Unlocking The World's Largest Financial Secret - by Mario Singh

LET’s BEGIN!
From the Book Introduction
Top success coach Anthony Robbins says,

“It is in the moment of your decision that
determines your destiny.”
Let’s decide that we want to succeed first
– whatever it takes. Even if you fail the first
few times, decide first that you will persist.
That is the secret ingredient of success.
Can you imagine a mother telling her
child to give up learning how to walk
just because he falls during his first few
attempts?
Would any mother do that? No.
It is a foregone conclusion that a mother
would do whatever it takes to help her
child succeed at walking. The same rule
applies if you want to be successful at Forex
trading.
Always remember that patience,
persistence and perspiration make an
unbeatable combination for success.
In this book, I would like to share with
you 12 keys that can dramatically increase
your success when you decide to hop on
this trading journey with me.
Are you ready?
Let’s begin!
MARIO SINGH
PRAISE FOR
UNLOCKING THE WORLD'S

LARGEST FINANCIAL SECRET
“Mario’s book is exactly what is needed for newcomers to Forex, unlike

others I have seen, most of which are truly awful. Mario covers every
aspect of Forex trading; from how to use your platform and what data
you must watch, to the hard stuff like money management. Mario’s motto
– ‘fundamentally driven, technically executed’ – is spot on. In a sea of self-
promoting and deeply inadequate training material, I would send new clients
to Mario every time.”
Barbara Rockefeller
Founder of Rockefeller Treasury Services &
Author of “The Foreign Exchange Matrix”
“Mario Singh has a provocative assemblage in this book. It is timely since

impending changes in central banks’ policies will directly alter Forex activity.
Well done!
David Kotok
Chief Investment Officer
Cumberland Advisors
“Once again, Mario Singh has generously shared the essential Forex trading
strategies that both beginners as well as experienced Forex traders can use
to generate a sustainable source of income for themselves. This book offers
a great combination of technical strategies as well as psychology lessons
that is invaluable to any serious trader.”
Adam Khoo
Executive Chairman
Adam Khoo Learning Technologies Group
“Mario does a great job in laying out 12 keys to Forex freedom in a clear
and concise manner. I especially like the chapter on ‘Mastery’ where he
details how world-class traders separate themselves from the pack. Excellent
work!”
Kathy Lien
CNBC Contributor
Managing Director of FX Strategy
BK Asset Management
“Mario artfully presents practical and effective keys for you to succeed in
the Forex Market. A true masterpiece. Bravo!”
Song Seng Wun
Celebrity Economist
“Forex expert Mario Singh has written an amazing book that unlocks the
secrets of successful currency trading. Join Mario as he explains, in clear,
step-by-step fashion, exactly what you must do to become a successful
trader. The secrets and wisdom revealed in the book hold the key to financial
independence, and Mario delivers them in his classic style that anyone can
understand.”
Ed Ponsi
Author
“Forex Patterns and Probabilities” and “The Ed Ponsi Forex Playbook”
“Mario’s book provides an excellent grounding for the novice trader to develop

a blueprint for successfully trading the Forex Market. Two thumbs up!”
Howard Friend, CMT

Independent Asset Manager
Switzerland
“Everything you need to succeed for trading Forex in a clear, effective book.
No fluff. Just great practical advice from Mario Singh on how to trade and
win in the world’s biggest financial market using battle tested rules and
strategies that anyone can apply.”
Boris Schlossberg
BK Asset Management
Copyright © 2014 Mario Sant Singh
Published by Mario Singh Pte Ltd
Mario Singh Pte Ltd

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Printed in Singapore
ISBN 978-981-09-1699-2 (paperback)

ISBN 978-981-09-1700-5 (e-book)
National Library Board, Singapore Cataloguing-in-Publication Data
Singh, Mario, author.

Unlocking the world's largest financial secret : 12 keys to forex freedom / Mario
Singh ; produced by Write Editions. – Singapore : Mario Singh Pte Ltd, [2014]
pages cm
ISBN : 978-981-09-1699-2 (paperback)
ISBN : 978-981-09-1700-5 (e-book)

1. Foreign exchange. 2. Foreign exchange market. I. Write Editions (Firm),
book producer. II. Title.
HG3851
332.45 -- dc23 OCN885368117
To my beloved mother, Susan Ng:
Dearest Mum,
Your boundless love for the three of us helps me catch

a glimpse of God’s unconditional love for all of us.
Thank you for being a fervent supporter in all that I do.
I love you and cherish you with all my heart.
“And now abide faith, hope, love, these three;

but the greatest of these is love.”
1 Corinthians 13:13
CONTENTS
Foreword ix
Acknowledgements xi
About the Author xiii
PART I: WHAT IS FOREX? 1
1 KEY #1: THE GLOBAL FOREX OPPORTUNITY 13
2 KEY #2: WHY TRADE FOREX? 22
3 KEY #3: FACTORS THAT MOVE THE FOREX MARKET 44
4 KEY #4: FX WAVES 79
5 KEY #5: UNDERSTANDING YOUR TRADING PLATFORM 109
6 KEY #6: CANDLESTICK AND CHART PATTERNS 138
PART II: THE SIX LAWS OF SUCCESSFUL TRADING 181
7 KEY #7: THE LAW OF STRATEGIES 184
8 KEY #8: THE LAW OF MONEY MANAGEMENT 220
9 KEY #9: THE LAW OF STATE 245
10 KEY #10: HABITS 260
11 KEY #11: PURSUE MASTERY 280
12 KEY #12: YOUR BEST BROKER 304
Epilogue 320
FOREWORD
The global financial landscape has changed much through the

years.
2007 was the start of the global financial crisis when the loss of
confidence in the value of sub-prime mortgages caused a liquidity
crisis. Banks faced a credit crunch and loans came to a standstill.
After Bear Stearns (the fifth largest investment bank in the US at the
time) was sold to JP Morgan in March 2008, the chips fell quickly.
On 14 September 2008, Bank of America announced that it was
buying Merrill Lynch in an all-stock deal worth USD50 billion.
On 15 September 2008, Lehman Brothers filed for bankruptcy. On
16 September 2008, the Federal Reserve announced that it would
provide an emergency loan to the tune of USD85 billion to rescue
the huge insurer AIG. On 29 September 2008, the Dow plummeted
777.68 points – its biggest one-day point drop in history – to close
down 7 percent at 10365.45.
All this in just two weeks.
Before the world could adequately recover from the credit crisis,
the eurozone crisis erupted.
In May 2010, Greece accepted a 110 billion euros bailout deal
from the European Central Bank, the European Commission and
the International Monetary Fund. Ireland became the next victim in
November of the same year with a bailout deal worth 85 billon euros.
The next three years saw Portugal, Spain and Cyprus needing help.
Where is the opportunity for the retail trader and investor against
a backdrop of uncertainty? The answer, is the Forex Market.
In September 2013, the Bank for International Settlements reported
that the global Forex volume reached an unprecedented 5.3 trillion
US dollars a day, making Forex the largest financial market in the
world.
Although the Forex Market presents unparalleled opportunities
ix
for the retail trader, very few make consistent profits out of it. This
is because not many traders are armed with both the fundamental
and technical skills to win in this game.
I’ve known Mario for many years now. As a friend, he’s engaging
and funny. As a trader, he’s smart and focused. As a coach, he’s intense
and passionate. He is truly one of the rare few individuals who has
both the fundamentals and technical game figured out.
Affectionately known as Asia’s favourite Forex coach, Mario
continues to impact and influence the trading community with his
large footprints. I know he has a big vision, and it is a joy to watch
him touch so many lives all over Asia.
“Unlocking the World's Largest Financial Secret” is the ultimate
guide to getting a quick start in the Forex Market. Mario leaves no
stone unturned as he covers the global Forex opportunity, six laws
of successful trading, including psychological topics like Habits and
Mastery.
The last topic is one which is most often overlooked by many
traders – how to choose a right broker to partner. Successful trading
needs two elements working in sync – the trader and the trading
platform. This chapter is highly useful for readers who want to
understand how to choose the best trading platform for lasting
success in the Forex Market.
It’s time to leave you with Mario as he takes you on the Forex
highway. More importantly, use the 12 keys he discusses here to
unlock real money from the Forex Market.
Kathy Lien
CNBC Contributor
BK Asset Management
x
ACKNOWLEDGEMENTS
My heartfelt thanks to the following people, without whom this

book would not have been possible:
Joanna Lim, Executive Coach at FX1 Academy. Thank you for
burning countless hours with me to ensure that the contents and
charts were in order.
Terry Thompson, President of FXPRIMUS. Thank you for
graciously allowing me to use all charts from the FXPRIMUS MT4
platform.
The financial titans who have endorsed my work. Thank you for
allowing me to stand on your giant shoulders to navigate the world
of global finance.
The brilliant team at FX1 Academy. Thank you for embracing
my vision of helping individuals and institutions to see the beauty
of Forex trading.
The awesome publishing team at Mario Singh Pte Ltd. Thank
you for your pursuit of excellence and for sharing my excitement in
getting this book out to the world.
My editorial consultant, Tan ChinKar and his fantastic team at
Write Editions. Thank you for your commitment and professionalism
in guiding the entire process.
All budding and existing traders worldwide. Thank you for shining
the Forex light brightly wherever you go. I look forward to our paths
crossing as we enjoy this journey together.
To Almighty God; thank you for leading me to a life of purpose.
In You, I am greatly blessed, highly favoured and deeply loved.
xi
About the author
Regarded worldwide as a global financial expert, Mario Singh has been

featured over 40 times on top financial media CNBC and Bloomberg.
Other media appearances by Mario include ChannelNewsAsia,
Smart Investor, Personal Money, The Straits Times, FXStreet and
Forex Magnates.
Using the trading methodologies which have brought him massive
success, Mario has coached over 20,000 people in the art and science
of successful Forex trading, including institutional traders from ICBC
– China’s largest bank.
Mario’s articles are regularly featured in national publications
in Asia Pacific and Europe, including BTInvest and My Paper in
Singapore, CNFOREX in China, Your Trading Edge in Australia,
Finanzna Chrichten in Germany, and international news sites like
MarketWatch, StreetInsider and Yahoo Finance.
His first book, “17 Proven Currency Trading Strategies: How to
Profit in the Forex Market” is endorsed by world-famous billion-
dollar fund managers like Mark Mobius, Executive Chairman of
Templeton Emerging Markets Group, and Ray Barros, private hedge
fund manager and professional trader.
Mario resides in Singapore with his beautiful wife Shalyn and two
wonderful children, Chantelle and Elliot.
For more information:
Email: info@mariosingh.com
Facebook: https://www.facebook.com/MarioSinghPage
xiii
PA R T I
what is FOREX?
“For I do not seek to understand in order to believe,
but I believe in order to understand.”
Anselm of Canterbury
Forex has been my life for the last 10 years. Some people love it,
others hate it. To truly appreciate the subject of Forex, I have to
touch on the subject of money first. That’s because Forex revolves
around money.
Money.
Money means a lot of different things to different people. Money
can represent potential stuff. It can also represent potential experiences.
Some people want more of it, others need less; some say it is the root
of all evil, others say it makes the world go round. But love it or hate
it, we need it in everyday life.
It’s no surprise that people want money – we’ve all got bills to
pay. The problem occurs when we get obsessed with money beyond
its instrumental use.
Let’s think about this for a minute - why do people whose lives
are already comfortable make sacrifices in other areas of their lives
– family, friends and their own sanity – just to get more cash?
Professors Stephen Lea and Paul Webley from the University of
Exeter argue that people’s actual behaviour towards money can’t
be explained solely due to the fact that it is useful – what they refer
to as ‘tool theory’ (Lea & Webley, 2006). Something else is at play.
Money provokes all sorts of bizarre behaviours that cannot easily
be explained, aside from its function as a purely financial tool. Here
are three examples Lea and Webley have provided:
Face Value
The real, useful value of money changes all the time, e.g. 100 years
ago, a pound or a dollar could be used to buy a lot more than it
does now. In spite of this, people respond to the face value of money
2
what is forex?
irrespective of its real worth. The introduction of the Euro across

Europe in recent years demonstrates the power of this illusion.
Europeans have suddenly been faced with a new currency with a face-
value that is quite different to their old currency. Studies have shown
that people are likely to overestimate the real value of money that
has a higher face value, and underestimate the real value of money
that has a lower face value (Gamble et al., 2002).
When Cash is Not Acceptable

The special kind of relationship people have with money is brought
to light in situations when money can’t be used. For example, money
is often not a socially acceptable gift. It hardly comes up during day-
to-day conversations, and there are also social taboos against using
money to buy political office (although it has to be said that having
ample campaign finance does play a part in ‘buying’ political office
indirectly).
Being Emotional about Cash

Not only are we particular about the form of our money, we also have
an emotional relationship with it. Psychologists have measured our
attitudes towards cash in many different ways, but most find there
is a considerable emotional component. When people describe their
attitudes to money, it is more than just its utility that’s important –
you either love it or hate it.
The Love Triangle
I would like to focus on the third point about the emotional pull
that money has.
Professors Lea and Webley say that money is not just a tool for
us, but that it also acts like a drug on the mind. Drugs act on the
central nervous system to create mental states that do not meet specific
functions in the same way that a desire for sex or food does. For
example, the feeling of hunger drives us to find food, and we need
food to survive, so hunger has an evolutionary function.
3
UNLOCKING THE WORLD’S LARGEST FINANCIal secret
Part of the attraction of money is that it changes how we feel, although

this change has no biological or evolutionary significance. Part of the
benefit people derive from acquiring money – e.g. making us feel
good – does not lead to actual benefit in the world. Rather, it is the
thrill of the chase that we enjoy – a purposeless pursuit where we
chase money for the sake of having it.
As a trader and educator, my job has taken me to many countries
around the world. During my programs, I have had the privilege of
meeting different people from various backgrounds and cultures.
On many of these occasions, I have started the program with a
question: “What can you do with money?” Although the answers
vary, most of the replies are within the range of:
• “I can buy a new car.”

