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“The Forex can make your wildest dreams come true…BUT it is not a
get rich quick scheme...it requires work, study, continuous education,
discipline and perseverance”. Scott Barkley
Thank you for taking the time to download this Cooking In The Forex
e-book. First, let me say that I want you to succeed. Like most traders, when I first saw the
Forex market I said to myself:
“How hard can this be….you buy low and you sell high. This is a cakewalk.”
Several thousand dollars in the hole later, I realized that it was not the cakewalk that I
envisioned. I expect you are there also.
There are literally hundreds of Forex Training books out there. I have read most of them. I
picked up lots of pieces along the way. That is one of the problems with trading. As I explain
to my students, the Forex is like getting a 5000 piece jigsaw puzzle everyday, with all the
pieces mixed up and someone has taken away the box cover. You must figure out what the
puzzle is by putting one piece at a time into the puzzle and then suddenly, one piece goes in
and you suddenly know what the box cover looks like. All of the books I have read and all the
traders I have met have contributed their pieces of the puzzle.
USD/OTH
17%
USD/AUD
4%
USD/CAD
4%
USD/CHF
5% USD/JPY
USD/GBP 20%
11%
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe
as the business day begins in each financial center, first to Tokyo, London, and New York.
Unlike any other financial market, investors can respond to currency fluctuations caused by
economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact
that transactions are conducted between two counterparts over the telephone or via an
electronic network. Trading is not centralized on an exchange, as with the stock and futures
markets.
Understanding Forex Rates
Reading a foreign exchange quote may seem a bit confusing at first. However, it's really quite
simple if you remember two things: 1) The first currency listed first is the base currency and 2)
the value of the base currency is always 1.
The US dollar is the centerpiece of the Forex market and is normally
considered the 'base' currency for quotes. In the "Majors", this
includes USD/JPY, USD/CHF and USD/CAD. For these currencies and
many others, quotes are expressed as a unit of $1 USD per the second
currency quoted in the pair. For example, a quote of USD/JPY 110.01
means that one U.S. dollar is equal to 110.01 Japanese yen.
When the U.S. dollar is the base unit and a currency quote goes up, it means the dollar has
appreciated in value and the other currency has weakened. If the USD/JPY quote we previously
mentioned increases to 113.01, the dollar is stronger because it will now buy more yen than
before.
The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and
the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.7366, meaning that
one British pound equals 1.7366 U.S. dollars.
The following is an introduction to some of the basic terms and concepts used in Forex trading.
Foreign Exchange
The simultaneous buying of one currency and selling of another.
Foreign Exchange Market
An informal network of trading relationships between the world's major banks and other
market participants sometimes referred to as the 'interbank' market. The foreign exchange
market has no central clearinghouse or exchange, and is considered an over-the-counter
(OTC) market.
Spot Market
Market for buying and selling currencies usually for settlement within two business days (the
value date). USD/CAD = 1 day.
Rollover
The process whereby the settlement of a transaction is rolled forward to the next value date,
typically at 5PM EST/10PM GMT. If you open a position on Monday, the settlement date is
Wednesday, however, if you hold this position past rollover on Monday, the new value date is
Thursday. Most brokers will automatically roll over your open positions, allowing you to hold a
position for an indefinite period of time. The cost of this process is based on the interest rate
differential between two currencies. Depending on your broker's rollover policy, if you are
holding a currency with a higher rate of interest in the pair, you will earn interest, however if
you are holding a currency with a lower rate of interest in the pair, you will pay it.
Exchange Rate
The value of one currency expressed in terms of another. For example, if the EUR/USD
exchange rate is 1.3200, 1 Euro is worth US$1.3200.
Market Maker
A market maker provides liquidity in a particular financial instrument and stands ready to buy
or sell that instrument by displaying a two-way price quote. A market maker takes the
opposite side of your trade.
Ok, now you know your way around the kitchen, let’s go cook!
