of this business you can quit your day job.

Now, here’s a couple tips to help you maintain your discipline.

First, to keep you from going back to the trading table after you’ve quit, try using this website: http://www.webjillion.com/index.php It’s called Temptation Blocker, and once it’s activated it won’t let you go back to any program you’ve selected for whatever time you input. (You can override it but it takes an effort.)

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Next, here’s an example of how I keep track of things as I trade. I take a shopping list and jot down my objective for the day - good and bad. It looks like this.

Each time I complete a trade I add up the score. I know how I’m doing at all times. There’s no doubt in my mind.

Now, let’s do some trading.

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CHAPTER FOUR - Setting up Shop

Let’s log on to our site. I’m going to use http://www.oanda.com but you can use whatever you’re using now, or try out OandA if you’re a newcomer.

Most firms, including OandA, have two kinds of accounts. An actual trading account and a “demo” account that works the same way. If you’ve never traded before then I would suggest the demo account at first, then open a real account for maybe $100 until you become more experienced. That’s right, you can trade with as little as one dollar. Once you’re on the home page scroll down to “About OandA” on the left side. After reading about the company, which is pretty impressive, go to their FAQ site at

http://www.fxtrade.com/whyfxtrade

At the bottom of this page you can select either “Open An FXTrade Account” or “Open An FXGame Account” which is their demo account.

If you decide to open an actual account, you will need to fund it. The simplest way is with PayPal. If you don’t have a PayPal account go to http://www.paypal.com and click on “sign up” and follow the instructions. You can use a credit card and/or a bank

account to deposit funds.

Then go back to OandA and log in. Go to “Deposit Funds” and follow the instructions. It’s easy and it’s secure.

You must first submit a form, for security purposes, that tells them you are going to submit funds. Follow the instructions, but be sure to click on “Log in to cash management” to advise them you are sending funds. The rest is easy.

You will have to pay a small fee to transfer funds. Don’t worry about it. Hopefully, you will quickly make up this fee.

Are you ready to go? Because you’re about to enter the “big time.” It doesn’t matter if you’re just starting out with $100 or $100,000. You’re going to double your money if you follow the rules I’m going to outline.

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CHAPTER FIVE - Organizing our Trade

Well, we’re finally ready to make some money. But first, I have to remind you that we’re also going to lose some money. Remember our loss factor? 2%. Multiply whatever your starting with by 2%. Let’s say it’s $500. As we’ve seen, that’s $10. That’s what we’re going to risk on our next trade. That’s what we must base our trade on. A loss of $10. We’ll come back to this in a minute.

My strategy is based on crossing horizontal lines I call “latitude Lines.”

As a pilot, if I’m flying from Seattle to Los Angeles I’m going to cross several latitude lines as I fly South, i.e. down.

I’m not going to turn around at San Francisco, because that’s not my destination. I’m going to keep flying until I reach Los Angeles.

If I’m flying from Miami to New Jersey I’m not going to turn around at Charleston, South Carolina. I’m going to keep going North! You get the picture.

And that’s the way it is with trading. Many potentially good traders are always thinking ahead too soon – before they reach their final destination.

What we’re going to show you is how to reach your destination by using a roadmap of prices on a chart!

What do prices look like when they’re moving up and down? There are several kinds of charts, the most popular being the bar chart. The top of the bar is the high for the day, the bottom the low.

On the right side a small tick is made indicating the close. Sometimes a tick is made on the left side indicating the open price.

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Another type of chart gaining popularity – and the one I use – is the "candlestick" chart. The body of the price shows the open and closing price. If the body is black it means the close was lower than the open. On our Forex chart the body is red instead of black if prices are falling.

The body is blue if the close was higher than the open. The so called shadow or "wick" at the top and bottom indicates the high and low for the period.

Let’s compare the two types. This is a bar chart:

The same chart as above in candlestick form looks like this:

We use a combination of three charts. A 15 minute, (each candlestick is 15 minutes in duration) a 5 minute and a one minute chart.

We use the 5 minute chart to trade with, the 15 minute chart to help us determine the trend, and the one minute chart to help us enter the trade at the right time.

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First, however, we have to set up our so called “Platform.” It looks like this. Click on all the buttons to get a feel of how everything works. This is where we pick and choose to place, change or delete our trades.

For example, if you click on the tab marked “Activity” you’ll be able to see all the activity that has happened in your account in the past. It includes all interest payments, orders, fills, etc. You can also choose what you want it to display by clicking on the small icon on the right after selecting “Activity.”

The tab marked “Orders” displays the orders you have placed. The “Trades” tab shows the open positions that are in play.