• “I can buy a new home.”
• “I can help with my dad’s medical bills.”
• “I can travel the world.”
• “I can retire comfortably.”
• “I can quit my job.”
• “I can give more to charity.”
• “I can have a better quality of life.”
• “I can buy the latest Louis Vuitton bag.”
• “I can enrol my kids in more enrichment classes.”
In actual fact, the audience is really answering the deeper question:

“What does money mean to you?”
The replies I have gathered over the years have enabled me to
draw up a ‘Love Triangle’ of money. Basically, I’ve found that money
means three things to most people: freedom, security and power
(Figure 1.1).
4
what is forex?
Freedom
Power Security
Figure 1.1 Money’s Love Triangle
Freedom
Money can certainly buy many forms of freedom.

In a 2009 paper entitled “Happiness, freedom and control” by
Italian economist Paolo Verme, the author proposes that “a sense
of freedom and control is by far the most significant predictor of
life satisfaction.”
I find that those who define money as ‘freedom’ typically mention
freedom of travel and freedom of work as the top two choices. If
you think freedom of travel is only possible when you own a fancy
limousine or a private jet, think again. People who are far from wealthy
can travel extensively if they make it a priority to do so.
In 2011, travel bloggers Kyle and Briana of Roll Global said they
spent USD15,000 a year per person travelling the world. Their global
tour took them through 19 countries in Asia, Europe and Africa. You
can find many more travel blogs in the Internet where like-minded
individuals ditch the typical 9-to-5 job to discover the world. Of
course, having money would accentuate the pleasure and comfort
derived from the travel experience. This would allow the traveller
the added pleasure of airline upgrades, better food, more luxurious
accommodation and a more outrageous shopping experience.
Many of us work not because we want to but because we have
5
to. We have to take care of the bills, the house mortgage and our
kids’ education.
The classic response to saying “money gives me freedom of work”
comes in the form of leaving the current workplace. Individuals in this
category are finally free from dismal wages, workplace discrimination,
low productivity and bad bosses. Many would choose to do something
they really enjoy or even take the entrepreneurial jump to start a
new business.
According to research by the Pew Foundation (2009),1 39 percent
of entrepreneurs report experiencing ‘complete’ job satisfaction,
as opposed to only 28 percent of those who work for a boss. This
greater job satisfaction spills over into the rest of their lives, and
has a lasting effect. Another study from the Max Planck Institute of
Economics in Germany and the University of Sussex in the United
Kingdom (2013) revealed that transitioning from wage employment
to self-employment boosted overall life satisfaction for as long as
two years after the move.2
Security
A major reason why people dwell so much on long-term financial

security is the rising cost of living. In most countries, inflation is a
common concern. In August 2013, research company GFK polled
over 40,000 consumers across 28 countries, including 11 from the
Asia Pacific (Australia, China, India, Indonesia, Japan, South Korea,
Taiwan, Thailand, Singapore, Malaysia and Vietnam).
In Singapore, over 1,200 respondents were surveyed on their
attitudes, behaviours and values across a range of topics. The study
found that 65 per cent of respondents in Singapore were concerned
about inflation and rising costs.
These results are all the more surprising when you consider that
the tiny nation of Singapore holds claim to the highest percentage of
1
http://www.pewsocialtrends.org/2009/09/17/take-this-job-and-love-it/
2
http://link.springer.com/article/10.1007%2Fs11187-011-9413-9
6
what is forex?
millionaires per capita anywhere in the world. As of 2012, 157,000

millionaires or one in every six households possessed at least one
million dollars in disposable wealth, excluding property, businesses,
and luxury goods.
Here’s another example: In April 2014, Money Magazine conducted
a survey of 1,018 adults. Approximately 64 percent of respondents
with household incomes lower than USD100,000 said they were
worried about their family’s economic security, while 49 percent of
those with household incomes higher than USD100,000 said they
were worried. Women ‘out-worried’ the men. Specifically, two-thirds
of women surveyed reported feeling worried about their financial
outlook, compared with 54 percent of men.
So how does money give a sense of security?
In April 2011, the British Broadcasting Corporation (BBC) ran
a fascinating experiment that examined people’s attitudes to money
in the United Kingdom. The experiment – called the Big Money
Test – concluded that those who were highly motivated by feelings
of security (the most popular response in the poll) were likely to
see money as providing peace of mind and ensuring protection for
themselves and their loved ones.
Power
In January 2014, an article entitled “For the Love of Money” appeared

in The New York Times. The article was written by a former Wall
Street trader called Sam Polk, who saw himself trapped in a wealth
addiction of always ‘wanting more’.
Here is what Sam said in the opening paragraph:
“In my last year on Wall Street, my bonus was $3.6 million —

and I was angry because it wasn’t big enough. I was 30 years
old, had no children to raise, no debts to pay, no philanthropic
goal in mind. I wanted more money for exactly the same reason
an alcoholic needs another drink; I was addicted.”
7
Sam also noted that in the course of five years, he had gone from
being thrilled at his first bonus of $40,000 to being disappointed for
being paid ‘only’ $1.5 million for a hedge fund. He was addicted to
the wealth disease called ‘more’.
In the 1980 classic, ‘Wealth Addiction’, the late sociologist and
playwright Philip Slater eloquently described the four major signs
of wealth addiction:
i. A Closing hand – the need to hold on to things for fear of losing

them.
ii. Confusion about goals – losing focus about what you really want
or need.
iii. Increasing possession, decreasing use – being caught in a vicious
cycle of always wanting more.
iv. Tension and search behaviour – being in a state of restlessness
which causes one to constantly pursue.
On the surface, it may seem as though those who view money

as ‘power’ rank material gains high on their list. After all, if money
wasn’t a problem, wouldn’t everyone own a couple of Lamborghinis,
a yacht and a private jet?
However, research has shown that people motivated by power don’t
want ‘more stuff’. What they do want is the influence and respect
that having more money brings. In other words, money becomes a
status symbol. Thus, on a very basic level, many people who seek
influence and respect attain it by seeking money.
Money is an emotional topic because it conjures up strong feelings.
To some, money means freedom. To others, it means power or security.
It is important to note that there is no right or wrong in choosing
what money means to you. Different perspectives on money come
from the fact that we’re all different people with different values. We
want different things out of life and, in most cases, money is the tool
that will help us get these things.
The purpose of the ‘Love Triangle’ is to help you understand
yourself more. In the end though, even if we were to abolish money,
8
what is forex?
it would always be reinvented in some way. This is because money

is not a particular thing.
Money is an idea.
Dollars, pounds, euros or yen – whatever it may be, as long as
we are bound by markets and society, money in any of its forms will
always be something we lust after. After all, the ultimate advantage
of money is that it offers us choices in life. It increases our options.
Suffice to say, if you had several million dollars in the bank, you
could:
• Buy a new car

• Buy a new home
• Help with your dad’s medical bills
• Travel the world
• Retire comfortably
• Quit your job
• Give more to charity
• Have a better quality of life
• Buy the latest Louis Vuitton bag
• Enrol your kids in more enrichment classes
Well, it’s now your turn to take the ‘Love Triangle’ test. Take some
time and think about what money means to you. The best way to
do this is to mark out an ‘X’ somewhere in the triangle so that you
understand how you relate to money.
The Forex Market
The rest of this book will look at how to unlock real money from
the Forex Market. Why Forex and what’s the link between the two,
you ask? Let’s look at it this way:
The Forex Market is the Largest Financial Market in the World

From the research conducted by the Bank for International Settlements
(BIS) in April 2013, we now know that the Forex market trades
9
an astounding USD5.3 trillion every single day. It is a place with

unlimited amounts of money.
Human Beings are Emotional Creatures

American psychologist Dr. Paul Ekman is a world renowned expert
in the study of emotions and their relation to facial expressions. In
1972, he published ground-breaking research, which revealed that
there are six basic emotions that are common among people in all
cultures. These are anger, happiness, surprise, disgust, sadness and
fear. Interestingly enough, later research by the University of Glasgow
in February 2014 narrowed the list down from six to four.3 The point
is the same – human beings are emotional creatures.
Money is a Deeply Emotional Topic

The work of Professors Stephen Lea and Paul Webley established
this in the earlier section. It is where I developed my ‘Love Triangle’
of freedom, power and security.
The link is clear: Forex is the largest cash machine in the world;
humans are emotional; money is an emotional topic. These are
the primary reasons why many people are jumping on the ‘Forex
bandwagon’ at an ever increasing pace, day after day. In fact, type the
word ‘Forex’ in a Google search, and you will see a mind-boggling
80 million search results. In comparison, the word ‘Lamborghini’
will bring up ‘only’ 73.6 million search results. The chase for more
money has led many people to explore the opportunities in the Forex
Market. Some have had raving success. Others have failed miserably.
Personally, I know more people who have failed than who have found
lasting success. This is probably the reason we hear so much negative
comments about the Forex Market:
• “Forex is gambling!”
• “Forex is risky!”
• “I lost my house playing the Forex Market!”
3
http://www.bbc.com/news/uk-scotland-glasgow-west-26019586
10
what is forex?
• “I had to borrow money to pay off my Forex debts!”

• “Trading Forex is illegal!”
It is probably true that a lot more people fail at Forex compared

to those who succeed in it. In fact, statistics show that 80 percent
of people will meet failure, 10 percent will break even, and only 10
percent are profitable.4
Is that alarming? Before you reply with an emphatic “YES!”, let’s
consider the following facts:
• Eight out of 10 entrepreneurs who start businesses fail within the

first 18 months; a whopping 80 percent crash and burn rate.5
• Ninety nine percent of budding musicians fail.6
• Seventy eight percent of all published books fail.7
• Seventy one percent of actors in the Screen Actors Guild (the
primary union that handles multi-million dollar actors like Jack
Nicholson and Russell Crowe) earn less than USD7,500 a year
or nothing at all.8
• For every Michael Phelps who succeeds on the world swimming
stage, thousands more will never even qualify for a regional swim
meet.
• For every Usain Bolt who smashes the 100m world record,
thousands more will struggle everyday and never attain a timing
below 10 seconds.
• For every Russell Peters who sells out an entire stadium for stand-
up comedy, 98 percent will fail and exit the industry.
4
Singh, Mario. (2013). How to Profit in the Forex Market: http://www.mariosingh.com/
download/17strategies/17strategies_freechapter.pdf
5
Forbes: http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-
businesses-fail/
6
Tom Hess, touring guitarist, recording artist and a former member of the band Rhapsody
Of Fire: http://tomhess.net/MusicCareer.aspx
7
Patricia Fry, Book Promotion Guru: http://taralazar.com/2013/08/03/book-promotion-
guru-patricia-fry
8
http://abcnews.go.com/Entertainment/story?id=103850
11
You get the picture?

