The-7-Iron-Laws-of-Successful-Forex-Trading

Disclaimer Copyright © LTG GoldRock 2010 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any informational storage and retrieval system, without prior permission in writing from the publisher. The material in this publication is of the nature of general comment only, and neither purports nor intends to be advice. Readers should not act on the basis of any matter in this publication without considering (and if appropriate, taking) professional advice with due regard to their own particular circumstances. The author and publisher expressly disclaim all and any liability to any person, whether a purchaser of this publication of not, in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Live Trader Global GoldRock Pty Ltd is a corporate Authorized Representative of The International securities and Derivatives Group Pty Ltd (AFSL 227544 ABN 22 103 552 683). Trading involves the risk of loss as well as the potential for profit. The author of this book takes no responsibility for the individual investment decisions the reader of this book takes and recommends all readers of this book consult a licensed financial planner prior to making a decision to invest in Foreign Currency Trading Please refer to the International securities and Derivatives Group Pty Ltd Product Disclosure Statement (PDS) and Financial Services Guide (FSG) and/or supplementary FSG if required, which can be found on the website www.isdg.com.au before undertaking this form of investment. Any advice given is general advice only. There are no guarantees or certainties in trading. Reliability of trading signals for mechanical systems is in probabilities only. Trading real money involves hard work, risk, discipline and the ability to follow rules and trade through any tough period. If you are looking for guarantees, trading is not for you. The potential to lose money is real. Many people lack the discipline and are unable to be consistent. A system can help you become consistent. The ability to be disciplined and take the trades is equally as important as any technical indicators a trader uses. Ironically, worrying about the money aspect of trades can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade real money with a risk capital plan. The reader of this book acknowledges that Live Trader Global recommends and advises all its members track and keep their own statistical results on trades and to develop a trading plan in accordance with this analysis. They take complete responsibility for their trades and acknowledge and accept the risks associated with Forex trading. The author may be contacted at [email protected]

The 7 Iron Laws of Successful Forex Trading

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Table of Contents Disclaimer ................................................................................................................................................. 1 Introduction ............................................................................................................................................. 3 Step 1 - Learn to Trade with the Big Money.............................................................................................. 3 Does trading with the Big Money mean I need Big Money to start with? .................................... 4 Step 2 - Risk vs Reward may as well be called Live or Die in trading ........................................................ 5 Step 3 - Finding Big Money Indicators ...................................................................................................... 7 Fibonacci ....................................................................................................................................... 7 News Announcements .................................................................................................................. 7 Getting the Edge............................................................................................................................ 8 Step 4 - Stop pretending to make Money ................................................................................................ 8 Opening an Account ..................................................................................................................... 8 Crawl, walk, jog, run and then sprint ............................................................................................ 9 Step 5 - Trade with a Winning Team ........................................................................................................ 9 Trading with Success, breeds Success .......................................................................................... 9 Step 6 - Understanding probability is worth a Million Dollars …............................................................. 10 Step 7 - Be honest with yourself ............................................................................................................ 10 Trading as a Business .................................................................................................................. 11 In Summary ............................................................................................................................................ 11

Introduction Trading is a very competitive game and a very serious business. The 7 Iron Laws of Successful Forex Trading

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It needs to be taken seriously and become your ‘business’ if you want to make a killing in the foreign exchange markets. You will not succeed at anything if you simply ‘dabble’ in it. This applies to trading as it does to just about any pursuit in life. It’s all about effort and focus. If you focus and commit yourself mentally to this business … you could make an absolute killing trading FX. How do I know this? This is an immutable law of success applied to trading and works equally as well to anything else you will commit to in life. With trading, feedback on how you’re going is rapid. You will know how you are doing almost immediately. This is where success in this field differs to other business pursuits, where sometimes the outcome is not immediately apparent. You know if you are winning or losing within minutes and there is nowhere to hide your wins or losses. And you are either a winner or loser with no grey areas. So your success starts well before you invest one cent in these markets. It starts with your mindset. The following 7 Steps will help you develop this mindset and mentally prepare you for your road to being a winner, or to refocus you if trading success has eluded you so far.

Step 1 - Learn To Trade With The Big Money Banks are the big money traders in this game and the biggest winners of all. The great news is they no longer exclusively hold the secrets to taking a share of profits in the Forex markets. Anyone serious about trading must learn how the banks trade, use the same equipment they use and apply the same business-like systems they use to make their millions. And you must ultimately trade with the big money if you want to make big money (or any money in fact). Every time you enter a trade, you are effectively entering a competition with the banks and seasoned veterans in the Forex markets.