The Quote Panel tells us the spread between prices (It’s showing ten because it’s a weekend). During active trading hours it usually shows 0.9, one of the lowest spreads in the industry. If things get volatile, like a wild report, it expands. Sometimes to 15!

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We want to avoid trading during that time. Our stops will be too far away Now let’s discuss each of our charts in turn starting with the five minute chart.

To create a new chart we click on an icon just above and to the right of any chart displayed, including our platform. It looks like this:

We can then begin to set up our chart with the tools we will use to make our trade. For example, we may select a time frame of 5 min . . EUR/USD . . CandleStick.

Notice the line at the bottom. This is an indicator I use to help me determine where prices might be headed. I call it my “Trading Line.” It’s fully explained in Chapter 10. There are actually a variety of indicators that can help guide us as we trade. Here’s a list of them on the right side of the next page.

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Over the years I’ve checked out nearly all of them and found, while most are helpful most of the time, you can’t depend on the majority of them. I use only a few.

For example, moving averages are somewhat dependable in determining the current direction of prices. There are two types, exponential and simple. At best they keep me from putting on a trade in the wrong direction.

At their worst, they lag in showing a change of direction quickly enough for a trade. In a minute I’ll show you how I use them. And, by the way, I alter all the parameters of any indicator I use.

Now we have to draw some horizontal lines on our chart as you see displayed on our previous chart.

Although they look like they’re automatically drawn, they’re not. We have to do it ourselves.

To do that, select the pencil icon at the top right of the chart and left click it. Select “Horizontal Trendline.” It will be yellow but we can change the color once it is placed. You do this by clicking on the line and selecting a color. I color these lines blue.

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You see, one indicator alone is not the “yellow brick road” to riches. If it were there would be no markets. That’s why we use several indicators – including the price action itself – to make a “best guess” scenario for ourselves. After that it’s how we handle the gain or loss that will determine our success.

Next, we’re going to create two exponential moving averages by clicking on Add Study, then EMA. You’ll see EMA . . 14. Change the 14 to 20, click on the + sign and then change the line’s color by clicking on the line and selecting green.

Do the same thing again, but change the 14 to 30 and color the line red. What we’re doing here is creating a longer term line based on 30 bars that is red. Take a look at this screen. Notice how the moving average lines are generally moving higher.

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But, more importantly, the green line is on top of the red line. As long as this continues we would expect prices to move higher. Here is a blow-up of the chart..

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During the early morning hours we would only BUY this pattern. Note how many Latitude Lines are crossed. Also, since this is a 15 minute chart, the lines are 20 pips apart. Normally, we use latitude lines that are just 5 pips apart – like our pizza trade. We’ll talk about that later. In addition, note how prices bounce off the EMA’s as prices rise. Around 13:00 prices reach a peak and by 16:00 are unable to better the 13:00 high. The EMA’s begin a decline and soon cross over, the red line on top of the green.

Which brings up the next tool we use – connecting the highs and lows of prices. This is sometimes a little hard to judge, but basically we click on the icon at the top right of our chart, select “Draw Trendline” and move the cursor to a high or low and click again. Then drag the line to the next high or low.

After a few practice tries it will become easier. These lines are important because they show us if we are getting higher highs or lower lows. We always want to be trading in the direction (the trend) of prices.

Another thing you’ll notice when drawing trendlines is that prices will usually retract or rally roughly half-way the distance from the previous move. This can be helpful when picking a latitude line to trade.

Lastly, to finish setting up our chart we may need to change the distance between the latitude lines themselves. Most of the time I construct the lines on the one minute chart in five pip increments.

On the five minute chart I usually use ten pips between each line. And, on the 15 minute chart, I’ll place the lines twenty pips apart. When things become really wild, I may even double the distance on all charts.

To do this, we once again click on the line itself, hold down the mouse button, and move the line to the price we want. If we are adding a line we may need to change the color again. To draw another latitude line just click on any line and select, “Duplicate.” On the previous page that I’ve blown up you can get a better picture of what I’m doing. Once again, I apologize for being so redundant but I believe you must be consistent each time you trade. For example, whatever method you use to trade with must not only be successful, but a practical method you can be comfortable using.

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Remember, money you have made – like cash at a casino – is no longer theirs. It’s yours! You’ve got to protect it. And you do that with good old-fashioned discipline. That’s why you will hear me talk about stops (protective orders) throughout this manual. Also note on the previous page, how our trading line was swinging back and forth but was unable to better its 13:00 high. A comfortable divergence had occurred when prices rallied but the trading line did not.

By the way today is Monday, June 25th_{. I’ve been writing this report for about two}

weeks now. Seems like only yesterday I showed you my pizza trade. This one reminded me of that. Now that you have an idea what this is all about you can understand the trade a little better.