The odds of failing are prevalent in almost any industry. Why
should Forex trading be any different? The saying goes, however,
that every cloud has a silver lining: Steven Spielberg is a billionaire
filmmaker; Oprah Winfrey is a billionaire TV host; JK Rowling is a
billionaire author; Mark Zuckerberg is a billionaire entrepreneur;
George Soros is a billionaire trader.
Rather than focus on the reasons why people fail at any endeavour,
let’s focus on the reasons why they succeed. The majority of people
fail in any industry, so we first need to decide which category we
would like to belong to.
Failing to plan is planning to fail.
Let’s first decide that we want to succeed at trading the Forex
Market at all costs. Yes, 80 percent will fail, but that’s not the category
you want to be in.
Decision is of paramount importance. It almost guarantees your
end result.
Top success coach Anthony Robbins says, “It is in the moment
of your decision that determines your destiny.”
Let’s decide that we want to succeed first – whatever it takes.
Even if you fail the first few times, decide first that you will persist.
That is the secret ingredient of success. Can you imagine a mother
telling her child to give up learning how to walk just because he falls
during his first few attempts?
Would any mother do that? No.
It is a foregone conclusion that a mother would do whatever it
takes to help her child succeed at walking. The same rule applies if
you want to be successful at Forex trading.
Always remember that patience, persistence and perspiration make
an unbeatable combination for success.
Over the next few chapters, I would like to share with you 12
keys that can dramatically increase your success when you decide to
hop on this trading journey with me.
Are you ready?
Let’s begin!
12
C hapter 1
Key #1:
The Global Forex

Opportunity
“The ladder of success is best climbed by

stepping on the rungs of opportunity.”
Ayn Rand
The Foreign Exchange (Forex) market is considered the largest and

most liquid financial market in the world, trading a staggering 5.3
trillion US dollars every single day.
Just how much is one trillion dollars anyway? For starters, it’s ‘1’
followed by 12 zeroes. However, to appreciate its mammoth size, let
me describe it to you in two ways:
1. The NYSE Group, which is the world’s largest venue for trading
stocks, trades in excess of 30 billion US dollars a day. The Forex
Market trades 5.3 trillion US dollars a day. This is about 176
times the size of the NYSE Group!
2. Imagine that I were to pay you 1,000 US dollars every second. In

one minute, I would have paid you USD60,000. In two minutes
I would have paid you USD120,000. In one day, I would have
paid you USD86,400,000. You get the picture. Now here comes
the biggie: how long would it take before I have to pay you one
13
trillion dollars? Take a deep breath. The answer is 32 years. In

other words, it would take me almost 170 years to pay you the
equivalent of what the Forex Market trades in one day – and that’s
if I paid you a mind-boggling USD60,000 every minute. Do you
see how enormous the Forex Market is?
That astounding volume was recently reported in the “Central

Bank Survey of Foreign Exchange and Derivatives Market Activity”,
which was conducted by the Bank for International Settlements (BIS),
an organisation that acts as a central bank for the world’s monetary
authorities. The survey was conducted over 53 jurisdictions and
results were announced in September 2013.
This high profile survey started in 1989 and is conducted once
every three years. In April 2007, the daily Forex volume was USD3.3
trillion. In April 2010, this increased to USD4 trillion. By the time the
survey was carried out in April 2013, the daily volume had surged
to USD5.3 trillion daily.
Amidst a backdrop of global uncertainty, the results from the BIS
survey are clear: Forex trading is here to stay. The majority of the
volume was focused in four areas: UK, USA, Singapore and Japan.
In fact, these 4 countries alone intermediated 71 percent of the total
USD5.3 trillion daily volume, up from 66 percent in 2010.
Turnover by Volume
The US dollar remained the dominant vehicle currency; it was on one
side of 87 percent of all trades in the BIS survey. This value was two
percent higher compared to the results in 2010. The euro was the
second most traded currency, but its share fell to 33 percent in 2013
from 39 percent in 2010. The turnover of the Japanese yen increased
significantly between the 2010 and 2013 surveys.
Two emerging market currencies entered the top 10 most traded
currencies for the first time – the Mexican peso and the Chinese
renminbi. Turnover in the Mexican peso reached USD135 billion in
2013, raising the peso’s share in global FX trading to 2.5 percent.
The Mexican peso thus entered into the world’s top 10 most actively
14
the global forex opportunity
traded currencies, ahead of well established currencies such as the

New Zealand dollar and the Swedish krona.
The role of the renminbi in global FX trading also surged, in line
with China’s increased efforts to internationalise the Chinese currency.
Renminbi turnover soared from USD34 billion to USD120 billion.
The renminbi thus became the 9th most actively traded currency in
2013 – up from 17th three years earlier - with a share of 2.2 percent
in global FX volumes, mostly driven by a significant expansion of
offshore renminbi trading. China’s rise as the world’s second-biggest
economy had seen the yuan take on a bigger role in international
financial markets.
Major Currencies
Among the major currencies, trading in the Japanese yen jumped the
most, rising by 63 percent since the 2010 survey. The biggest jump in
yen trading occurred between October 2012 and April 2013 because
of Japanese monetary policies which advocated a weaker yen. As a
result, the yen significantly expanded its share in global FX trading
by 4 percentage points to 23 percent in 2013.
Among the most actively traded advanced economy currencies,
the Australian and New Zealand dollars continued increasing their
share in global FX trading. By contrast, the sterling, the Canadian
dollar, the Swedish krona and the Swiss franc lost ground. As of
2013, the top 10 most traded currencies were:
1. USD (US dollar)
2. EUR (Euro)
3. JPY (Japanese yen)
4. GBP (British pound)
5. AUD (Australian dollar)
6. CHF (Swiss franc)
7. CAD (Canadian dollar)
8. MXN (Mexican peso)
9. CNY (Chinese yuan)
10. NZD (New Zealand dollar)
15
Singapore: The Third Largest

Forex Centre in the World
The survey ranked Singapore as the third largest Forex centre globally
after London and New York and the largest Forex centre in Asia,
ousting Japan for the first time from the top Asian spot.
Foreign-exchange trading in Singapore is one-seventh the size of
that in the UK and less than a third of the US total. According to
BIS, the record-keeper of the world’s central banks, the UK has 41
percent of the global market, followed by the US with 19 percent.
The BIS also reports that, Singapore has a 5.7 percent share, followed
by Japan’s 5.6 percent and Hong Kong’s 4.1 percent.
In Singapore alone, volumes grew 44 percent to USD383 billion in
April 2013 compared with USD266 billion in April 2010. Singapore’s
average daily interest rate derivatives turnover volume also grew 6
percent to register USD37 billion in April 2013, the second largest
volume in Asia, behind Japan.
The Singapore Foreign Exchange Market Committee (SFEMC)
also carries out a semi-annual FX survey of the top 30 trading banks
in Singapore. This survey is conducted based on the location of the
trading desks. The most recent FX survey done for the month of April
2013 recorded an average daily turnover at around USD326 billion,
a 6 percent increase compared to the last survey in October 2012.
This statement was made by Ms Jacqueline Loh, Deputy Managing
Director for the Monetary Authority of Singapore, in a press release
after the BIS and SFEMC survey results:
“The results of the BIS and the SFEMC surveys demonstrate

Singapore’s consistent standing as a key foreign exchange centre
in the world and in Asia. Our growing strength in foreign
exchange complements the development of capital market and
asset management activities in Singapore. It will also better
position our financial centre to serve the investment and risk
management needs of financial institutions and corporates
throughout Asia.”
16
Here are three main reasons why Singapore has established itself
as a central hub for foreign exchange trading:
1. Singapore’s AAA Status

Having the proud tag of being Asia’s only country with an ‘AAA’ credit
rating from all three international credit rating agencies (Standard &
Poor’s, Moody’s and Fitch), Singapore continues to draw many global
multinationals who choose Singapore as a regional treasury centre.
Even the Swiss National Bank, Switzerland’s central bank, opened
its branch in Singapore in July 2013 – its first overseas office in the
bank’s 107 year history. The purpose of the branch is to manage its
foreign reserves and monetary policy.
2. Rising Importance of Asia Pacific Currencies

According to the 2012 Singapore Asset Management Industry Survey
conducted by the Monetary Authority of Singapore, total assets
managed by Singapore-based asset managers that responded to
the survey grew by 21.5 percent to SGD1.63 trillion at end-2012
compared to SGD1.34 trillion at end-2011. This represents a five-year
average Assets Under Management (AUM) growth rate of 9 percent
per annum, underscoring the resilience and dynamism of the fund
management industry in Singapore.
The survey further showed that the Asia Pacific region continued to
be the key investment destination for Singapore-based asset managers,
accounting for 70 percent of total AUM in 2012, an increase from 60
percent in 2011. This showed strong investor interest in the region.
In February 2014, PricewaterhouseCoopers predicted that AUM
in the Asia Pacific region would rise to USD16.2 trillion by 2020,
from a 2012 total of USD7.7 trillion. This represents a compound
annual growth rate (CAGR) of 9.8 percent, and compares favourably
against Europe and North America which are expected to experience
a CAGR of 4.4 percent and 5.1 percent respectively, although both
come from a much higher AUM base.
17
3. Singapore as an Offshore Renminbi (RMB) Hub

There were three announcements in 2013 that cemented Singapore
as a top contender in offshore yuan trading.
• In March 2013, China and Singapore doubled a currency swap

agreement to 300 billion yuan, the second largest amount for
offshore hubs, trailing behind that of Hong Kong’s 490 billion
yuan. A currency swap facility allows central banks to exchange
currencies with one another. This meant the Monetary Authority
of Singapore could obtain yuan funding from the People’s Bank
of China and to provide it to local banks as an emergency source
of liquidity.
• In May 2013, Singapore became the third offshore yuan-clearing

hub after Hong Kong in 2004 and London in 2011. ICBC Singapore,
which was designated as the yuan clearing bank in Singapore,
reported that 49 banks from Singapore and elsewhere opened
accounts with it to become participating banks. It cleared 53
transactions worth a total of 1.61 billion yuan on the first day
of trading. A mere 7 months later, the volume reached about 2.6
trillion yuan by the end of 2013. In the first 2 months of 2014,
the amount swelled to 4.2 trillion yuan.
• In October 2013, China and Singapore agreed to allow direct

trading between their currencies. This meant that the Singapore
dollar became the fifth currency to have direct trading links with
the Chinese yuan, trailing only the US dollar, the Japanese yen,
the Australian dollar and the British pound.
In March 2014, Assistant Managing Director of the Monetary

Authority of Singapore, Mr Leong Sing Chiong announced that
Singapore’s total yuan deposits as of end-December 2013 stood at
RMB200 billion, a 70-percent increase over deposit levels a year
earlier.
18
Retail Forex
Now that we have pretty much covered the global Forex landscape,
key markets and institutional volumes, let’s take a look at a segment
that impacts you and I more – the retail Forex arena.
One highlight of the BIS survey was the inclusion of retail data.
For the first time, the FX survey included statistics of retail volumes,
and measured primary dealer volumes with retail-driven counter
parties. This volume is primarily liquidity that was being sourced
for brokers targeted for retail order flow. The survey indicated that
USD185 billion, or 3.5 percent of the USD5.3 trillion daily volume,
was retail flow. According to another recent Forex survey conducted
at over 30 Forex brokers worldwide:
• Fifty two percent of the respondents expect the Meta Trader 4

(MT4) platform to remain as the trading platform most commonly
used by traders.
• Seventy eight percent mentioned that social trading would be a
sustainable trend in the years to come.
Social trading allows traders to trade online with the help of

others. It shortens the learning curve because traders can interact
with others, watch others take trades, then duplicate their trades and
learn what prompted the top performer to take a trade in the first
place. By trade copying, traders can learn which strategies work and
which do not, without risking their entire portfolio.
With the dawning of the age of social media, it was probably
only a matter of time before social trading exploded onto the retail
Forex world. With over 1.3 billion monthly Facebook users at the
end of 2013, I believe social trading is fast becoming a mainstay in
the Forex trading world.1
The entire social trading industry is currently estimated to host
about 235,000 users, with a combined total of USD240 million of
customer funds. In fact, over a five-year period, 600,000 clients used
1
http://www.statisticbrain.com/facebook-statistics/
19
social trading, and the largest markets are Japan, which accounts for
30 percent of the entire social trading market, Europe and Russia,
representing 15 percent each.
Future Trends
The sharp rise in FX activity over the years is attributed to three
main factors:
• Market volatility
• Acceptance of Forex as an asset class
• Global distribution of the product
In March 2014, Bloomberg published an article reporting that

74 percent of global currencies trading volume had been executed
through electronic systems in 2013. The research was conducted by
Greenwich Associates. Notably, even banks are shifting more activity
onto electronic platforms as profit margins shrink and clients demand
greater transparency in pricing and transaction charges. The move
has been hastened by a widening probe of the market that has seen
the dismissal or suspension of more than 21 currency traders from
the world’s biggest foreign exchange traders, including Deutsche
Bank AG and Citigroup Inc. The Greenwich report also found that
retail brokers contributed to most of the expansion in electronic
trading as volume rose to 98 percent in 2013 from 92 percent the
year before.
Over the next few years, I expect the volume of retail Forex
trading to rise even further. The markets that will rapidly gain market
share include Latin America, the Middle East, Asia and Africa. The
market that will record the biggest drop in volume would be USA.
The primary reason for this would be the tight regulatory capital
requirements meted out on Forex brokers by the industry watchdog,
the National Futures Association (NFA).
As legendary ice hockey champion Wayne Gretzky once said, “I
don’t go to where the puck is. I go to where the puck may be.” The
‘Forex puck’ is going to be in Latin America, the Middle East, Asia
20
and Africa. If you are in any of these regions, you are smack in the
middle of all the trading action!
Summary
Human beings are emotional creatures and money is an emotional

topic. It is no wonder that Forex – the largest ‘money market’ in the
world – holds such an attraction to folks like you and me. The global
Forex market today trades an astounding USD5.3 trillion a day, more
than 170 times the volume of the New York Stock Exchange. As
much as USD185 billion, or 3.5 percent of the daily Forex turnover
is attributed to retail trading.
The sharp rise in FX activity over the years is attributed to three
main factors:
• Market volatility
• Acceptance of Forex as an asset class
• Global distribution of the product
These factors make Forex a force to be reckoned with in the financial

world, and volume is certain to increase over the next few years.
References
Bruner, J. S. & Goodman, C. C. (1947). Value and need as organising

factors in perception. Journal of Abnormal and Social Psychology,
42, 33-44.
Furnham, A. (1983). Inflation and the estimated sizes of notes. Journal
of Economic Psychology, 4, 349-52.
Gamble, A., Garling, T., Charlton, J. & Ranyard, R. (2002). Euro-
illusion: Psychological insights into price evaluations with a unitary
currency. European Psychologist, 7, 302-11.
Lea, S. E. G., & Webley, P. (2006). Money as tool, money as drug:
The biological psychology of a strong incentive. Behavioral and
Brain Sciences, 29(02), 161-209.
21
C hapter 2
Key #2:
Why Trade Forex?
“A man always has two reasons for doing anything:

a good reason and the real reason.”
J. P. Morgan
Before we delve into the advantages of trading Forex, let’s look at

some simple concepts first.
Reading a Forex Quote

The eight most commonly traded currencies are:
1. USD (US dollar)