Broker/Dealing Platform
First you will need a reputable Broker
to deposit your money into YOUR
account. The Broker must have a
FAST RELIABLE platform, quote tight
spreads, not have any slippage and
NOT HARVEST YOUR STOPS (the
practice of phantom spikes that only
appear on their charts and take out
your stops for a loss). I have used
many and have found those that are
lousy and those that are good and
would be happy to steer you in the
right direction.
Email me at brokers@4xwealth.com
for my brokers.
FANTASTIC CHARTING
Second you need phenomenal charts.
This is where you do your recipe prep
work EVERY TRADING DAY…so they
need to be FANTASTIC. I have used
free charts to outrageously expensive
charts and NONE compares to these
charts. We spent over 3 years
developing Charts for Traders. Imagine
Traders developing charts for Traders!
These charts have the added advantage
of giving EXTREMELY RELIABLE Entry
and Exit signals and confirmation signals
built into the charting system.
Email me at charts@4xwealth.com for
my charting system.
The trend
You’ve probably heard the following motto: "the trend is your friend".
Finding the trend will help you become aware of the overall market
direction. The Big Boys have no problem finding the trend because
they use the 240 min and higher charts. These larger charts are ideally suited for identifying
the longer-term trend. Our problem is we can’t trade these charts because we don’t have all
the money in the world. But the elephant is using these charts to determine his direction so;
we MUST find and use the same trend that the elephant is using.
How do you do that? Regardless of what charts you are using you need to always determine
the trend of the Big Boys. You change your chart to a 240 minute (sometimes a day) chart
and plot the trend.
TIP: YOU HAVE TO THINK LIKE THE ELEPHANT WHEN YOU ARE DETERMINING
THIS TREND.
Big Boys You
Remember that 95% of the trading in the Forex is SPECULATIVE so the Elephant is only
thinking about one thing; where is the most profit?
Of all the possibilities for the elephant the MOST profit is going short (selling) and they have
already moved substantially in that direction to achieve it. Yes there are still lots of Bulls in
this market (the big boys who want to still go up) but the Bears (those going short) have
wrested control of the market away from the bulls (at least temporarily) so the Bears are now
in control. You can see that by the bright red color of the candles. These are Bear candles.
So we’ll trend this DOWN for now! But we don’t enter a trade down until it proves it!
Once you have found the overall trend, you move that trend down to the time
horizon in which you wish to trade – typically the 5,10,15 or 30 minute chart for
our level of trading – tick trading (as in the insect biting onto the elephant). Once
you know the big boys trend, you can buy on the dips during rising trends, and sell
the rallies during downward trends.
They only really have two choices: continue north which would be a “BREAKOUT” of the
current trend or crash into the trendwall and turn south. The degree of probability is
determined by the dominant trend. We simply need to WAIT FOR THE REACTION.
Once you have the Trend figured out and you are WILLING TO WAIT FOR THE REACTION.
You now need to know where this movement has the potential to move. Should it break north
the next stop would be back to the top. This would create a DOUBLE TOP and is common in the
Forex Market (as are triple tops). But since the greatest Profit is SOUTH/SHORT, we need to
use Fibonacci ratios (Fibs) to predict its movement. So we will be interested in the Fib ratios
BELOW US. Will it trade to there? No one knows – you just plan your trade and WHEN it
does what you have planned to do, you react as the market reacts.
Fibonacci Levels
Fibonacci ratios are the basis of many Forex trading systems used by
a great number of professional Forex brokers around the globe, and
many billions of dollars are profitably traded every year based on
these trading techniques.
Fibonacci was an Italian mathematician and he is best remembered
by his world famous Fibonacci sequence, the definition of this
sequence is that it’s formed by a series of numbers where each number is the sum of the two
preceding numbers; 1, 1, 2, 3, 5, 8, 13 ...But in the case of currency trading what is more
.382
.500
.618
Fibonacci ratios or FIBS as they are called are extensively used in the Forex Market. Fibs are
used on every single chart compression.
The market uses them AFTER a move to determine where to get in to continue the move.