I placed an order to sell at the 1.3460 line and buy at 1.3455. Here’s the trade.

I made this trade shortly after the Moving Averages crossed over. The red line was moving above the green, signaling a decline was going to follow.

You’ll note I’m using a later chart for demonstration purposes, but all trades and videos in this manual are actual trades. No simulated or demo trades are used. I want you to concentrate on making five percent using whatever number of pips it takes. Don’t get hung up on trying to make a killing. If you make five pips per trade you’ll reach your goal quite easily.

Once we’ve set up our 5 minute chart we can click on the chart icon and duplicate the chart. Then change it to 15 minutes. Do it again and change it to one minute.

We now have three charts with different time frames that we can use to anticipate what latitude lines we will use and the direction we should follow. We may have to add or remove latitude lines as we produce each chart and, if we resize each chart (window), we can look at all three as we trade. On the next page is an example.

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Before I close this chapter I want emphasize how important it is to have everything working for you – “in-sync” so to speak. Watch all three trading lines, moving average cross-overs, etc. Remember you only need 2-3 good, solid trades to meet your 5% goal.

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CHAPTER SIX - A Trading Day

I usually start my trading day around 5:00 AM. I don’t actually trade before the 5:30 (Pacific) reports come out, but I spend the time looking at the 15 minute – as well as the 30 and 60 minute time frames – to get a feel for what’s been going on overnight.

Often a report will set the tone for the trading day. Is the dollar being hurt by bond sales, bad economic data, political news? Things like that. You’ll often see a sustained move, up or down, for the whole day. Those days are easy to trade.

I generally start out using a smaller amount of cash that may lose only one-half to one percent instead of two percent. Then, as the day progresses and I’m ahead, I bump it up to the two percent loss figure until I’m getting close to my five percent goal. Then I cut back again so I don’t lose a bundle just before I quit for the day.

I rarely, if ever, use a market order (an order that’s filled at whatever price the market is trading at). I know where I want to get in and get out at all times. Using a market order doesn’t guarantee the price you want.

The trades that are most successful for me are those that are placed using a limit order, often called a buy stop or sell stop. That’s where the price is above or below the latitude line I want to trade off of, and then moves in the direction I expect. That way the

movement already has some momentum behind it and usually keeps going.

For example, let’s say everything is “in-sync” for prices to move higher. I don’t care about buying at the bottom of the swing. I want to see prices rising and then place my order on a latitude line just above the current price so I can catch the trade if prices actually do move higher.

Let me give you an actual example. A trade is shaping up right now as I’m typing. (So many trades, so little time!) EUR/USD has been in a sustained downswing all afternoon as shown on the 15 min. chart on the left. Around 2 PM it bounces up.

Shortly after, the trading line on the 5 min. chart begins to roll over as shown on the next page.

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At the same time notice how the EMA’s have been declining all afternoon and the red line (the EMA 30) has stayed on top of the green line, confirming the decline.

Now, as the 5 min. candlestick touches and then “bounces off” the EMA’s, I place an order to sell 20,000 units at latitude line 1.3455. Notice I didn’t say, “Sell right now!” I only want to sell if it declines to 1.3455. I want it moving my way! You can see what happened. It falls, and I’m in and then I’m out. It’s nearly identical to my pizza trade!

I probably make it look easy. But really, it’s not that hard if you just follow the rules and take it nice and easy. You can’t trade 24 hours a day, like some people do at a casino. You don’t need to. You just need five percent a day!

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Now, let me cover something you need to know. If you recall I try to place my orders so I don’t lose more than two percent of my capital on any one trade. If we’re trading with five hundred dollars that’s $10.

Whoops! Time out. Here comes another trade. I can’t keep up with ‘em all! Same thing as my last trade an hour or so ago. Can you see how easy it is when you let the market come to you instead of chasing prices yourself?

Let’s get back to losing 2%. Initially, when I first place my order, I select my stop loss (the point at which I want to abandon the trade) ten pips away. On 20,000 units that’s a loss of $20. I do this for two reasons.

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First, when my trade is executed the spread price of 1.2 pips is “activated.” Instead of starting the trade at 1.34550, it actually starts at 1.34562 if it’s a short sale, (1.34538 on a buy trade). If I placed my stop at 1.34600 that’s only 3.8 pips away. In an active market that’s too close. I might get stopped out needlessly.

Second, You must have a stop loss in place when the trade is executed -- for one important reason. What if your computer restarts, crashes, or you lose the internet connection? Without a protective stop you’re going to be hurt badly if prices suddenly move in the wrong direction before you can get back online.