2. EUR (Euro)
3. GBP (British pound)
4. AUD (Australian dollar)
5. JPY (Japanese yen)
6. CHF (Swiss franc)
7. CAD (Canadian dollar)
8. NZD (New Zealand dollar)
22
why trade forex?
The eight most commonly traded currencies form the seven major
currency pairs. These seven majors dominate the Forex market in
terms of traded volume. These seven major currency pairs are:
1. EUR/USD – Euro vs. US dollar

2. USD/JPY – US dollar vs. Japanese yen
3. GBP/USD – British Pound vs. US dollar
4. AUD/USD – Australian dollar vs. US dollar
5. USD/CHF – US dollar vs. Swiss franc
6. USD/CAD – US dollar vs. Canadian dollar
7. NZD/USD – New Zealand dollar vs. US dollar
Forex prices are quoted in currency pairs, and almost always in four
decimal places. For example, if a Forex quote is given as GBP/USD
= 1.6550, then the currency on the left is termed the ‘base currency’
while the currency on the right is termed the ‘counter currency’. The
base currency always has a value of 1.
In this example, the British pound (GBP) is the base currency
while the US dollar (USD) is the counter currency. This is how we
would read the Forex quote:
“GBP 1 is equivalent to USD1.6550 at that point of time.”
This Forex quote tells us two things. Firstly, if a trader is keen to
purchase 1 unit of the base currency, he would have to pay USD1.6550
to buy GBP1. On the other hand, if a trader is keen to sell 1 unit of
the base currency, he would receive USD1.6550 for selling GBP1.
Secondly, it is important for us to take note that the exchange rate
will always fluctuate with changing market conditions. At any time,
the pound can weaken or strengthen against the dollar. For example,
if the GBP/USD quote moves up from 1.6550 to 1.6580, it tells us
that the pound is strengthening against the dollar. If, however, the
GBP/USD quote moves down from 1.6550 to 1.6475, it tells us that
the pound is weakening against the dollar.
23
then he would have to pay USD1.6550 to buy GBP1. On the other hand, if a trader is keen to sell 1 unit of
the base currency, then he would receive USD1.6550 for selling GBP1.
Secondly, it is important for us to take note that the exchange rate will always fluctuate with
changingUNLOCKING THE WORLD’S
market conditions. LARGEST
At any time, FINANCIal
the pound secret
can weaken or strengthen against the dollar. For
example, if the GBP/USD quote moves up from 1.6550 to 1.6580, it tells us that the pound is
strengthening against the dollar. If, however, the GBP/USD quote moves down from 1.6550 to 1.6475, it
Long and Short
tells us that the pound is weakening against the dollar.
The objective of Forex trading is to exchange one currency for another
Long andinShort
the expectation that the price will change, so that the currency you
The objective of Forex
bought willtrading is to exchange
increase in value onecompared
currency for to
another in theyou
the one expectation
sold. that the price will
change, so that the currency you bought will increase in value compared to the one you sold.
If you go ‘Long’ on GBP/USD, you are expecting the value of
If you go ‘Long’ on GBP/USD, you are expecting the value of the GBP to rise against the USD. This
is shown in theGBP
the figureto rise(Figure
below against2.1),the USD.
where Thisbuys
the trader is shown
GBP/USD in the figure
first in belowof it rising
anticipation
later. (Figure 2.1), where the trader buys GBP/USD first in anticipation of
it risingLong
Remember: later.= Buy.
Remember: Long = Buy.
Sell later
Buy first
Figure 2.1 Long Trade
Figure 2.1 Long Trade

Source: Created with FX Primus Ltd. All rights reserved.
If you go ‘Short’ on USD/CHF, you are expecting the value of
the go
If you USD to on
‘Short’ fall against the
USD/CHF, CHF.
you are Thisthe
expecting is shown
value of thein USD
the figure belowthe CHF.
to fall against
This is shown
(Figurein the figurewhere
2.2), below (Figure 2.2), where
the trader sells the trader sells first
USD/CHF USD/CHF first in anticipation
in anticipation of of it
falling later..
it falling later.
Remember: Short = Sell.
Remember: Short = Sell.
24
why trade forex?
Sell first
Buy later
Figure 2.2
Figure 2.2 Short
Short Trade
Trade
PipSpread
Pip and Pip and Pip Spread
Pip stands for ‘price interest
Pip stands point’. interest
for ‘price It is the unit of measurement
point’. to express
It is the unit the change in value
of measurement to between
two currencies. Let’s say that the current EUR/USD price is 1.3765. If the price rises to 1.3766 or falls to
express the change in value between two currencies. Let’s say that
1.3764, this is a movement of 0.0001, or 1 pip. One pip is thus the smallest change in value for any given
theHere
Forex quote. current EUR/USD
are some examples: price is 1.3765. If the price rises to 1.3766 or
•
fallsthetoGBP/USD
When 1.3764,quote
this moves
is a movement
up from 1.6565ofto0.0001,
1.6587, it isora movement
1 pip. One
of 22pip
pips.is
thus the smallest change in value for any given Forex quote. Here
• When the GBP/USD quote moves down from 1.6565 to 1.6460, it is a movement of 105 pips.
are some examples:
• When the USD/JPY quote moves up from 102.73 to 103.27, it is a movement of 54 pips.
• When the USD/JPY quote moves down from 102.73 to 101.63, it is a movement of 110 pips.
• When the GBP/USD quote moves up from 1.6565 to 1.6587, it
• When is
theaAUD/USD quote
movement of moves up from 0.9120 to 0.9187, it is a movement of 67 pips.
22 pips.
• When the AUD/USD
• When quote moves
the GBP/USD down moves
quote from 0.9120
downto 0.9085,
fromit1.6565
is a movement of 35 pips.
to 1.6460,
it is a movement of 105 pips.
Pipette
• When
Many brokers the USD/JPY
today extend quote
Forex quotes beyondmoves up from
the standard four 102.73 to 103.27,
decimal places it is
to five. For example, a
broker couldaquote
movement
USD/CAD of as
541.00583.
pips. If the USD/CAD quote rises to either 1.00584 or falls to
1.00582,•
the When
movement is termed
the 1 pipette.
USD/JPY quoteThe moves
value of 1down
pipette from
is 0.1 pip.
102.73 to 101.63,
Bid/Ask Spread
• When the AUD/USD quote moves up from 0.9120 to 0.9187, it
All Forex quotes include a two-way price, the bid and the ask. The bid is the price in which the dealer is
willing to buyisthe
a movement
base currency of 67 pips.for the counter currency. This means the bid is the price at
in exchange
• When the AUD/USD quote moves down from 0.9120 to 0.9085,
which you, the trader, will sell.
25
Pipette
Many brokers today extend Forex quotes beyond the standard four
decimal places to five. For example, a broker could quote USD/
CAD as 1.00583. If the USD/CAD quote rises to either 1.00584 or
falls to 1.00582, the movement is termed 1 pipette. The value of 1
pipette is 0.1 pip.
Bid/Ask Spread
All Forex quotes include a two-way price, the bid and the ask. The
bid is the price in which the dealer is willing to buy the base currency
in exchange for the counter currency. This means the bid is the price
at which you, the trader, will sell.
Remember: Bid price = Price you sell.
Remember:The Bidask is =
price the price
Price youatsell.which the dealer will sell the base currency
The ask is the pricefor
in exchange at which the dealer
the counter will sell This
currency. the base currency
means in exchange
the ask for the counter
is the price
currency. This means the ask is
at which you will buy. the price at which you will buy.
Remember: Ask price = price you buy.
Remember: Ask price = price you buy.
Figure 2.3 Currency Quotes on Market Watch Tab

Figure 2.3 Currency Quotes on Market Watch Tab
26
From the picture above (Figure 2.3), you will notice that there is a difference between the bid and the
ask price. This difference is called the pip spread. Regardless of whether you buy or sell, you will incur a
why trade forex?
From the picture above (Figure 2.3), you will notice that there
is a difference between the bid and the ask price. This difference is
called the pip spread. Regardless of whether you buy or sell, you will
incur a spread. This is the fee that the broker charges, which can be
considered a cost of trading.
Let’s put it all together now.
If you think New Zealand will do better than the United States
in terms of economic growth, you would execute a Long NZD/USD
order. By doing so, you have bought Kiwi dollars in the expectation
that they will rise against the US dollar. If you believe the New Zealand
economy will do worse than the US economy, you would execute a
Short NZD/USD order. By doing so, you have sold Kiwi dollars in
the expectation that they will fall against the US dollar.
In the picture below (Figure 2.4), regardless of whether you click
buy or sell, you would incur a spread of 2 pips.
Figure 2.4 Order Window

Figure 2.4 Order Window
If executed
If you you executed a Longtrade
a Long NZD/USD NZD/USD
and the pricetrade and the
of NZD/USD rises,price of NZD/
you would make money.
If prices
USD fall,rises,
you’d lose
youmoney.
wouldIf you executed
make a ShortIfNZD/USD
money. tradeyou’d
prices fall, and thelose
price money.
of NZD/USD
drops, you would make money. If prices rise, you’d lose money.
If you executed a Short NZD/USD trade and the price of NZD/USD
Threedrops,
Points inyou
Everywould
Trade make money. If prices rise, you’d lose money.
When you execute a position, there are essentially three points in every trade: entry price, profit target and
stop loss. The entry price is defined as the price at which a trade is triggered. The profit target is defined as
the price where the trade exits with a profit. The stop loss is defined as the price where the trade exits with a
loss. Let’s use an example for both a long and a short position.
27
Long Position
Let’s take the current EUR/USD price as 1.3745. Because you expect the euro to appreciate against the
UNLOCKING THE WORLD’S LARGEST FINANCIAL SECRET
Three Points in Every Trade

When you execute a position, there are essentially three points in
every trade: entry price, profit target and stop loss. The entry price
is defined as the price at which a trade is triggered. The profit target
is defined as the price where the trade exits with a profit. The stop
loss is defined as the price where the trade exits with a loss. Let’s
use an example for both a long and a short position.
Long Position
Let’s take the current EUR/USD price as 1.3745. Because you expect
the euro to appreciate against the U.S. dollar, you enter into a long
position. You decide to take a profit of 30 pips and a stop loss of 30
pips. Once these values are locked down in the broker’s platform,
only two things can happen: the trade will hit either the profit target
or the stop loss. In this example:
Entry price = 1.3745

Stop loss = 1.3715
Profit target = 1.3775
Figure 2.5 reflects this trade.
Buy
Buy =Long
= Long
Profit Target
1.3775
Entry Price
1.3745
Stop Loss
1.3715
FigureFigure
2.5 Concept
2.5 Concept ofofa Long
a Long
Trade Trade
28
1.3775
Entry Price
WHY TRADE FOREX?
1.3745
For a long Stop

position,
Loss the profit target is located above the entry price
while the stop loss is located below the entry price. In this example,
1.3715
you take an equal amount of pips for the exit: 30 pips above the
entry price and 30 pips below the entry price. When a trade reflects
an equal distance between the entry price and the profit target and
between the entry price and the stop loss, the trade is said to have
a risk-to-reward ratio of 1:1. Figures 2.6 and 2.7 show an actual
progression of a long trade
Figure 2.5that tookof profit.
Concept a Long Trade
Figure
Figure 2.6 Enter
2.6 Enter for for
LongLong Position
Position
Source:Created
Source: Created with
with FX
FXPrimus
PrimusLtd.
Ltd.All
Allrights
rightsreserved.
reserved.
For a long position, the profit target is located above the entry price while the stop loss is located
below the entry price. In this example, you take an equal amount of pips for the exit: 30 pips above the
29
entry price
entry and
price and3030pips
pipsbelow
belowthetheentry
entry price.
price. When trade reflects
When a trade reflectsananequal
equaldistance
distancebetween
between thethe entry
entry
price
price and and
thethe profittarget
profit
UNLOCKING targetTHE
andWORLD’S
and betweenthe
between the entry
entry price
LARGEST and
and the
FINANCIAL stop
stoploss,
theSECRET loss,the
thetrade
tradeisissaid
saidtotohave a risk-to-
have a risk-to-
reward
reward ratio
ratio ofof 1:1.Figures
1:1. Figures2.6
2.6and
and2.7
2.7show
showanan actual
actual progression
progressionofofaalong
longtrade
tradethat
thattook
took profit.
profit.
Figure 2.7 Exit with a Profit