This is called a retracement. The typical entry point is the .500 (or 50%) retracement to
resume the up trend or down trend although any Fib value can be used. You can think of it as
we had a 30 pip move down and no one is interested in continuing on unless they get a
discount. So the market RETRACES to a known fib ratio like the 50% and then money is
enticed back into the market. Sort of like going to Wal-Mart and no one wants to buy socks
today, so you will hear an announcement “ATTENTION WAL-MART shopper. There will be a
50% discount on Hanes socks today for all those in the store for the next 30 minutes”. Now
anyone in the store who may have a need for socks are now enticed into making that
purchase.
The enticement works in trading just as it does at Wal-Mart.
But for novice traders, one of the least used aspects of Fibs is that the elephant uses these Fib
ratios on the 240, day or larger charts as his TARGETS! So if you want to know where the
elephant is going you go back to a 240 chart and put the Fib ratios on IN THE DIRECTION
OF THE TREND to see where the elephant is heading. And guess what? You can know this
BEFORE a move occurs!
Here is a BEFORE and AFTER on the 240 minute chart in an uptrend. We use the LAST trend
to determine where the elephant is going. WHY?
After
One thing that CAN stop these targets from getting hit is previous support or resistance.
If the elephant runs into HISTORICAL support in an Uptrend (or the reverse in a downtrend)
it has the possibility to turn the market early. This is because PREVIOUS SUPPORT acts
as RESISTANCE in the future and PREVIOUS RESISTANCE acts as SUPPORT in the
future. So let’s understand this.
So since the market REACTS at this historical support level you have to know where it is!
Divergence
Divergence is a key concept in trading Forex. When a pattern shifts
out of the norm, it is a signal that something is either fundamentally
or technically different. When divergence occurs, trading
opportunities come with it.
A MACD is the tool we use to show divergence. It is called a MACD
because it stands for Moving Average Convergence Divergence.
When the market is trending is it CONVERGING and the MACD shows that convergence. But
as the trend begins to fall apart, the MACD starts to trend in the opposite direction of the
trend. This is called DIVERGENCE. It means that the market is potentially setting up to
reverse direction. Now the problem is that no one knows exactly when the reversal will come,
but the probability is very high at a point where multiple factors come together at the same
place to produce the momentum needed to reverse an entire market. In other words a
REACTION!
I’ll bet you can’t guess what those factors are? Yep, that’s right. At a point where the
Trendwall (from a higher compression chart like a 240 minute), a fib (from a higher
compression chart like a 240 minute), and a historical support or resistance (from a higher
compression chart like a 240 minute) all come together to produce the environment that is
right for a reversal.
You can find divergence on any chart. I like the 60 minute since it is high enough (and 1/4th of
a higher compression chart like a 240 minute), and still small enough for me to take advantage
of any move it precedes.
If divergence is present and I am trading in the direction of the trend, it tells me to stay really
close to the movement by keeping my stop tight. The reversal could come at any time.
It's important that you diversify your orders between currencies that have low correlation.
For example, if you are long on the EUR/USD then you shouldn't go long on the GBP/USD since
they have high correlation. This is because in both cases you are actually trading the same
thing…which way the dollar is moving. If the dollar is rising and you sold short you will be
losing in BOTH TRADES! If you are long EUR/USD and GBP/USD positions and risking 3% per
trade then your risk is 6% since the trades will tend to end in same direction. The same is true
when trading the USDCHF. It has an inverse relationship with the EURUSD and therefore will
always be trending the opposite way. So you shouldn’t trade both the EURUSD and the
USDCHF, pick one or the other but not both. A better strategy is to trade one USD cross and
then a EUR cross. I prefer the EURJPY and the GBPJPY.
Another tasty morsel!
The GBPJPY scares new traders away because it has a 9 pip entry. However, what on
the surface looks scary, actually works for you. Because the spread is high on this
cross, there are no scalpers in this currency so only the elephants trade it. The
elephants tend to trend really nicely. It is not uncommon to see 200-800 pip trends in
this cross.
If you want to trade both EUR/USD and GBP/JPY for example, and your standard position size
from your money management is $10,000 (1% risk rule) then you can trade $5,000 EUR/USD
and $5,000 GBP/USD. In this way, you will be risking 0.5% on each position.