However, once the trade is in place, and moving in my direction, I start changing the stop to within 5 pips from the current price and continue moving it until my exit point is reached or I’m stopped out. In a very active market I may use a 10 pip figure. That’s how you stay out of trouble. That’s how you avoid a “bad” day!

One thing that will help you with this is to select User Preferences under Tools and change the default “Stop Loss” and “Take Profit” boxes as needed. I usually enter Stop Loss = 10, and Take Profit = 5.

Now, let me start by clarifying the strategy which I am going to teach you in the next several dozen pages. It's basically very simple. Make FIVE percent on your money and quit for the day.

Do that successfully for fifteen days and you've doubled your money! What does it take? Just 20-25 pips a day. Four, 5-6 pip trades.

Or, three trades: A 10 pip trade and two 5-6 pip trades. Or, two, 10 - 12 pip trades, etc. Personally, I like the four, 5-6 pip plan best. It's so easy to make 5 pips. Just get in front of a trend with a buy or sell stop, and get out five pips later.

The only problem is it may take a little more time waiting for the right moment. (Umm, that sounds like the TV commercial!)

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But, for me, I'm at my PC answering emails anyway. Plus, I'm retired. When you're retired you can work for yourself, when you please, however you please!

Now, all the various techniques I’m going to show you in the rest of this manual are just tools to help you achieve what I've just explained.

Don't get hung up on the details. I can make 5 pips using just Point and Figure, which you saw in my video and which I’ll be explaining to you later.

I can make 10 pip trades in an active market using just the Latitude lines.

And, I can take out 25 pips from a 40 pip move using my P1 - P2 - P3 strategy.. It doesn't matter what you use. The goal is the same: 20-24 pips!

Now, let’s get down to work.

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CHAPTER SEVEN - The Starting Bell

I’d like to start things out by explaining why I believe the Forex markets are far superior for trading purposes than nearly any other market – even the stock market.

First of all, there is no commission or exchange fees. That sounds great. Perhaps you’re thinking this means you’ll make more money all things being equal.

What this really means is you’ll save more money because psychologically you’re not afraid to get out of a losing position simply because you’d have to pay a fat commission. Second, there are no restrictions on selling short as there is on stock exchanges. Since currency trading always involves buying one currency and selling another, there is really no bias or emotional element to selling short.

If you are not familiar with selling stocks short, it’s borrowing the shares of a company, selling them on the open market and then buying them back at a lower price (hopefully) to replace the borrowed shares.

Third, the leverage on your money is exceptional. You can control many thousands of dollars of currencies with just a few hundred. Of course this can work against you as well. That’s why I believe you should start small until you gain the knowledge and experience to trade larger amounts.

Fourth, while you can lose all your money, you can never lose more than what you have in your account. Also, unlike stocks, the price you pick for a stop loss in the Forex market is the price you’re going to get.

Lastly, Forex prices are somewhat adaptable to technical analysis (the use of so-called indicators) as compared to fundamental and economic news. We’re going to get into that a great deal more in the rest of this manual.

For now I just want you to concentrate on two things: Risk control and Discipline!

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Forex trading is really very simple to learn. On the other hand, discipline is far more difficult. I don’t think you can be taught discipline. You just have to learn it in whatever way your personality dictates. And one of the best ways to learn discipline is to lose a chunk of money.

I don’t want that to happen to you, but when it does, profit from it. What did I do that I could have avoided? What was I thinking of when I put on that trade? Did I jump in too soon? Was I too aggressive? Did I overtrade? Was I trying to get back money I just lost? Things like that.

I’m going to help you as best I can to control the emotional part of trading. But I can only do so much. You’ll have to carry the ball the rest of the way.

Remember, our goal is to simply make five percent a day. We’ve seen what we can achieve if we can do that. Don’t lose sight of your goal.

I have this recurrent dream. I learned it from Richard Dennis, a legendary and perhaps the greatest commodity futures trader in the world. Starting with just $400 he traded it up to several hundred million.

Dennis believed he could take a group of newbies – Turtles, he called them – and train them to do what he did. The rest was history. They went on to do just that!

It’s my dream of turning hundreds of Turtles all over the world into millionaires. I hope you’ll keep that in mind as you continue to read.

Now, here is the first of twelve videos I’ve made that will help you follow along as we trade. Please understand I’m a real amateur at making videos. When I’m talking to passengers on an airplane it’s difficult to keep your train of thought while at the same time concentrating on your instruments. It’s the same with making a video and trying to trade at the same time. One last thing, to expand the screen press the F11 button.

http://www.forex-trading-made-ez.com/vid1sm/vid1sm.html

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CHAPTER EIGHT - The Basics

Earlier I mentioned that currency trading is simple. That’s true. But you can make it as complex as you want it to be. What I’m saying is, do you want to learn everything there is to know about the Forex markets, or do you just want to make some money?