Figure
Source: Created FX Exit
with2.7 with
Primus a Profit
Ltd. All rights reserved.
Source: Created with 2.7
Figure FX Exit
Primus Ltd.
with All rights reserved.
a Profit
Figures 2.8 and 2.9Source:
Figures 2.8
showand
anCreated
actual with
show FXan
Primus
2.9 progression actualLtd.
of a long All rights
progression
trade reserved.
that hit aof a loss.
stop long trade
Figures that hit2.9
2.8 and a stop
show loss.
an actual progression of a long trade that hit a stop loss.
Figure 2.8 Enter for Long Position

30
WHY TRADE FOREX?
Figure
Figure2.9
2.9Exit
Exit with
with aa Stop
Loss Loss
Short PositionShort Position

Let’s take theLet’s take
current the current
AUD/USD price AUD/USD
as 0.9290. Youprice
expectasthe
0.9290. You
Australian expect
dollar to fallthe
against the US
dollar; hence,Australian
you enter into a short position.
dollar to fall against the US dollar; hence, you enter into
You decide to take a profit of 60 pips and a stop loss of 30 pips. Once these values are locked down in
a short position.
the broker’s platform, only two things can happen: the trade will hit either the profit target or the stop loss.
You decide to take a profit of 60 pips and a stop loss of 30 pips.
In this example:
Once these values are locked down in the broker’s platform, only
Entry price
two =things
0.9290can happen: the trade will hit either the profit target or
Stop loss
the=stop
0.9320
loss. In this example:
Entry price = 0.9290
Figure 2.10Stop
reflects
lossthis
= trade.
0.9320
Figure 2.10 reflects this trade.
31
Sell = Short
Stop Loss
Sell = Short
0.9320
Stop Loss
Entry Price
0.9320
0.9290 Entry Price
0.9290
Profit Target
Profit Target
0.9230
0.9230
Figure 2.10 Concept

Figure 2.10 Concept ofof a Short
a Short Trade Trade
For a short position, the profit target is located below the entry price while the stop loss is located
above the entry price. In this example, you set a 30 pip stop loss but a profit target of 60 pips. This is termed
For
a 1:2arisk-to-reward
short position, Figure 2.10
ratio. the Concept
profit target of a Short is located
Trade below the entry
price while the stop loss is located above the entry price. In this
Figures 2.11 and 2.12 show an actual progression of a short trade that took profit.
Figures 2.13 and 2.14 show an actual progression of a short trade that hit a stop loss.
For a short
example, you profit
position, the set a target
30 pip is located
stop loss below buttheaentryprofit price whileof
target the60
stoppips.
loss is located
above the entry price.
This is In this example,
termed you set a 30 pip stop
a 1:2 risk-to-reward ratio.loss but a profit target of 60 pips. This is termed
a 1:2 risk-to-reward ratio.
Figures 2.11 and 2.12 show an actual progression of a short trade
Figures 2.11 and 2.12 show an actual progression of a short trade that took profit.
that took profit.
Figures 2.13 and 2.14 show an actual progression of a short trade that hit a stop loss.
Figure 2.11 Enter for a Short


Figure
Source: Created with 2.11 Enter for
FX Primus a Short
32
WHY TRADE FOREX?
Figure 2.12 Exit with a Profit

Figure
Source: Created with2.12 Exit with
FX Primus Ltd.aAll
Profit
rights reserved.
Source: Created with2.12
Figure FX Primus Ltd.a Profit
Exit with All rights reserved.
FiguresSource:
2.13 and 2.14 show an actual progression of a short trade
Created with FX Primus Ltd. All rights reserved.
that hit a stop loss.

Source: Created
Figurewith
2.13FX Primus
Enter for aLtd. All rights reserved.
Short
Figure
Source: Created 2.13
with FX Enter
Primus for
Ltd. Allarights
Shortreserved.
33
Figure 2.14 Exit with a Loss

Source: Created Figure
with FX2.14 Exit
Primus with
Ltd. All arights
Loss reserved.
The greatest lesson in this segment is this: always put a stop loss
The greatest lessontrade.
for every in this For
segment
mostis this: always
traders, put a stop
having loss for
a profit every is
target trade. For most traders,
second
having a profit target is second nature, but hardly anyone thinks about putting a stop loss. The purpose of a
nature, but hardly anyone thinks about putting a stop loss. The
stop loss is simple yet critical. It is essentially a level that tells you to exit the trade with an acceptable loss
purpose of a stop loss is simple yet critical. It is essentially a level
because the trade is not going your way.
that tells you to exit the trade with an acceptable loss because the
Far too many times in my career as a trader and coach, I have seen countless traders blow up their
accounts simplytrade is not
because going
they refuseyour way.
to put a stop loss for every trade. When it comes to trading the Forex
Far too many times in
market, we will never be right all the time. The my careerof as
purpose a trader
a stop loss is toand
helpcoach, I have
us, not harm us. Traders run
seen countless
the risk of blowing traders
up their entire accountblow up their
by leaving accounts
a trade simply
‘naked’ (i.e. because
without theyDo not adopt
a stop loss).
this practice. refuse to put a stop loss for every trade. When it comes to trading the
Interestingly
Forexenough,
Market, thewegroup
willofnever
tradersbe who blow
right allupthe
their accounts
time. by not placing
The purpose of a a stop loss is
also the group that walks away from the Forex market thinking that it’s risky.
stop loss is to help us, not harm us. Traders run the risk of blowing
up their entire account by leaving a trade ‘naked’ (i.e. without a stop
ADVANTAGES OF TRADING THE FOREX MARKET
loss). Do not adopt this practice.
Interestingly
There are many advantages enough,
of trading theMarket.
the Forex groupHere
of traders who
are the top blow up their
13 reasons:
accounts by not placing a stop loss is also the group that walks away
1. 24-hourfrom the Forex Market thinking that it’s risky.
Market
Unlike any other financial market, the Forex Market is open 24 hours, 5 days a week. There is no waiting
for the opening bell. This is ideal for those who want to trade either part- or full-time because you can
choose whichever time to enter the market; whether it’s morning, afternoon, evening or in the wee hours.
Trading starts in Sydney, Australia on Monday348am Sydney time (GMT+10). As the day progresses,
other regions join in. Some of the major players in Asia include Tokyo, Singapore and Hong Kong. After
trading hours in Asia come to an end, the Middle East enters the market, followed by Europe where
WHY TRADE FOREX?
ADvANTAGES OF TRADING THE FOREX mARKET
There are many advantages of trading the Forex Market. Here are
the top 13 reasons:
1. 24-hour Market
Unlike any other financial market, the Forex Market is open 24 hours,
5 days a week. There is no waiting for the opening bell. This is ideal
for those who want to trade either part- or full-time because you can
choose whichever time to enter the market; whether it’s morning,
afternoon, evening or in the wee hours.
Trading starts in Sydney, Australia on Monday 8am Sydney time
(GMT+10). As the day progresses, other regions join in. Some of
the major players in Asia include Tokyo, Singapore and Hong Kong.
After trading hours in Asia come to an end, the Middle East enters
the market, followed by Europe where London, the world’s Forex
centre, joins in. This is then followed by the Americas, with the USA
as the major player. After the Americas it’s back to Australia where
the cycle starts all over again.
On a time scale, the trading action starts at 8am Sydney time
on Monday morning all the way to 5pm New York time (GMT-4)
on London,
a Friday evening.
the world’s Forex centre, Thisjoins in.ensures
This is then that
followedyou
by thenever
Americas, have
with the to
USAbe left
as the
out of the market in an event of a data release or a breaking news
major player. After the Americas it’s back to Australia where the cycle starts all over again.
On a time scale, the trading action starts at 8am Sydney time on Monday morning all the way to 5pm
announcement.
New York time (GMT-4) on a Friday evening. This ensures that you never have to be left out of the market
in an event of a data release or a breaking news announcement.
TheThefigure below shows the overlapping regions of the 24-hour
figure below shows the overlapping regions of the 24-hour Forex Market.
Forex Market.
Figure 2.152.15
Figure Forex Market
Forex Market Hours
Hours
2. Low Transaction Costs

The retail transaction cost, more commonly known35
as the bid/ask spread, is typically less than 0.05 percent
of the transaction amount under normal market conditions.
Here is an example of a broker who charges 2 pips spread for EUR/USD. If the current price for
2. Low Transaction Costs

The retail transaction cost, more commonly known as the bid/ask
spread, is typically less than 0.05 percent of the transaction amount
under normal market conditions.
Here is an example of a broker who charges 2 pips spread for EUR/
USD. If the current price for EUR/USD is now 1.3655, the cost is:
0.0002
x 100 = 0.01 percent
1.3655
There is no other fee to pay. No commissions. No clearing fees. No

exchange fees. No government fees and no brokerage fees. Brokers
are only compensated through the bid/ask spread.
Equity and commodity markets all charge commissions in one
form or another. The fee is normally between 0.25 percent and 0.35
percent of the transaction amount, which is already 25-35 times
more than a Forex transaction. Futures markets fare no better, often
charging the client fees to view live market prices.
3. No Fixed Lot Size

In the futures markets, lots or contract sizes are determined by the
exchanges. For example, the lot size for a copper futures contract
on the London Metal Exchange (LME) is 25 tonnes. The lot size for
a Gold futures contract on the Commodity Exchange (COMEX) is
100 troy ounces.
In Forex, you determine your own lot size. You can trade 0.17
lots, 6.4 lots or 200 lots. It’s up to you.
4. High Liquidity
The Forex Market has a daily average turnover of USD5.3 trillion.
As the most heavily traded financial market in the world, it is also the
most liquid. With so many market participants trading every hour of
every day, you will always find a ready buyer or seller regardless of
transaction size. This means that under normal market conditions,
you can instantly enter into a long or short position with a click of
36
WHY TRADE FOREX?
the mouse.
The heaviest volumes of trade occur during the European afternoon
sessions, when there is an overlap of the US session as it starts to
enter the market. This overlap often attracts a lot of buying and
selling from traders.
Exiting a trade anytime is also easy. You are never ‘stuck’ in a
trade. You
4. canHigheven set your online trading platform to automatically
Liquidity
The Forex Market has a daily average turnover of USD5.3 trillion. As the most heavily traded financial
close your position at your desired profit level (a limit order), and/or
market in the world, it is also the most liquid. With so many market participants trading every hour of
close a trade if you
every day, a trade is going
will always against
find a ready buyer oryou
seller(a stop of
regardless loss order).
transaction size. This means that under
normal market conditions, you can instantly enter
The immense liquidity available in the Forex Market means into a long or short position with a click of the mouse.
The heaviest volumes of trade occur during the European afternoon sessions, when there is an overlap
everyoneof the
hasUSan equal
session chance
as it starts to enterof
the making
market. Thismoney,
overlap oftenwhether
attracts a lotyou’re
of buying and selling from
trading $5,000
traders. or $10 million.
Exiting a trade anytime is also easy. You are never ‘stuck’ in a trade. You can even set your online
trading platform to automatically close your position at your desired profit level (a limit order), and/or
5. Highclose
Leverage
a trade if a trade is going against you (a stop loss order).
Famed GreekThe immense liquidity available
mathematician in the Forex
Archimedes Market
once means
said, everyone
“Give mehasaanplace
equal chance of making
money, whether you’re trading $5,000 or $10 million.
to stand and a lever long enough and I will move the entire world.”
Archimedes5. wasLeverage
High talking about leverage. Put simply, leverage means
Famed Greek mathematician Archimedes once said, “Give me a place to stand and a lever long enough and
“doing more with less”.
I will move the entire world.” Archimedes was talking about leverage. Put simply, leverage means “doing
In Forex,
more withyouless”.can utilise leverage to control a relatively larger
contract value with ayousmall
In Forex, can utilise leverageLeverage
deposit. to control agives
relatively
thelarger
trader contract
the value with a small deposit.
ability
Leverage gives the trader the ability to make good profits while at the same time keeping the risk capital to
to make agood profi
minimum. Fortsexample,
while ifatyou thetrade
same withtime keeping
a 100:1 the
leverage, it riskthat
means capital to deposit would
a USD1,000
a minimum. For example, if you trade with a 100:1 leverage, it meansof 1 percent, since
enable you to buy or sell USD100,000 worth of currencies. This is also called a margin
USD1,000 is 1 percent of the contract size of USD100,000. As a comparison, traders in the futures market
that a USD1,000 deposit would enable you to buy or sell USD100,000
must post margin equal to between 5-8 percent of the contract value while stock traders typically must post
worth ofat currencies. This is also called a margin of 1 percent, since
least 50 percent margin.
USD1,000 is 1 percent of the contract size of USD100,000. As a
comparison, traders
in the futures market
must post margin
equal to between
5-8 percent of the
c on t ra c t v a l ue
while stock traders
typically must post
at least 50 percent
margin.
37
6. Market Transparency
When governments, central bank chiefs, or finance ministers make
economic/monetary policies that affect currencies, the announcements
are readily available on almost every media imaginable within a few
minutes. The bonus is that in most cases, warning signals or hints
about future actions are dropped in advance. Here’s an example: On 4
August 2011, the Bank of Japan (BOJ) sold 4.5 trillion yen to weaken
its currency. This caused the USD/JPY to shoot up 300 pips in one
day. On 31 October 2011, Japan intervened again, selling a record 8
trillion yen. This move caused the yen to plunge more than 4 percent
and caused the USD/JPY to shoot up over 350 pips in just 3 hours.
The fact of the matter is this: Prior to the interventions, BOJ
governor Masaaki Shirakawa and the then finance ministers—
Yoshihiko Noda on 4 August and Jun Azumi on 31 October—had
been preparing the markets for the move weeks before they acted.
They had dropped strong hints of an upcoming intervention to
combat one-sided speculative trades on the Japanese yen. The reason
why they were so transparent with their intentions was to signal the
traders to stand on the same side as them and collectively go long
on USD/JPY.
When traders participate in a coordinated action, chances of a
sustainable rally become higher, and the central bank will not have
to spend as much money to weaken the currency in question. Market
transparency in stocks or commodities, however, is a lot lower. For
example, no large institution will signal its intention to acquire a
stock at a certain price. If word gets out and traders take part in a
similar coordinated action and start bidding up the stock price, the
stock would become more expensive for the institution to acquire.
As shown in this report:
“Finance Minister Yoshihiko Noda said that the yen is ‘strongly

