Forex Trading Strategy

Automated PDF to Text preview page 4 to 6:

I do agree with the statement that financial markets are efficient. They are very efficient in one thing - transferring money from bad and naive traders/investors to the pockets of those that know what are they doing. You are now probably asking yourself "What am I doing in this field? Do I have any chance to succeed?" The answer is "Yes, you do.". The system that we are about to reveal to you is a fail proof entry and exit strategy that will put you on equal level with big investment firms and with experienced professional traders.

A question that I hear the most from aspiring traders is "Which market should I trade? Stocks, Futures, Commodities...?" Well, with the right attitude and dedication there is money to be made in every market. However, there is one market that is still largely neglected by smaller traders even though it offers great profit potential and numerous trading opportunities. It is Forex or Foreign Exchange market.

1.1. Why should you trade forex market?

Simply said, no other trading instrument comes even closely to forex market when it comes to liquidity, 24hr market environment and last but not the least, profit potential. Forex (currency) market is the largest (most liquid) financial market in the world, with an average daily volume of more than US$ 1.5 trillion, which is more than all of the global equity markets combined. Forex trading day starts in Wellington, New Zealand followed by Sydney, Australia, Hong Kong and Singapore. Three hours later trading day begins in Dubai (UAE) and other Middle Eastern countries. In couple of hours they are followed by Frankfurt, Zurich, Paris, Rome... London is the last one to open in Europe and five hours later it is followed by New York, Chicago and finally the West Coast. The busiest hours are early European mornings because at that time major Asian exchanges are still open and European afternoons because at that time major US markets are open at the same time as Europe. Therefore, wherever you live and whatever yo
ur work hours are you can always find

4

some time to participate in forex trading as opposed to stock market where you are usually limited to the regular business hours. Another property of forex market that makes it an excellent trading instrument is use of leverage. Many beginning traders don't fully understand the concept of leverage. Basically, if you have a start up capital of $5,000 and if you trade on a 1:50 margin you can effectively control a capital of $250,000. However, a two percent move against you and your capital is completely wiped out. If you are a beginning trader you should not use more than 1:20 margin until you get comfortable and profitable and then and only then you can attempt to use higher margins. What does 1:20 margin mean? It means that with your $5,000 you will control a capital of $100,000. Let's say you are trading EUR/USD and by using our entry strategy you have decided to enter the trade on a long side. That means that you are betting that USD will depreciate against Euro. Let's say current EUR/USD rate is 1.305.
Again, if your trading capital is $5,000 and you are using 1:20 leverage you will effectively be exchanging $100,000 to Euros. If the current rate is 1.305 you will receive 100,000/1.305 = 76,628 Euros. If the trade goes in your direction the margin will work in your favour and 1% decline in USD will mean 20% increase in your start up capital. So if EUR/USD rate moves from 1.305 to 1.318 you will be able to exchange your 76,628 Euros back to $101,000 for a profit of $1,000. Since your start up capital was $5,000 it is effectively a 20% increase in your account. However, if the trade went against you and USD appreciated 1% vs. Euro your account would be reduced to $4,000. That would not have happened as our strategy has built in hard stops to prevent such outcome. And the third and equally important property of forex market is the fact that trends in forex market last longer and are more clearly defined than in any other trading instrument.

1.2. Which strategy should you use?

Another question that is often asked by aspiring traders is "What kind of trading approach should I use ­ day trading, swing trading, position trading? How many indicators should I use? Should I follow the TV news channels?..."

5

If you are facing similar dilemmas let me try to make an analogy. If you were attacked in a dark alley and you felt that your life was in real danger what kind of defence technique would you attempt to use. Would you attempt to kick your assailant with some fancy kung fu move that you saw in a movie? Or would you use some basic but brutally effective "knee to the groin", "thumb to the eye" technique that is easy to implement and that you are 100% certain will have an effect? When you have your hard earned money riding on your trades maybe your life is not at stake but your and your family's livelihood is. The goal of all the other traders in the market is to take your money. And if you are going to play around with some fancy tools and indicators that you don't even understand you can be assured that your hard earned money will be paying someone's BMW lease payments. If you want to get to the top of the forex market "food chain" you have come to the right place. The strategy that we are about to reveal to y
ou is a completely new, efficient and reliable trading strategy that comes as the result of years of forex market research using sophisticated mathematical methods and is based on a fundamental property of financial markets.

1.3. The ICWR phenomenon

Regardless of how strong a long-term market trend is, the market never moves only in the direction of the long-term trend ­ there are always minor movements against the longterm market trend. These deviations usually don't last very long and after them the market moves again in the direction of the long-term trend. The major market movements in the direction of the long-term market trend are called impulsive waves and the minor market movements against the long-term market trend are called corrective waves. The picture below (Figure 1.1) shows a snapshot of a EUR/USD candlestick chart. Although the market shows both upward and downward market movements it can be easily recognized that the long-term market trend is clearly bearish as between 07:00 AM 6