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The good news is ... to be successful you don’t necessary have to beat them at their own game and play against them ... just join them! Learn the systems they use, and trade with them when the opportunity arises. The very people who are most likely to take your money and drain your trading account are the banks and institutions. You don’t have to learn to beat them, you need to learn how to join them. Here is an essential rule if you want to make a killing trading FX: The best way to start trading with the big money is to learn how to identify and trade with a trending currency pair and don’t base your trending decision off anything less than a 1-hour or 4-hour chart. The big money looks for big moves and big moves don’t come from looking at small time frames. This will likely mean you will take fewer trades. Fewer trades doesn’t necessarily mean fewer profits. When you learn to trade big trends, you will likely see far more money in your trading account than when you look at small timeframes for quick profits.

Does trading With The Big Money Mean I Need Big Money to Start With? Forex, unlike any other market, gives you the ability to start with smaller amounts of required capital by trading with as little as 10c per point. Many traders think that starting so small is a waste of their time, but this gives you the ultimate power tool as a trader – the ability to control your risk. So take advantage of this and start learning to take small profits with the big money, trading trends off big time frames. Starting from the very bottom gives you the opportunity to start trading and staying in the trades with the Big Money and although 10c pips aren’t very exciting, a $1.20 profit is definitely more exciting than a drained trading account.


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Step 2 – ‘Risk vs Reward’ Might As Well Be Called ‘Live or Die’ In Trading Risk vs Reward is at the top of the list when it comes to making a killing in Forex trading. Many of the world’s highest paid Forex traders have win loss ratios close to 50%, and yet they still make millions. Why? Because they know how to reduce and manage risk. Amateur traders are looking for systems and signals that work 85% to 95% of the time. They don’t exist and you would be far better spending your time learning how to manage risk and trade a system that is 60% successful with a great risk management plan. Remember: an outstanding signal traded poorly will never beat a mediocre signal traded well. So why is trading such an emotional experience for most people? Unfortunately, they don’t spend the time to understand risk management and implement a risk management plan. When they do, they suddenly realise that trading forex doesn’t need to be a nail biting experience and that a patient approach with persistence and good money management, will see them succeed long term. Making a killing in Forex trading is not all about winning every trade. This is impossible and has never been achieved in the history of trading by anyone over the long term. Winning is about how you manage your risk on every trade you take. Up to 95% of forex traders really have no idea how to manage risk – that’s why many fail. Compare this with banks, professional traders and institutions. They have strict rules and are experts at managing risks. This is the hidden key to why they end up winning. So how do you effectively manage risk? You should not risk any more than 2.5% of your trading account on any single trade. So you need a system to calculate what 2.5% actually is every time you trade. WARNING: Don’t take another trade with live money until you understand and can systematically calculate this!


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This is critical information. If your account is based in USD (for this example if your account is in another currency it doesn’t matter: the same principle applies) then you must understand that you are not always trading in USD. Make sure you calculate the following before you enter a trade: 1. What is your account balance? 2. What is the base currency rate vs the currency your account is held in? 3. Then calculate what volume you require to ensure you stay within your risk tolerance. You will need to do this on the run every time you trade and have the time to do this. Below is a calculator you can use on every trade you take. I simply fill in the grey boxes and it will tell me the exact volume to trade and to ensure the stop I am using for the trade keeps me within the 2.5% risk. Account size AUD

Risk 2.5% $2,500.0

$100,000

EUR vs AUD rate 1.56

Account size EUR

2.5% Risk

Stop loss required

Volume allowed for stop required

64,103 €

€ 1,603

25

64.10

Most people associate a bigger stop loss with more risk. This is not necessarily true, as you can adjust your volume to ensure you still stay within 2.5%. In other markets, such as Eminis or Futures, you cannot do this as lot sizes are set in most cases. This is one of the reasons why I prefer the Forex market as a trader. For example, you can trade with a 100 point stop loss and yet still risk the same money as a trade with a 25 point stop loss no matter what base currency. Remember, this is the risk not the reward. The 7 Iron Laws of Successful Forex Trading

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The reward must be equal to the stop value and if you are scaling out you must understand precisely what profit target you need in order to cover your risk. You might think that this sort of work is time consuming and an unnecessary effort, but if you want to be a winning trader this is what you have to do. Once you get used to trading this way you will never trade any other way. If you want to make Forex a career and enjoy the same returns banks do in Forex trading, then start to manage your risk as they do. You can make a killing as a Forex trader and get rich, very rich…slowly! You will surprise yourself if you use this approach. Getting rich slowly in Forex is a lot more profitable than trying to get rich quick. Don’t go for broke from day one and don’t waste your time and money in Forex trading trying to do it quickly. By understanding ‘risk and reward’ and making it part of your trading plan, you can join the winners!