Money management strategy
First, your initial stop should be based on the last previous support or resistance on the chart
(depending on whether you are short or long). If you have great charting software like mine,
you actually get great signals that eliminate large drawdowns. Set you stop 3-5 pips
above/below this previous support/resistance on an ODD NUMBER.
Another tasty morsel!
The market has a tendency to go to even numbers so a number you WANT TO GET
HIT (your limit) should always be on an even number) A number you DON’T WANT
TO GET HIT (your stop) put on an odd number.
Here’s what I do.
• Buying: After entry and up 15 PIPS, move stop 1 Pip above entry
• Selling: After entry and up 15 PIPS, move stop 1 Pip below entry
• ASAP move to 5 PIPS above entry
Someone once said “If you aim at nothing you will surely hit it”.
Anti-martingale rule = increase your risk when winning & decrease your risk when losing
It means that the trader should adjust the size of his positions according to his new
gains or losses.
Example: Trader A starts with a balance of $10,000. His standard trade size is $1,000.
After 6 months, his balance is $15,000. He should adjust his trade size to $1,500.
Trader B starts with $10,000. His standard trade size is $1,000. After 6 months his
balance is $8,000. He should adjust his trade size to $800.
Below is the famous Turtles strategy – not the band for you old folks
If you lose a trade, on your next trade only risk 80% of your former margin % (you have 10K
– can risk $1000 (10%) BUT next trade only put $800) until you get your loss back.
In order to pull the trigger on live trades you have to be confident in:
1. Your charts – that they are giving you a great set up and entry and exit signal
2. Your Broker – that he will give you a fast reliable quote and won’t harvest your stops
3. Your Technical Analysis (the meat and seasoning) - did you do the work so you know
where the elephant is going.
4. Your Trade and Margin Risk – will this trade totally ruin your life if it goes wrong.
5. Your System – all of the above as it all comes together
Regardless, they NEVER GAVE UP and they LEARNED how to cook in the Forex Kitchen.
We built our Mentoring program to provide the ongoing assistance that traders need. To
facilitate that we have incorporated all this:
• We have weekly online interactive training calls to teach you how to recognize our
trades and how to spot the setups. Here we’ll hammer home the secrets to better
setups, determining the trend and how to let your profits run and cut your losers
quickly.
• Two weekly subscriber calls to teach you the nuances of our trades and setups.
• Personal one on one coaching when you run into bumps in the road
• Periodic complete online workshops so you can attend the full workshop AFTER you
have attended a live workshop without travel costs.
• Our charting software was developed to give SUPERIOR entry and exit signals and
confirm high probability trades using our color coded technology and proprietary
trading indicators. Match that with proven technical analysis techniques form your
workshop and you have a blueprint for success.
Scott Barkley is the President of Rio Financial Group located in Austin, Texas. Scott has a
Masters in Business Administration from Colombia State University and graduated from the
institute For Latin American Studies in Cuernavaca, Mexico. Scott was an entrepreneur who
owned several restaurants, was a business consultant for both Hilton and Sheraton hotels and
spent 21 years in the international sales arena, working for companies like Vivendi, in Paris
France, Culligan International and ROC Software. During the demise of the technology sector,
Scott started an internet marketing company called Accelerated Marketing International and
during this time was introduced to FOREX trading. He learned from his Mentor, but only after
trying to do it himself in the School Of Hard Knocks (can you say “been there-done that”).
Throughout his business career, Scott has taught complex concepts and reduced them to
simple to grasp techniques. This is evidenced by his writing and producing the Bible Trek
(www.bibletrek.com) - a 5 lesson course through the entire Bible ....and UNDERSTAND IT.
That course is currently taught in Africa, Eastern Europe, Korea, and Latin America as well as
throughout the USA and is additionally shown on cable TV.
www.forexwealth.com
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all
investors. Before deciding to trade foreign exchange 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. Traders should confirm entries before making a decision to enter the
market. We recommend that all Rio Financial Group traders should always be very selective
with entries while using tight stops. See disclaimer at: http://www.forexwealth.com
www.forexwealth.com