If the latter is the case then you’re in for a surprise. I’ve said before I honestly don’t know that much about the markets myself, so that makes my job simple.

I just have to teach you how to make money!

However, if you insist, I can tell you the best book on the market to learn all about this business is “Day Trading The Currency Market,” by Kathy Lien. You can get it at

www.amazon.com for under fifty bucks.

Now, let me start by explaining how all this works. We are basically buying and selling a line on a chart, just like we would buy and sell a house. It’s no different.

We’re hoping our line will give us a profit, the same way we’re hoping our house will increase in value. The only difference is the time frame. A few minutes with Forex – a few years with a home.

We begin with a small position until we’ve made some money. If the trade starts to fail we dump it with a small loss – something more difficult to do if we’re buying and selling houses.

If our trade is successful we stick with it. We may even add to it. But basically we just want to make a series of small profits until we reach five percent for the day.

We’ve seen earlier how we can make a profit just by buying or selling the “Latitude Lines.” It’s somewhat easy to do if we have everything set up properly and wait for the market to come to us. But this means watching our screen almost minute-by-minute for that moment to arrive. I have a better way of doing it.

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But first, I want to show you exactly how to open an account, fund the account, and set up your screen. I didn’t go into that much detail in the first part of this manual, so that’s what I’m going to show you now. If you are using another dealer, that’s okay too. First, go to http://www.fxtrade.oanda.com There are a number of links at the top where you can click and get a pretty good idea of what they offer. I personally like the very low spreads they support – about the lowest in the industry.

To get an idea of the different spreads offered by OandA and their competitors go to the site here: www.fxtrade.oanda.com/spreads/comparing_broker_spreads.shtml

Understanding spreads is important because the spread represents the up-front cost of trading. Unlike stocks, there are no commissions in the Forex market. Forex market makers, like OandA, generate most of their revenue from these spreads.

Now go back to http://www.fxtrade.oanda.com and at the top, left side, click on “Forex Trading” and select either the FXTrade (real account), or FXGame, practice account. The choice, of course, is up to you. But, since you’ve come this far and are probably serious about making money, I would suggest opening an actual account. Why? I can tell you from experience you’re going to learn faster with a real account simply because you’re going to pay more attention to a real account! Plus, if you’re successful with a demo account you’ll end up getting the real thing anyway.

Don’t forget, you can start with as little as you wish! OandA even says $1 but I would give yourself a little more wiggle room. Perhaps $100 to $500 dollars. As I said earlier, “Your training starts with your first deposit.”

Finally, check out all the links to interest payments of which OandA is the leader of its competitors: http://fxtrade.oanda.com/fxtrade/interest_payment.shtml

Okay, let’s open an account: http://fxtrade.oanda.com/fxtrade/open_account.shtml

One thing I want to emphasize again. OandA does not participate in kickbacks to

affiliates as many do. I want you to be successful, and that’s why I recommend them.

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Everything is self-explanatory. Just follow the steps, 1-2-3. One question they will ask is what leverage (margin) you want to use. We’ll go into that later in detail but for now simply use the default setting of 20:1.

They will also ask you to verify your ID. I presume this is to discourage money

laundering, but in any case it’s no big thing. Download the “id_confirmation.pdf” form and follow the instructions.

Lastly, you should also review and print out the “Platform User Guide” (.pdf) by going to Help=> Support=> Platform User Guide.

Now, let’s stop here and watch a video on selecting our latitude lines.

Training Video: Unraveling The Latitude Lines

www.forex-trading-made-ez.com/44dw/44dw.html

Okay. Back to the “paper work.” It’s time to fund our account with some money. We click on “Deposit Funds” from the “account” tab and that brings up the “Deposit Funds, New Client” window. You must receive a confirmation email before you can continue. Once this is received scroll down to “Existing Clients” and click on Log In To the Cash Management System. You must then log in to get started. Follow the instructions. They will ask you if you’ve sent funds. Click “no” and select your method of payment.

You may want to review all three methods, bank wire, check or PayPal, which is the easiest. They will credit your account within one working day, but if they’re not too busy it can be as little as one hour.

If you don’t have a PayPal account you can click on the “Open your PayPal account” button and follow the instructions.

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OandA charges you 2.9% plus 30 cents ($0.30) to process your deposit from PayPal. On a hundred dollars that’s $3.20 . . well worth it. Let me remind you I make nothing for referring you to OandA. My goal is to see you succeed and opening an account with OandA is just one of the many elements to your success.

