Forex Strategy.pdf

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W. R. Booker & Co.
Strategy:10
Low-risk, high-return forex trading.
2003 Rob Booker.
http://www.robbooker.com
The information contained in this document, although highly entertaining and
quite instructive, might lead you to believe that tomorrow you’re going to be a
millionaire. You are not going to be a millionaire tomorrow. Well…that’s
technically not correct. Because you
could
be a millionaire already, in which
case tomorrow you’re guaranteed to be one.
Strategy:10 – PAGE
2
A bear chased two hikers.
One hiker, while being chased,
stopped to put on running shoes.
As he was changing out of his hiking boots, his companion looked at him in
horror and exclaimed, “What in the world are you doing? You’ll never outrun the
bear if you stop now!”
Calmly, the other hiker said, “I don’t have to outrun the bear. I just have to
outrun you.”
The forex market offers more opportunity for fast financial success – and
financial ruin – than almost any other market. The get-rich crowd has always been
attracted to it. This crowd includes speculators, trading novices, retirees, and
professionals looking for a way to get out of debt, increase the excitement in their
lives, or simply get rich really fast.
These are the people who you will be taking money away from. These are the
people who will be eaten by the bear. You don’t have to outrun the bear (the entire
market). In fact, that’s impossible. You can’t beat the entire market. Those of you
who try will learn fast that the market has no mercy, can outrun anyone, and shows
no mercy.
I want to teach you how to run faster than the other traders.
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The Four Groups
There are four groups in the forex market. There are the
novice traders
–
the greenies, the ones who try to outrun the bear and lose every time.
In addition to the novice traders, there are three other levels of
participation in the forex market: the dealers, the institutional traders, and the
advanced traders.
The
dealers
are the most powerful and they make the market, setting prices
and putting together deals.
The
institutional traders
work in banks, wire firms, or government
agencies. They trade huge amounts of money at a time, and the size of their
trades gives them enormous power.
Next, there are the
advanced traders.
This group
is comprised of people from all across the world,
sitting in smaller investment firms, offices, or even
their homes. You can be a part of this group. In
some cases, the advanced traders are the smartest
group – trade for trade – than any other group.
Because they don’t move a lot of money on each
trade, they don’t have as much power as the
institutional players. Because their trades are brokered
by the dealers, they’ll never have absolute trading power. But, because there
are so many novice traders – the advanced traders have plenty of people that
they can outrun. Your goal as a forex investor is to aggressively take money
out of the pockets of the novice traders.
Don’t feel bad about that. Someone’s going to take your money along the
way, and it’s going to teach you, very quickly, lessons that can only be learned
through failure. So, every time you take money from a novice trader, just
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remember: you’re teaching him a valuable lesson. After a while, you might
even enjoy watching your hiking companion being eaten by the bear.
The Basics
Read this – a great forex primer:
http://www.forex.com/history_forex.html
On the left navigation section, you'll see "Forex Pro > Short Term Trend
Trading". This is an essential read for you – even if it seems technical in nature, you
should read it anyway, just to get the information in your head one time. I suggest
you read everything on this link, start to finish. Getting a background in the market
takes about a week (at most), but it's very important for you to understand how the
system works. The knowledge you gain early will pay off later. I didn't read this stuff
BEFORE trading, and it actually kind of helps to read through the material while
you’re entering and watching your first trades – because there’s nothing quite like
trading while you learn. Read the sections in "Forex Essentials". This is as clear an
explanation as exists.
Pips
Okay, now back to our program. To start, you have to understand what a
"pip" is. A pip is the last number to the right in a currency. For example:
If the EUR/USD traded at 1.1335 this morning. The "5" is the pip. If it moved to
1.1535, which it did today, that would be a 200-pip move.
The next concept that you need to understand is the concept of leverage.
It’s a lot like margin in stock trading, only on steroids. It’s a simple concept.
If you have $10,000 to trade with, your forex broker will let you borrow money
from him so that you can trade in larger quantities. They will let you borrow
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as much as 400 times (400:1) what you put up in a trade. Most brokers allow
between 50:1 and 100:1 margin. So, if you put up $1,000, and your broker
allows 100:1 margin, then you’ll be trading $100,000 worth of currency (instead
of $1,000).
That’s important, because every pip equals a certain dollar amount. When you
trade $10,000, each pip movement equals $1. The chart below shows how it
goes from there.
Amount Traded
$10,000
$50,000
$100,000
$500,000
$1,000,000
$5,000,000
$ Per Pip
$1
$5
$10
$50
$100
$500
If you trade 1,000,000 worth of currency, each movement would be equal to
$100. So if you bought at 1.1445 and sold at 1.1545, you would make 100 x $100,
or $10,000. Now, I don't know about you, but I could live off of that much.
That's not saying, however, that
you
can make $10,000 per day. Of course
it's possible, but there are a lot of factors that make it very difficult. Like, how
do I know that it's going up or down?
When should I get in a trade?
Even more importantly, can you deal with the emotions of forex trading?
Alan Farley, a trading expert, rightly observes that mastering the emotions of
trading is more difficult than mastering the technical skills. You’ll soon find
out what he means by that.

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