Step 3 - Finding Big Money Indicators You can spend the next few years trying to find indicators that work 90% of the time, but by the time you find one that does work 90% of the time, the market dynamics change and it no longer works. You need to use a system that is simple and provides you with an opportunity to have at least a 50% to 60% rate of success and one that you own emotionally. A 50% to 60% success rate can see you make a killing in Forex. It’s then down to your money management and how you execute. Professional traders are amused and amazed by the the millions of Forex traders trying to find signals that work 80% or better, while they ignore the amazing profits to be made. We have already covered the type of trade set ups you should be looking for, i.e. taking trades following large time frame trends on 1-hour charts or larger. The next question is finding a strategy to trade these time frames that will allow you to trade with the big money.


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The following are some popular strategies which professional traders use to make a killing in trading FX.

Fibonacci Fibonacci is a very simply system used by many big money traders to enter trades, usually off 50% or 61.8% retracements, giving them an entry to go with a trend. Candlestick formations on larger time frames such as engulfing candles after pullbacks also work extremely well, but only with trends. They are simple yet highly profitable. One other type of trading system often used by big money traders is Wave Trading. Essentially, the market likes to move in 5 wave formations and waves 3 and 5 are usually the strong trending waves. A combination of a Fibonacci retracement and an entry on a wave 3 or 5 is your start to making a killing trading Forex.

News Announcements Many big money traders will also learn how to trade news announcements such as interest rates, employment and jobs data. This is a skilled and highly lucrative strategy if you are able to build your knowledge and network base to understand how to read a news announcement. The way banks and big money traders will trade news announcements is like this: Senior economists and advisors will usually have their own view and expectation on what an announcement will be and therefore the market will have a bias. For example, an interest rate announcement may be due to come out and the expectation is that the Federal Reserve will leave interest rates on hold. If the announcement is different to expectation, then banks and big money traders will step in and usually make a killing going against this news. Often they will wait days and weeks just for one set of data numbers and if they are not in line with expectation they will enter large volumes. This is not easy to learn on your own, however if you are trading with a team of professionals (more on trading with a


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team shortly) you can learn this technique and potentially make a killing as banks trading on news.

Getting the Edge It is a myth that to make a killing as a currency trader you need a sophisticated and top secret trading system that is near impossible to find. All you need is a strategy that works better than 50/50, and this is not very difficult. Managing it, tracking it and trading it is the challenging part, but finding it is not. What you need is something that has an edge and your success will be determined by how you play the edge. Make sure the edge is trading with the big money, big trends, big time frames and strong on risk vs reward. Those principles, applied daily, can have a radical shift on your trading profits. This is how banks and major money makers in Forex trade and their systems are not anything secret.

Step 4 - Stop Pretending To Make Money There are many trading education companies that insist that you must master the art of trading “paper money” first before moving onto Real Money. This is a myth. You always will make money in paper as you have no skin in the game and zero risk. There is no emotion and if you are a trader reading this you might be nodding and saying, "Yes, I made money in paper, but when I went live I just couldn't do it". When you go live, your emotions get in the way. If you don’t train your mind and emotions from day one to trade real money, you will find a sense of false self confidence. The great thing about the Forex market is that it gives you the chance to trade very small from as little as 10 cents a point, therefore making or losing just a few dollars or the cost of a cup of coffee when you start. No other market in the world can teach you the skills you need like Forex can. So if you genuinely want to make money in Forex, the only time you should be trading in paper is when you are learning to execute orders on the platform.


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Opening an Account When you start trading Forex, open an account with no more than $1000 dollars. In fact, you can open an account with as little as $200 if you wish. You can add more money to your account in time with your success and profits, but here’s an iron clad guarantee: If you can't turn $1,000 into $2,000, there is no hope that with more money such as $20,000 that you will turn that into $40,000.

Crawl, walk, jog, run and then sprint There is one golden rule that you must follow if you are going to trade real money from day one. Learn the platform first, then trade micro lots of 10c to prove your success. Don’t kid yourself and think you can just roll with an account with $10K and trade full 1.00 lots or you will crash and burn. Crawl, walk, jog, run and then sprint. As we covered earlier, you can potentially make a killing and get very rich slowly, but it will usually be quicker than you think if you learn these skills.

Step 5 - Trade with a Winning Team This is so critical and if banks have a secret to trading success, this is probably the one. Everybody thinks big money traders have better systems. They don’t have any better systems than you have access to right now, but critically they do have a winning team around them that has decades of knowledge, experience and success! Something YOU MUST have too! One of the main reasons why banks are so successful is that they trade as a team. They support one another, sharing their years and decades of experience with their trading team. The benefits and results in terms of pure profit are extraordinary. Hundreds of millions of dollars to be more specific.