overvalued’ and made it clear he has been in touch with
overseas authorities on currency matters, fuelling speculation
the government may act to stem the yen’s steady rise.” – Wall
Street Journal, 2 August 2011
38
why trade forex?
7. Total Convenience
All you need to get started in trading Forex is two things: a laptop
and an Internet connection. It doesn’t matter if you prefer the pulse
of Wall Street or the balmy beach in Bali. In fact, with the latest
innovations in technology, you can be plugged into the market from
your favourite mobile device, including smart phones or tablets.
Gone are the days when traders needed to be seated in front of the
laptop or the desktop watching six screens. With mobile devices,
trading on the go has never been easier. This convenience allows
you to access prices and charts at your fingertips without missing
another trade again.
8. Starting Small
Many brokers today offer minimum account deposits of only USD100.
Some are even lower. This makes Forex much more accessible to the
average individual who doesn’t have a lot of start-up capital. The
low minimum deposit is a big factor which draws in new traders.
Additionally, almost all brokers offer ‘mini’ and ‘micro’ trading
accounts. A mini account allows you to trade position sizes as small
as 10 cents per 1 pip movement. A micro account allows you to trade
position sizes as small as 1 cent per 1 pip movement. This allows
you to effectively control your risk even if you are not starting with
much money.
9. Profiting from a Bull/Bear Market

In Wall Street language, a bull market is a market that is heading
up. A bear market is one that is heading down. Compared to the
stock market, the Forex Market has no structural bias. For example,
most stock markets have a bullish bias. This means traders tend to
like the long side or upside of the market more. If you were looking
at a particular stock that you believed was a good investment, you
would buy the stock. In most countries, the ability to short a stock
or commodity is either non-existent or has severe limitations.
In Forex, it is equally easy to buy or sell at anytime and there is
never any increased fee for selling short. This is because in any trade,
39
you are actually buying a currency and simultaneously selling another.

If you go long on USD/JPY, you are selling yen and buying dollars at
the same time. The ability to buy or sell at any time with no penalties
is a huge advantage that Forex has over other markets.
10. No Manipulation
Many people have the erroneous idea that the Forex Market is rigged
or that it can be controlled by some large institutions. The truth is,
no single entity can influence prices for an extended period of time
– central banks included.
During the Global Financial Crisis of 2008, huge capital was
moving into Switzerland because of the franc’s reputation as a safe
haven. This caused the franc to rise substantially, particularly against
the euro, and threatened an already weakened Swiss economy with
deflation. As a result, the Swiss National Bank (SNB) had to intervene
in the currency markets by buying huge amounts of foreign currencies
to edge the Swiss franc lower and bring it back to normal levels.
In July 2010, the SNB revealed the cost of its massive foreign
exchange interventions to restrain the value of the franc. It had lost
more than 14 billion Swiss francs in the first half of 2010. At the
same time, the SNB announced that it had stopped intervention
and allowed the franc to appreciate. The official reason given was
because deflationary risks from the surging currency had declined.
However, many economists debated that it was due to the risks from
the massive foreign currency holdings that the central bank held.
Indeed, if a central bank can lose billions in market intervention
and fail, it gives hope to us as individual traders that no amount of
manipulation can sway the currency market.
11. Free Accounts, Tools and Software

Most online Forex brokers offer demo accounts to practice trading,
along with breaking Forex news and charting service. All free! A demo
account means two things: You trade with fake money but prices are
LIVE. These are very valuable resources for traders who would like
to hone their trading skills with ‘play’ money before opening a live
40
WHY TRADE FOREX?
trading account and risking real money.
12. Recession-proof
There are not many recession-proof businesses out there. Here are
a few:
• Sweepstakes/lottery (In good times, the lines are long. In bad

times, the lines are longer!)
• Hospitals
• Funeral parlours
The Forex Market is considered recession-proof simply because it is

not susceptible to market cycles. Businesses have cycles, stock markets
have cycles and property markets have cycles too. In Forex, simply
because we trade in currency pairs, there is always an opportunity
for one currency to strengthen over another. In other words, there is
never a bad time to trade the Forex Market.
13. Earn Big

If the counter currency is the US dollar, 1 pip is always worth USD10
per lot.
13. Earn Big
If the counterThis is an
currency example
is the US dollar,of1 how I made
pip is always USD2,250
worth in a single trade by
USD10 per lot.
going
This is an long
exampleonof the
how IEUR/USD.
made USD2,250 in a single trade by going long on the EUR/USD.
Figure 2.15 Long EUR/USD Trade with 255 Pips Profit

Figure 2.15
Source: Longwith
Created EUR/USD Trade
FX Primus Ltd.with 255 Pips
All rights Profits
reserved.
41
This is an example of how I made USD6,170 in a single trade by going short on the AUD/USD.
Figure 2.15 Long EUR/USD Trade with 255 Pips Profits

This is an example of how
Source: Created I made
with FX USD6,170
Primus Ltd. in a single trade by
going short on the AUD/USD.
This is an example of how I made USD6,170 in a single trade by going short on the AUD/USD.
Figure 2.16
Figure Short
2.16 ShortAUD/USD
AUD/USDTrade with617
Trade with 617 Pips
Pips Profit
Profit
Source:
Source:Created
Createdwith
with FX
FX Primus Ltd. All
Primus Ltd. All rights
rightsreserved.
reserved.
Now that we understand some of the advantages in trading this fascinating market, let’s move on to
Now
discover some of thethat we understand
important some
factors which move theof theMarket.
Forex advantages in trading this
fascinating market, let’s move on to discover some of the important
factors which move the Forex Market.
SUmmARy
The Forex Market is an ‘easier’ market to monitor compared to

stocks simply because there are only seven major currency pairs.
These are:
1. EUR/USD – Euro vs. US dollar

2. USD/JPY – US dollar vs. Japanese yen
3. GBP/USD – British pound vs. US dollar
4. AUD/USD – Australian dollar vs. US dollar
5. USD/CHF – US dollar vs. Swiss franc
6. USD/CAD – US dollar vs. Canadian dollar
7. NZD/USD – New Zealand dollar vs. US dollar
42
why trade forex?
These seven pairs are considered the most liquid pairs, which is why
they are the most heavily traded worldwide.
There are also many advantages in trading Forex. Some of these
include:
1. 24-hour market. Unlike any other financial market, the Forex

Market is open 24 hours, five days a week. There is no waiting
for the opening bell.
2. Total convenience. All you need to get started in trading Forex

is two things: a laptop and an Internet connection. You can even
be plugged into the market from your favourite mobile device.
3. Profit from a bull/bear market. The very nature of Forex trading

pairs one currency with another. At any time, one currency is
bound to strengthen over another. This gives the Forex trader an
opportunity to go long or short anytime. This is one of the reasons
many people call the Forex Market ‘recession-proof’.
43
C hapter 3
Key #3:
Factors That Move

the Forex Market
“Formal education will make you a living;

self-education will make you a fortune.”
Jim Rohn
There are essentially five factors which cause the Forex Market to
move:
1. Economic data
2. Central bank intervention
3. Natural disasters
4. Speculation
5. Political factors
Let’s explore them in detail.
44
factors that move the forex market
1. Economic Data
Countries release important economic data almost on a daily basis.
Some data are more closely watched than others. Suffice to say, markets
tend to move a lot during the news announcements, especially when
the actual data does not coincide with economists’ expectations. Let’s
take a look at the top 10 news announcements that tend to cause the
biggest movements in the Forex Market:
• Interest Rates
Central banks usually raise or lower interest rates to achieve a
particular inflation target. If the current inflation is below their
target, the bank may cut the rate to entice consumers to spend more
(given the cheaper borrowing rate), thus increasing the demand for
goods and services.
An increase in demand for goods and services would result in an
increase in inflation. Conversely, the bank may hike its rate if the
current inflation reading is above their target. Making borrowing
costs more expensive would put a curb on demand and spending.
This move ultimately lowers inflation.
When a central bank increases interest rates, the respective currency
tends to strengthen. This is because funds would flow into that
particular country in search of a higher rate of return. Conversely,
when a central bank cuts the interest rate, the currency tends to
weaken as funds exit the country in search for a higher yield (see
Figure 3.1 and Figure 3.2).
45
Figure 3.1 NZD/USD Rises 170 Pips in Less Than 24 Hours

Figure
Figure 3.1NZD/USD
3.1 NZD/USD
Source:
Rises 170
Created withRises 170Pips
FX Primus PipsininLess
Ltd. All LessThan
rightsThan 24
24Hours
reserved.Hours
Figure
Figure 3.23.2
Figure 3.2EUR/USD
EUR/USD
EUR/USD Drops
Drops 200
Drops 200 Pips
Pips
200 within
within
Pips anan
within anHour
Hour
Hour
Source:
Source:Created
Source:
Created with
Created withFX
with FXPrimus
FX PrimusLtd.
Primus Ltd.
Ltd. All
All rights
rights
All reserved.
reserved.
rights reserved.
Key
Keypoint:
point:When
Whenaacountry
countryraises
raisesinterest
interestrates,
rates,the currency
currencytends
the46 tendstotostrengthen.
strengthen.When
Wheninterest
interestrates
ratesare
are
cut, the currency tends to weaken.
cut, the currency tends to weaken.
FACTORS THAT MOVE THE FOREX MARKET
Key point: When a country raises interest rates, the currency

tends to strengthen. When interest rates are cut, the currency tends
to weaken.
• Central Bank Minutes

The central bank is the entity which is responsible for implementing
monetary policies for a nation (or in the case of the European Central
Bank, a group of nations).
These policies include but are not limited to currency stability,
stable inflation and full employment. Central banks also generally
issue currency, function as the bank of the government, regulate the
credit system, oversee commercial banks, manage exchange reserves
and act as a lender of last resort.
Monetary policy is considered to be ‘expansionary’ if it increases
the money supply or decreases the interest rate. For example, the
central bank of the USA, the Federal Reserve, boosted the money
supply to spur economic growth following the global financial crisis
of 2007-2008. They did this by buying large amounts of financial
assets beginning in November 2008 under a programme called
quantitative easing.
Monetary policy is said to be ‘contractionary’ if it reduces the
money supply or raises the interest rate. For example, on 13 March
2014, the Reserve Bank of New Zealand (RBNZ) hiked interest rates
a quarter point from 2.5 percent to 2.75 percent.
The good news for traders is that communication by the central
bank has become increasingly transparent over the past decade.
This is important not only for reasons of democratic legitimacy and
accountability but also for monetary policy to be most effective.
Central banks use many communication channels, including media
statements, press conferences, speeches, reports, and minutes. In the
case of the USA, the Federal Open Market Committee (FOMC) deals
with the media via two channels: the FOMC statement release and
the FOMC minutes. The two releases differ mainly in the amount
and timeliness of information.
The FOMC statements explain the rationale for the policy action
47
and convey the outlook for the future monetary policy stance. The
FOMC minutes provide more detailed information on the range of
committee members’ views on the appropriate policy stance, the US
economic outlook, and the near-term monetary policy inclination.
The statement is released at the moment of the target rate decision,
whereas the minutes come out three weeks after the FOMC meets. If
the FOMC minutes show a hawkish stance for the US dollar, the USD/
JPY should rally and the EUR/USD would drop. However, if there
are widespread concerns about the high level of unemployment and
low inflation with policymakers emphasising that a predetermined
course is inappropriate and future decisions should be data dependent,
the dollar will fall, effectively driving USD/JPY lower and the EUR/
USD higher.
Here’s an example of how the US dollar reacted when the FOMC
made a statement with regard to cutting stimulus from the system:
Parts of 18 December 2013 FOMC Minutes