If you use PayPal there are a couple of things you should be aware of. First, your name and email address must be the same as your OandA account. Second, when you prepare your PayPal transfer be sure to click on “Add special instructions for the Merchant” and type in your username and account number so they’ll know who’s sending them money. Now, let’s set up our trading platform. This will vary with each broker, but basically we’re trying to organize the business end of our trading, which has little to do with the actual selection of our trade.

Here’s something important. OandA has changed their platform recently so if your link to the site looks different than the one you’re going to see in the next chapter, try

opening the site using this URL:

http://fxtrade.oanda.com/

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CHAPTER NINE - Constructing Our Platform

Our next step is to set up our “platform” the way we want it to be. This is simply the OandA FXTrade window that has our user name and account number displayed. Here is what it looks like:

First, let’s click on “Activity” and change the settings by selecting the icon on the right side. You’ll notice there are many entries that we don’t really need when we’re trading. The ones I use are “Buy market filled;” “Sell market filled:” “Stop loss:” and “Take profit,” and often “Interest.” Checkmark just the ones you want to see.

Next, go down to the lower left and click on “quote list.” Left click, hold down the EUR/USD entry and move it to the top.

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Almost always during the day you’ll see 0.9 for the EUR/USD spread, the lowest in the industry. When prices are volatile the spread will change to as high as 3 or better. On the platform above it’s showing 15 since it’s a weekend.

You’ll also want to open up the Account Summary, just above the quote list, by clicking on the arrow next to it. This will give you a running tally of the gain or loss for your trade as prices change.

Be sure the chart next to it is also set for EUR/USD . . 1 minute . . Candlestick. You can change the size of the chart by clicking the buttons on the right side.

Next, click on “Tools” and select a font size (I use 11), color scheme (default), and then select “User Preferences.” You’ll see four tabs.

On the “Chart” tab place a checkmark on the top three, leave the next three blank and select “yellow” and “line” where indicated. Checkmark both weekend boxes and select 1400 (Friday) to start, and 11:00 (Sunday) to end.

On the “Quotes” tab make sure EUR/USD is at the top of the Quote List.

On the “Trading” tab select 10.0 (PIPS) on the default stop loss, and 5.0 (PIPS) on the default take profit. (Be sure to select PIPS) then go to Tools=>Save Current Layout. On the “Misc” tab checkmark the top two, select PIPS, and checkmark pipettes. Pipettes are sort of a decimal breakdown of the last figure in a price. I think of them as 1.3878.1, On the platform they are displayed as a small figure.

The “Alert Sound” is useful. It sounds whenever an order, buy or sell, is executed. I use the “asterisk” when I’m at my desk, and “homer” – with the volume turned up if I’m out of the room. Now, watch the video below to see how all this is done.

Training Video: Setting Up Your Platform

www.forex-trading-made-ez.com/vid3/vid3kh.html

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CHAPTER TEN - Constructing Our Charts

In our condensed version we saw how we use three basic charts to trade with – a one minute, five minute and a fifteen minute chart. Each one serves a different purpose. But before we can use them we have to modify the parameters to fit the way each is used. We’ll start with the 5 minute chart. When it’s first displayed, depending on your initial setup, it may be somewhat different than what we want. If you don’t see a 5

minute chart, click the icon above the platform chart on the right.

Once the chart is in front of you make sure you select EUR/USD . . 5 minute . . Candlestick at the top of the chart.

Next, we want to set up our exponential moving averages. There are two of them, a 30 bar, which means thirty 5 minute bars will be averaged (with the last few bars

exponential weighted), and a 20 bar average which we will color green.

Click on “Add Study” at the left bottom and select EMA. Again, at the bottom change the 14 to 20 and click the plus + sign next to it. Click your cursor on the line displayed and change the color to green.

Do the same thing again only change the 14 to 30, and color the line red.

Next, we want to set up the Stochastic index at the bottom of our chart. The Stochastic index, first introduced by a Czechoslovakian and made popular by publisher George C. Lane, helps us get a better picture of what is happening.

I modify it in an unusual way. When used with a one minute chart it’s fairly accurate, but the turns tend to lag progressively more and more when used with a longer time frame, for example, 5, 15, 30, etc.

Still, it’s the only real indicator I use on a consistent basis.

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Stochastics are based on the idea that as prices rise the closing price for that time frame (or bar) tends to settle close to the top of the highest price registered for that time frame. This happens because traders are stimulated to buy as prices move higher. The reverse is true in a decline.

Click the “Add Study” button again and select Slow Stochastics. Change the 14 to 8, leave the 3 as is and click on the +. You’ll see two lines appear at the bottom.

One will be sort of jerky and the other smoother. I use just the smooth line. (If you’re familiar with stochastics, it’s the %D line.) I get rid of the other line (%K) by clicking on it and coloring it black.