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Trading With Success Breeds Success The lack of a daily support structure and working together with a team is one of the reasons so many people don't make money trading Forex. The benefits of being a big money bank trader is that you have a team of researchers, economists, runners and minute by minute firsthand knowledge of what is happening in the global markets. This is why so many million dollar bank traders think they can make more money trading from home away from the environment of the bank, only to leave and realise their support structure is gone. They are alone and no longer on a winning team.

Step 6 - Understanding Probability Is Worth A Million Dollars In Forex, you don't get paid to get emotional. You get paid when you follow a plan with an edge and have the probabilities on your side. That plan does not need to be sophisticated. These days, the exact same systems that the banks use on a daily basis to drive their billion dollar profits are no longer hidden in their vaults and the same tools and systems are available to everyday investors and traders. The doors that were once locked to the average investor are now open and the same money that has been streaming through, you can now also get your hands on. But you won’t see any of it until you understand probability and not certainty. Human beings love certainty and we are surrounded by it. But in Forex trading it does not exist. The market is random and we simply do not know which trades will be winners and which will be losers. We just have a random probability of success. However, if we know that over a given number of trades that a trade is likely to win more often than it loses, The 7 Iron Laws of Successful Forex Trading

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then if we simply apply good money management and take each trade we will likely succeed. Losing traders skip trades, trade too much money, trade with emotion and fear and never learn the million dollar pay day word called probability. Learning to trade probability can only be done with small lot sizes and trading a system with a professional approach in a businesslike manner. If you don’t, you may as well go to the races or casino because you are gambling. Trading with probability is not gambling, as the odds are in your favour and for you to be successful you must be able to take each trade that meets your criteria. That is only possible when you understand and learn to trade with probability on your side.

Step 7 - Be Honest With Yourself This is also another critical difference between big money traders and those who don’t make money in Forex. What big money traders have is an incredibly disciplined approach. They are very professional and business like and they are also accountable. If they are trading at a bank, their job depends on them following the plan and trading within the risk allowed. They are accountable to the trading room director or whoever they are trading with. Who are you accountable to? Most Forex traders would make more money if they simply teamed up with someone they know and trust, gave them their trading plan and allowed them to check their results every week. Yes, your trading statement. The chances of you sticking to your plan are improved significantly as now you have someone to answer to. You must always be honest with yourself and to your trading account. If you are consistently losing money, HELLO!!!! ... Why are you continuing to do what ISN’T working? Things must change and it can start with you making a commitment from today onwards that you will be accountable by joining a trading team. Big money traders do it,


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senior bank traders do it, million dollar traders do it and if you want to make the same returns they do, it’s sensible you do it too.

Trading as a Business Do you have a detailed plan? Not just any plan but a well-researched plan that is designed and crafted and checked and double checked by your trading team, which is made up of successful currency traders? My success has come from educating myself from the best and not trying to reinvent the wheel or thinking I will be better off doing it on my own to save money. In my experience, the solo approach is likely to lose money, not make money.

In Summary We have now covered the 7 Iron Laws of forex trading that all rich traders obey. Here it is in a nutshell: Forex is the only market you can start to learn to invest with real money from day one. Start out trading 10 cents a point and if you are following million dollar traders trading big positions and you are consistently profitable with small volumes, you can leverage off them and build your investment size over the months and years ahead. Making money as a currency trader is simpler than you think – not easy – but simpler than you think. Even if you have never been a successful trader before, you can do it. All you have to do is follow the principles and advice you now have in your. To Your Success, Andrew Barnett Managing Director LTG GoldRock Freecall: 1 800 4 FOREX (1 800 436 739) International: +61 7 5451 4055 Fax: +61 7 5302 6688 http://www.LTGGoldRock.com


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Live Trader Global GoldRock Disclaimer: Live Trader Global GoldRock Pty Ltd (ACN 135 321 649.) is a corporate Authorized Representative (Authorized Representative number # 335434) of The International securities and Derivatives Group Pty Ltd (AFSL 227544 ABN 22 103 552 683). Trading involves the risk of loss as well as the potential for profit. Please consult your licensed financial consultant to decide if this product is right for you. Please refer to the International securities and Derivatives Group Pty Ltd Product Disclosure Statement (PDS) and Financial Services Guide (FSG) and/or supplementary FSG if required, which can be found on the website www.isdg.com.au before undertaking this form of investment. Any advice given is general advice only. *Commissions and margins may change at anytime without notice.


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The-7-Iron-Laws-of-Successful-Forex-Trading

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