“Taking into account the extent of federal fiscal retrenchment since the
inception of its current asset purchase program, the Committee sees
the improvement in economic activity and labor market conditions
over that period as consistent with growing underlying strength in
the broader economy. In light of the cumulative progress toward
maximum employment and the improvement in the outlook for labor
market conditions, the Committee decided to modestly reduce the
pace of its asset purchases. Beginning in January, the Committee will
add to its holdings of agency mortgage-backed securities at a pace of
$35 billion per month rather than $40 billion per month, and will
add to its holdings of longer-term Treasury securities at a pace of $40
billion per month rather than $45 billion per month…
… If incoming information broadly supports the Committee’s
expectation of ongoing improvement in labor market conditions and
inflation moving back toward its longer-run objective, the Committee
will likely reduce the pace of asset purchases in further measured
steps at future meetings.”
48
Figure 3.3 USD/JPY Shoots Up 150 Pips within 3 Hours

Figure 3.3 USD/JPY Shoots Up 150 Pips within 3 Hours
Key point:Key
Whenpoint: When the
the minutes soundminutes sound more
more hawkish, hawkish,
the currency tendsthe
to currency
strengthen. When the
minutes sound moreto
tends dovish, the currency
strengthen. tends to
When theweaken.
minutes sound more dovish, the
currency tends to weaken.
• Employment
This is another piece of data that is highly sought after by retail traders. In the US, this news is termed the
• Employment
“Non-Farm Payrolls” (NFP) and it accounts for about 80 percent of the workers who contribute to the
ThisProduct
Gross Domestic is another
(GDP).piece of data
The NFP that on
is released is highly
the first sought
Friday of after by retail
every month, and is arguably
traders. In the US, this
the most traded piece of news worldwide. news is termed the “Non-Farm Payrolls” (NFP)
andreport
The NFP it accounts for about
is a statistical data of80
thepercent
US Bureau of of
the workers
Labour whoItcontribute
Statistics. is intended to represent
the total number of paid
to the GrossUS Domestic
workers of any business,(GDP).
Product excluding the NFP
The following:
is released on the
- first
General Friday of
government every month, and is arguably the most traded piece
employees
- Privateofhousehold
news worldwide.
employees
The NFP report is a statistical data of the US Bureau of Labour
- Employees of non-profit organisations that provide assistance to individuals
Statistics. It is intended to represent the total number of paid US
- Farm employees
workers of any business, excluding the following:
These figures would indicate the number of jobs created in the preceding month. With a steady
– General
increase month by month,government
traders wouldemployees
equate the figures to a strong economy and thus, a stronger
currency. – Private household employees
Another important employment data is the unemployment rate, which is the percentage of the total
labour force that is unemployed but actively seeking employment and willing to work. The lower the
49 strengthen.
unemployment figure, the more likely the currency will
– Employees of non-profit organisations that provide assistance to

individuals
– Farm employees
These figures would indicate the number of jobs created in the

preceding month. With a steady increase month by month, traders
would equate the figures to a strong economy and thus, a stronger
currency.
Another important employment data is the unemployment rate,
which is the percentage of the total labour force that is unemployed
but actively seeking employment and willing to work. The lower the
unemployment figure, the more likely the currency will strengthen.
Figure3.4
Figure USD/JPYPlunges
3.4USD/JPY Plunges Due
Due to
to Disappointing
DisappointingNFP
NFPFigure
Figure
Source:
Source:Created
Createdwith
withFX
FX Primus Ltd.All
Primus Ltd. Allrights
rightsreserved.
reserved.
50
Figure 3.4 USD/JPY Plunges Due to Disappointing NFP Figure
Figure3.5
Figure AUD/USD
3.5AUD/USD RiseDue
Rises DuetotoBetter-Than-Expected
Better-Than-Expected Job
JobNumbers
Numbers
Source: Created
Source: with
Created withFX
FX Primus Ltd.AllAll
Primus Ltd. rights
rights reserved.
reserved.
Key point: When

Key employment
point: Whenfigures are better than
employment expected,
figures the currency
are better tends to strengthen.
than expected,
the currency tends to strengthen.
• Retail Sales
Retail sales is an aggregated measure of the sales of retail goods over a stated time period, typically based on
• Retail Sales
a data sampling that is extrapolated to model an entire country. In the US, the retail sales report is
Retail sales is an aggregated measure of the sales of retail goods
monthly economic indicator that is compiled and released by the Census Bureau and the Department o
over a stated time period, typically based on a data sampling that
is extrapolated to model an entire country. In the US, the retail
sales report is a monthly economic indicator that is compiled and
released by the Census Bureau and the Department of Commerce.
The report covers the previous month, and is released about two
weeks after the end of each month. Year-over-year comparisons are
the most-reported metric because they account for the seasonality
of consumer-based retail.
The retail sales report captures in-store sales as well as catalogue
and other out-of-store sales. The report also breaks down sales figures
into groups such as food and beverage, clothing, and automobiles. The
results are often presented in two ways: with and without automobile
51
Commerce. The report covers the previous month, and is released about two weeks after the end of each
sales being
month. Year-over-year counted.are
comparisons Thisthe is because their
most-reported high
metric sticker
because theyprice can
account foradd
the seasonality
of consumer-based retail.
extra volatility to the data.
The retailRetail
sales report
salescaptures
figuresin-store salesto
are vital as stock
well as investors
catalogue andas other out-of-store
a whole, and sales. The
report also breaks down sales figures into groups such as food and beverage, clothing, and automobiles. The
especially to those who invest in retail companies directly. In the
results are often presented in two ways: with and without automobile sales being counted. This is because
US, about 70 percent of the economy is dependent on consumer
their high sticker price can add extra volatility to the data.
Retailspending.
sales figuresHence,
are vital toany
stock extended
investors asdrop-offs
a whole, andinespecially
retail spending
to those whocaninvest in retail
trigger a recession by lowering tax receipts and forcing companies
companies directly. In the US, about 70 percent of the economy is dependent on consumer spending.
Hence, any toextended
reduce drop-offs in retail spending can trigger a recession by lowering tax receipts and forcing
head counts.
companies to reduce head counts.
Figure3.6
Figure GBP/USDRises
3.6GBP/USD Rises by
by 100
100Pips
Pipswithin
within1515Minutes
Minutes
Source: Created
Source: Createdwith
with FX Primus Ltd.
FX Primus Ltd.All
Allrights
rightsreserved.
reserved.
Key point: When retail sales figures are better than expected, the currency tends to strengthen.
Key point: When retail sales figures are better than expected, the
• currency
ISM/PMI tends to strengthen.
Reports
In the US, the Institute for Supply Management (ISM) is responsible for maintaining the Purchasing
Managers Index (PMI), which is an indicator of the economic health of the manufacturing sector. The PMI
• ISM/PMI Reports
index is based on five major indicators, which are extracted through surveys to more than 400 purchasing
In the US, the Institute for Supply Management (ISM) is responsible
managers from around the country, chosen for their geographic and industry diversification benefits. The
for maintaining the Purchasing Managers Index (PMI), which is an
index is released on the first business day of the month at 10am Eastern Standard Time. The five sub-
indexes are indicator of theaseconomic
given a weighting, follows: health of the manufacturing sector. The
PMI index is based on five major indicators, which are extracted
- Production level (0.25)
- New orders from customers (0.30) 52
through surveys to more than 400 purchasing managers from around

the country, chosen for their geographic and industry diversification
benefits. The index is released on the first business day of the month
at 10am Eastern Standard Time. The five sub-indexes are given a
weighting, as follows:
– Production level (0.25)

– New orders from customers (0.30)
– Supplier deliveries (0.15)
– Inventories (0.10)
– Employment level (0.20)
A PMI of more than 50 represents expansion of the manufacturing

sector, compared to the previous month. A reading below 50 represents
a contraction, while a reading at 50 indicates no change. Although the
ISM publishes several indexes, the PMI is the most widely followed
and is sometimes referred to as the ISM index. A diffusion process
is carried out based on responses to the survey. Managers can either
respond with ‘better’, ‘same’, or ‘worse’ to the questions about the
industry as they see it. The resulting PMI figure (which ranges from
0 to 100) is calculated by taking the percentage of respondents that
reported better conditions than the previous month and adding to that
total half of the percentage of respondents that reported no change
in conditions. For example, a PMI reading of 50 would indicate
an equal number of respondents reporting ‘better conditions’ and
‘worse conditions’.
Forex traders who focus on trading the news generally combine
the PMI indicator with the GDP and the Producer Price Index (PPI)
readings in their analysis to further confirm trends in an economy.
53
respondents reporting ‘better conditions’ and ‘worse conditions’.
Forex traders who focus on trading the news generally combine the PMI indicator with the GDP
and the Producer Price Index (PPI) readings in their analysis to further confirm trends in an economy.
Figure Weakens
Figure 3.7 USD/JPY 3.7 USD/JPY Weakens
Due to Due toISM
Disappointing Disappointing
Non-Manufacturing Figure
ISM Non-Manufacturing Figure
Key point: When ISM/PMI figures are better than expected, the currency tends to strengthen.
Key point: When ISM/PMI figures are worse than expected, the
• currency
Business tends to
and Consumer weaken.
Confidence
Business Confidence
• Business and Consumer Confi dence
The Business Confidence Index is an indicator designed to measure the degree of optimism on the state of
the economy that business owners are expressing through their activities of investing and spending.
Business Confidence
The Business Confidence Index is an indicator designed to measure the
degree of optimism on the state of the economy that business owners
are expressing through their activities of investing and spending.
Decreasing business confidence often implies slowing economic growth
because business owners are likely to decrease their investment. The
more confident business owners and managers feel about the economy,
their companies, jobs and incomes, the more likely they are to make
investments and purchases.
54
Consumer Confidence
Consumer
Decreasing confidence
business confidence oftenisimplies
an indicator designed
slowing economic to measure
growth the degree
because business ofare likely
owners
to decrease their investment.
optimism The more confident
that consumers feel aboutbusiness
theowners
overall andstate
managers feeleconomy
of the about the economy,
their companies, jobs and incomes, the more likely they are to make investments and purchases.
and their personal financial situation. How confident people are about
Consumerstability
Confidenceof their income would determine their spending activity and
Consumer confidenceserve
therefore as one of
is an indicator the key
designed indicators
to measure for the
the degree overall that
of optimism shape of
consumers feel
about thethe economy.
overall If consumer
state of the economy and confi
theirdence is higher,
personal financial consumers
situation. How are making
confident people are
about stability
moreofpurchases,
their income would
whichdetermine
would theirboostspending activity expansion.
economic and therefore serve
On as one of the
the
key indicators for the overall shape of the economy. If consumer confidence is higher, consumers are
other hand, if confidence is lower, consumers tend to save more than
making more purchases, which would boost economic expansion. On the other hand, if confidence is
they spend,
lower, consumers tend toprompting
save more thanathey
contraction in the
spend, prompting economy.in the economy.
a contraction
Figure 3.8 Figure

EUR/USD 3.8Weakens
EUR/USD Weakens
After After
German Ifo German
Business Ifo
Confidence Results
Business Confidence Results
55
Figure 3.9 USD/JPY Falls Amid Weaker U.S. Consumer Confidence