The line we’re hiding is much faster, but can give you a false sense of direction. If you want to tell what it is reading look at the number at the lower left part of the chart as you move your cursor over a bar. It will rise and fall accordingly.

Now we need to give it some framework to help us use it. Stochastics rarely move much higher than 80 or lower than 20. That’s why we put in two horizontal lines at 80 and 20. Click on the icon at the top right of the chart (looks like a pencil) and select “Horizontal Trendline.” Move it to the 80 level and click again. Do the same thing again and place it at the 20 level. It doesn’t have to be exact.

Place another line at mid-level, 50, and color it green. That completes our stochastic indicator. You can expand or contract it by clicking and holding the top of the index frame.

Remember, we’re doing all these adjustments just to the 5 minute chart. We’ll create the 1 and 15 minute charts by copying the 5 minute chart. Once we’re finished we’ll save all of them by clicking on Tools=>Save Current Layout.

I covered how to create the “Latitude Lines” earlier, but they’re just like creating the stochastic lines. I color them blue and “Duplicate” them at the selected levels. Now we can duplicate our 1 and 15 minute charts. Simply click the icon on the 5 minute chart and change the time frame on the new chart to 1 minute, and 15 for a 15 minute chart.

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I usually put the 1 minute chart on full screen. I then grab the edges of the 5 and 15 minute charts to contract them so they’re on top of the 1 minute chart as seen on page 28.

I’m sure you’re beginning to wonder if we’re ever going to get to the trading business. But I can assure you all of this is necessary. Keep in mind a fair amount of work goes in to producing any kind of profit. Is it worth it?

How long would you have to work to earn $500? A day? Two days? A week? I'm a great believer in the concept that we're paid for what we're worth.

If we're out of work we're worth nothing! If we're a CEO we might be earning $500 an hour. So the effort we put in to earn $500 or more is equal to the time we spend doing the work to produce these results. I don't know how to put it any other way.

But, guess what? We’re all through with the paperwork and ready to start trading. Here’s our video to refresh everything we’ve been discussing in this chapter:

Training Video: Creating Our Forex Charts

http://www.forex-trading-made-ez.com/ch10.html

Now that we’ve finished our charts, this is a good time to discuss an important element to our trading. How to figure out how much our cash can buy in the Forex markets. Many brokers use “Lots” to trade with. OandA uses “Units.” In my opinion units are the easiest and most reliable way to trade simply because you know exactly how much you have trading for you at all times. This is especially helpful when adding to a position. Here’s how it works.

1,000 units are equal to $0.10 (10 cents). If you were using 1,000 units and you earned 10 pips you would make $1.00. 10,000 units would earn you $10.00. And so on.

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Now, the number of units you can buy depends on the leverage (margin) you have selected. Later I’ll show you how this is done. If you use 50:1 leverage, as I do, you could buy or sell around 3,900 units for each $100 you have in your account.

If you use, let’s say, 20:1 leverage you could only buy or sell about 1,800 per $100. Many firms allow the use of as much as 400:1 margin. This is way too much and you risk the chance of losing most of your cash on just one bad trade. You may also receive what is known as a “margin call” when your trade reaches a certain limit.

All of that is unnecessary. I easily make 5% using just 50:1 margin. And most of the time I’m only using a portion of my cash on each trade. We’ll cover more of this in Chapter 15, but for now just keep in mind the higher the leverage the riskier the trade. I’ll leave you with this one thought. In October, 1929 the New York stock exchange collapsed. One of the causes of the collapse was the high volume of stocks that were purchased with only 10% down. In other words, a hundred dollar stock had only to move to $90 and you were wiped out!

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CHAPTER ELEVEN - Analyzing The Trading Day

If you’ve ever gambled at a dice table you know there are two types of action. Most of the time the dice are “choppy.” You win for a short while, then you lose. Then you win, then you lose. You can’t seem to get ahead. You become bored or frustrated. And just when you think it’s time to quit, the dice start to win over and over.

They begin a long roll where only the steel-nerved gamblers bet up the table. The weak are pulling back because they’ve been conditioned to losing. When the roll is finished, the winners have made up all their losses and then some. The losers have won a few dollars but go home broke.

It’s often the same way with the Forex markets. Small up-down moves that are pretty difficult to make any money with. Then large, sizeable moves that seem to come out of nowhere. Moves you just can’t believe keep going, and going and going.

That’s why we have to analyze what type of trading day we are having. That’s when our charts give us an edge. That’s how we adapt our trading to the type of day we are having – a long roll, or a choppy one. If we can just do all that we can make our five percent and go home!

So, let’s get down to business. I’ve shown you how to make money trading the latitude lines. This type of trading is more in tune with a choppy market. Let’s see how this works.

First, I’m going to show you what a choppy day looks like. Then I’ll show you what I call a long roll day. Lastly, I’m going to show you how to blend them together to suit your personality.

Take a look at the choppy day on the next page. Notice how many latitude lines are crossed up and down, but at the end of the day prices are just about where they started. How many lines would you have caught? I’ll bet more than enough to make five percent.

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Look at the choppy day chart again. Notice how even the trading line at the bottom is choppy compared to the long roll day. In a choppy market we have to be on our toes. We have to watch the screen almost constantly.

Now look at the “long roll” day. There are wide swings up, then sizeable swings down. If we can catch just one of those swings we could make our five percent in one trade. But, here’s the problem. Most traders are afraid to hold a trade for that long. They’ve been told, “You can’t go broke takin’ a profit!” They simply can’t believe prices will keep going their way. They get out too soon when they should actually be adding to their position. As I said earlier, they turn around at San Francisco instead of flying on to LA. Well, I’m going to show you how to overcome that fear of losing a profit by explaining the nature of price moves in the Forex market.

We already know we don’t trade when news events are imminent. Just last week the Feds cut interest rates by ½ percent. It shocked the dollar, plunging it to an all time low against the Euro.

But what about normal price swings during the trading day. An interesting phenomenon often occurs. Take a look at the next page. Prices were swinging wildly after the 5:30 AM (Pacific) report time.

Then around 7:30 the EMA’s crossed over, the red line now on top indicating a decline. We should only sell short this market. We could have caught a number of latitude lines. But, more importantly, we would have felt confident trading the next three downswings. Why?

Because each one declined more than the previous!

Take a look at P1 to P2. It crossed two latitude lines. P3 to P4 crossed three lines. And P5 to P6 was greater than the two previous swings.

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This sort of thing happens all the time. As we get into the trading day the swings become progressively wider. Then, as the day begins to finish up the swings contract until they’re often nearly flat.

Perhaps I can explain this best by showing you a trade made on a day I don’t usually trade.

Monday, September 3rd_{2007, arrives bright and sunny here in Seattle. It’s Labor Day}

but the world-wide Forex market is open for business. I’m up at around 5:30 AM to check things out. I don’t expect much activity since it’s a holiday here in America. But, I notice a nice trade shaping up on the 15 minute chart. It looks very similar to the charts we were looking at earlier. Notice how the moving averages are declining and have crossed over around 5 AM. The red line is now above the green line signaling we should only sell this market. Stochastics are also declining. Here’s what it looks like:

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Looking at point one (P1) we see that the high point for that swing is 1.36455. (I usually use just the last three digits to do my computations, i.e. 45.5).

The low at point two (P2) is 1.36235 (23.5). If we subtract the low, 23.5, from the high, 45.5, we get 22.0. That’s how many “pips” this market has fallen.

Why is this important to know? Because price movements have a tendency to repeat themselves over and over as they trend up and down. In fact they tend to “overshoot” the next move in a busy market (and undershoot in a quiet market).

So, the next downswing should be at least 22 pips. (By the way, the previous downswing before P1 was 20 pips.)

Point three (P3) at 1.36356 (35.6) I figured was going to be the next high (we’ll get into why I believed this later).

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What I use is an entry point twenty-five percent below the high point (P3). This is simply my choice and many traders use 10%, 15%, 20%. It doesn’t make a lot of difference except the lower the percentage the more likely you are to be filled prematurely resulting in a loss if prices move higher.

The higher the percentage the more likely a reversal has actually occurred.

22 pips times .25 (25%) is 5.5. Subtract that from 1.36356 (35.6) we get 1.36301. That’s where I’m filled.

Next, I figure how far prices may decline. If they repeat the previous decline (or better) it would be 22 pips. 1.3635.6 (the high point) minus 22 is 1.3613.6. I make it 1.3613.9 and that’s where I close out the trade. I make 16.2 pips.

But wait. There’s more. At 07:47 (sounds like the jumbo jet) I make an “add-on” (add to my position) at 1.36219 that enhances my profit significantly:

I won’t tell you how much I made on this trade but you can figure it out depending on how much cash you would have had in action.

That’s what I want to impress on you. If you believe in the analysis of your trade you won’t be afraid to do what I did. Instead of pulling back you’ll “bet up the table” so you’ll easily make your five percent (remember our goal?).

By the way, if you’re curious, the low for this swing was actually 1.36075, for a total of 28.1 pips. That easily bettered the 22 pips we had projected. Let me show you one more trading day if you’re still skeptical about all this.

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