Figure 3.9 USD/JPY Falls Amid Weaker U.S. Consumer Confidence
Key point:
KeyWhen business/consumer
point: confidence figuresconfi
When business/consumer are worse
dencethan expected,
figures arethe currency tends
worse
to weaken.
than expected, the currency tends to weaken.
• Housing Data
In the US,• The New
Housing Data
Residential Construction Report is a monthly report issued by the US Census Bureau
In the US, The New
jointly with the US Department Residential
of Housing Construction
and Urban (HUD).isThe
DevelopmentReport a monthly
data is derived from
surveys ofreport
homebuilders
issuednationwide,
by the USand three metrics
Census Bureau arejointly
provided:
withHousing
the US starts, building permits and
Department
housing completions. A housing start is defined as beginning the foundation of the home itself. Building
of Housing and Urban Development (HUD). The data is derived from
permits are counted as of when they are granted.
surveys
Both buildingof homebuilders
permits and housingnationwide, andasthree
starts will be shown metrics
a percentage are provided:
change from the prior month
Housingperiod.
and year-over-year starts,Inbuilding
addition,permits
both data andsetshousing completions.
are divided geographicallyA housing
into four regions:
Northeast, Midwest, South and West. This helps to reflect the vast differences
start is defined as beginning the foundation of the home itself. Building in real estate markets in
different areas of the country. On the national aggregates,
permits are counted as of when they are granted. the data will be segmented between single-family
and multiple-unit housing, and all information is presented with and without seasonal adjustment.
Both building permits and housing starts will be shown as a
Housing starts and building permits are both considered leading indicators of the general economy.
The reportpercentage change
is not typically from
one that thethe
shocks prior month
market, andanalysts
but some year-over-year
will use theperiod.
housing Instarts report
addition,
to help create both
estimates dataconsumer-based
for other sets are divided geographically
indicators. For example, into
peoplefour
buyingregions:
new homes tend
to spend Northeast,
money on other consumerSouth
Midwest, goodsandsuchWest.
as furniture, lawn and
This helps garden
to refl ect supplies,
the vastand home
appliances. The report is not without its flaws. Here’s a quick look at some of its strengths and weaknesses.
differences in real estate markets in different areas of the country. On
Strengths the national aggregates, the data will be segmented between single-
- Very forward-looking, especially building permits; a good gauge for future real estate supply levels
56
family and multiple-unit housing, and all information is presented

with and without seasonal adjustment.
Housing starts and building permits are both considered leading
indicators of the general economy. The report is not typically one
that shocks the market, but some analysts will use the housing starts
report to help create estimates for other consumer-based indicators.
For example, people buying new homes tend to spend money on
other consumer goods such as furniture, lawn and garden supplies,
and home appliances. The report is not without its flaws. Here’s a
quick look at some of its strengths and weaknesses.
Strengths
– Very forward-looking, especially building permits; a good gauge
for future real estate supply levels
– Can be used to identify business cycle pivot points
– Sample size covers approximately 95 percent of all residential
construction in the US
Weaknesses
– No differentiation between size and quality of homes being initiated,
only the nominal amount
– Only focuses on one area of the economy
57
Weaknesses
- No differentiation between size and quality of homes being initiated, only the nominal amount
- Only focuses on one area of the economy
Figure 3.10 Canadian Dollar Strengthens on Higher Building Permits, USD/CAD Drops
Figure 3.10 Canadian Dollar Strengthens on Higher
Source: Created
Buildingwith FX Primus
Permits, Ltd. AllDrops
USD/CAD rights reserved.
Key point: When housing figures are better than expected, the currency tends to strengthen.
Key point: When housing figures are better than expected, the
• Inflation
Inflation iscurrency
the rate at tends
which theto strengthen.
general level of prices for goods and services is rising, causing purchasing
power to fall. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to
• Infl ation
keep the excessive growth of prices to a minimum.
As aInfl
general rule,
ation is athe
country
ratewith a consistently
at which lower inflation
the general level ofrate exhibits
prices fora goods
rising currency
and value, as
its purchasing power increases relative to other currencies. During the last half of the 20th century, countries
services is rising, causing purchasing power to fall. Central banks
that have had low inflation include Japan, Germany and Switzerland, while the US and Canada achieved
attempt to stop severe inflation, along with severe deflation, in an
low inflation only later. Those countries with higher inflation typically see depreciation in their currency in
relation toattempt to keep
the currencies the trading
of their excessive growth
partners. This of prices
is also to aaccompanied
usually minimum.by higher interest
As a rate
rates. The inflation general rule, abycountry
is measured with aPrice
the Consumer consistently lower
Index (CPI), whichinflation
shows therate
change in the
price of goods and services purchased by consumers.
exhibits a rising currency value, as its purchasing power increases
relative to other currencies. During the last half of the 20th century,
countries that have had low inflation include Japan, Germany and
Switzerland, while the US and Canada achieved low inflation only
later. Those countries with higher inflation typically see depreciation
in their currency in relation to the currencies of their trading partners.
This is also usually accompanied by higher interest rates. The inflation
58
rate is measured by the Consumer Price Index (CPI), which shows the
change in the price of goods and services purchased by consumers.
Figure 3.11 EUR/USD Drops on Lower Euro Inflation Rate

Figure 3.11 EUR/USD Drops on Lower Euro Inflation Rate
Key point:Key
Whenpoint: Whenreports
a country a country reports figures,
high inflation lower infl
the ation figures,
currency tends the
to strengthen in
currency
anticipation of tends
an interest to weaken in anticipation of an interest rate cut.
rate hike.
• Gross Domestic Product

• Gross Domestic Product
Gross Domestic Product
Gross Domestic(GDP) Product
is the monetary
(GDP)value of all
is the the finished
monetary goodsofand
value all services
the produced
within a country's borders in a specific time period. It includes all private and public consumption,
finished goods and services produced within a country’s borders in a
government outlays, investments and exports less imports that occur within a defined territory.
specific time period. It includes all private and public consumption,
GDP is released quarterly and commonly used as an indicator of the economic health of a country, as
government
well as to gauge a country’soutlays,
standardinvestments andGDP
of living. High exports
rates less
meanimports
that thethat occur
country is ‘healthy’ and
within
doing well, and can beainterpreted
defined territory.
as a country with a strong currency.
GDP is released quarterly and commonly used as an indicator
of the economic health of a country, as well as to gauge a country’s
standard of living. High GDP rates mean that the country is ‘healthy’
and doing well, and can be interpreted as a country with a strong
currency.
59
Figure3.12
Figure NZD/USD
3.12NZD/USD WeakensDue
Weakens Due to
to Lower
LowerGDP
GDPFigure
Figure
Source:Created
with FX Primus Ltd.
FX Primus Ltd.All
Allrights
rights reserved.
reserved.
Key point: When GDP figures are better than expected, the currency tends to strengthen.
Key point: When GDP figures are worse than expected, the currency
• tends
Trade to weaken.
Balance
Trade Balance is a measure of the ratio of exports to imports for a given country’s economy. If exports are
higher than imports (a trade surplus), the trade balance will be positive, causing the currency to strengthen.
• Trade Balance
If imports are higher than exports (a trade deficit), the trade balance will be negative, causing the currency
to weaken.
Trade Balance is a measure of the ratio of exports to imports for a
given
Trade country’s
Balance = Exportseconomy.
– Imports If exports are higher than imports (a trade
surplus),
Trade balance isthe trade
derived balance
primarily fromwill
threebe positive, causing the currency to
factors:
strengthen. If imports are higher than exports (a trade deficit), the
- The price of goods in a country
trade balance will be negative, causing the currency to weaken.
- Tax and tariff levies on imported or exported goods
Trade Balance = Exports – Imports
- The exchange rate between two currencies
Trade balance is derived primarily from three factors:
This last factor is fundamental to foreign exchange trading. Since the trade balance depends so
heavily on– theThe price
current ofofgoods
state in arates
exchange country
between two countries, trade balance is a key coincident
– the
indicator for Tax and
state of atariff
foreignlevies onasset
exchange imported or exported
market. There goods
are a number of measures for trade balance.
For the US, one of the chief sources of information
– The exchange rate between two currencies on the state of trade is the International Trade report
released monthly by the Census Bureau and the Bureau of Economic Analysis. This report is released
around the third week of every month and details the performance of several exported goods and services
in various sectors of the economy. Let’s look at some examples.
60
This last factor is fundamental to foreign exchange trading. Since

the trade balance depends so heavily on the current state of exchange
rates between two countries, trade balance is a key coincident indicator
for the state of a foreign exchange asset market. There are a number
of measures for trade balance. For the US, one of the chief sources
of information on the state of trade is the International Trade report
released monthly by the Census Bureau and the Bureau of Economic
Analysis. This report is released around the third week of every month
and details the performance of several exported goods and services
in various sectors of the economy. Let’s look at some examples.
Japan’s Trade Deficit Widens

On 20 February 2014, Japan reported a record trade deficit for the
Japan’s Trade Deficit Widens
On 20month
February of
2014,January due to
Japan reported surging
a record import
trade deficit costs.
for the The
month 2.79 due
of January trillion yenimport
to surging
shortfall
costs. The reported
2.79 trillion by the
yen shortfall Ministry
reported by the of Finance
Ministry in Tokyo
of Finance in Tokyowas
washigher than
higher than the 2.49
trillionthe
yen2.49
mediantrillion
estimate yen
in a Bloomberg News survey of 28 economists.1 Imports rose 25 percent from
median estimate in a Bloomberg News survey of
a year ago.
28 economists. Imports rose 25 percent from a year ago.
1
FigureFigure
3.13 3.13 USD/JPY
USD/JPY Rallies
Rallies after Japan
after Japan Reports
ReportsHigher DeficitDeficit
Higher
Source:
Source: Createdwith
Created with FX
FX Primus
Primus Ltd.
Ltd. All
All rights
rightsreserved.
reserved.
1
http://www.bloomberg.com/news/2014-02-19/japan-trade-deficit-widens-to-record-as-
Australiaimport-costs-jump-on-yen.html
Reports Bigger Than Expected Trade Surplus
On 6 March 2014, Australia reported that the country's trade surplus rose to 1.4 billion Australian dollars
– its highest in almost 3 years. The trade surplus data
61 showed exports were up strongly in January and
imports were down.2
Australia Reports Bigger Than Expected Trade Surplus

On 6 March 2014, Australia reported that the country’s trade surplus
rose to 1.4 billion Australian dollars – its highest in almost 3 years.
The trade surplus data showed exports were up strongly in January
and imports were down.2
Australia reports bigger-than-

expected trade surplus
Figure 3.14 AUD/USD Strengthens as Trade Surplus Rises to

Highest Level in Almost 3 Years
Figure 3.14 AUD/USD Strengthens
Source: as Trade
Created with Surplus
FX Primus Rose
Ltd. to Highest
All rights Level in Almost 3 Years
reserved.
China’s Exports Fall

On Fall
China’s Exports 8 March 2014, China reported that their exports tumbled 18.1
On 8 Marchpercent in February
2014, China from
reported that theira exports
year earlier,
tumbledswinging
18.1 percentthe
in trade balance
February from a year earlier,
swinging theinto
tradedefi
balance into deficit. The yuan also weakened as worries
cit. The yuan also weakened as worries mounted that mounted that thethe
world’s second
largest economy was slowing, falling 0.2 percent to 6.1385 per dollar at the time.3
world’s second largest economy was slowing, falling 0.2 percent to
6.1385 per dollar at the time.3
2
http://www.bbc.com/news/business-26462307
3
http://www.bloomberg.com/news/2014-03-08/china-feb-exports-unexpectedly-fall-18-
1-imports-rise-10-1-.html
62
Weaker Yuan caused by

China’s falling exports
causes AUD/USD to fall
Figure 3.15 AUD/USD Gaps Lower on Monday Due to

Figure 3.15 AUD/USD Gaps Lower on Monday Due to
China’s Falling Exports Released on Previous Weekend
China’s Falling Exports Released on Previous Weekend
Key
Key point: point:
When When
Trade Trade
Balance figuresBalance
are better figures
than are better
expected, thantends
the currency expected,
to strengthen.
the currency tends to strengthen.
2. Central Bank Intervention
Central Bank Intervention usually happens when a nation's currency is undergoing excessive downward or
2. Central Bank Intervention
upward pressure from market players – usually speculators.
Central decline
A significant Bank Intervention usuallyhas
in the value of a currency happens when
the following a nation’s currency
drawbacks:
•
is undergoing excessive downward or upward pressure from market
It raises the price of imported goods and services which ultimately triggers rising inflation. This will
pushplayers – usually
the central bank tospeculators.
raise interest rates which will likely hurt asset markets and economic
growth.AThissignifi
couldcant
also decline in the value
lead to additional ofthe
losses in a currency
currency if has thestarts
capital following
to flow out of the
country.
drawbacks:
• A nation with a large current account deficit (it imports more goods than it exports) that is
dependent upon foreign
– It raises inflows
the price of capital may
of imported undergo
goods a dangerous
and services slowdown in the financing of its
which ultimately
deficit, which will require rising interest rates to maintain the value of the currency, and could risk
triggers rising inflation. This will push the central bank to
serious repercussions on growth.
raise interest rates which will likely hurt asset markets and economic
• It pushes up the exchange rate of the nation's trading partners and drive up the price of their exports
growth. This could also lead to additional losses in the currency
in the global market place. This will also trigger a serious economic slowdown, especially for export-
if capital
dependent starts to flow out of the country.
countries.
Looking at the other side of the coin, central banks also intervene to stem excessive appreciation of
their currency. A strong currency makes exports less attractive and weighs on the balance of payments.
Central bank intervention can take place in several forms.
63 Here are the most common:
– A nation with a large current account deficit (it imports more

goods than it exports) that is dependent upon foreign inflows of
capital may undergo a dangerous slowdown in the financing of
its deficit, which will require rising interest rates to maintain the
value of the currency, and could risk serious repercussions on
growth.
– It pushes up the exchange rate of the nation’s trading partners

and drive up the price of their exports in the global market place.
This will also trigger a serious economic slowdown, especially for
export-dependent countries.
Looking at the other side of the coin, central banks also intervene to
stem excessive appreciation of their currency. A strong currency makes
exports less attractive and weighs on the balance of payments.
Central bank intervention can take place in several forms. Here
are the most common:
• Verbal Intervention
This occurs when officials from the Ministry of Finance (Treasury),
central bank or other politicians ‘talk up’ or ‘talk down’ a currency.
This is either done by threatening to commit real intervention (actual
buying/selling of currency), or simply by indicating that the currency
is undervalued or overvalued. Also called ‘jawboning’, this is the
cheapest and simplest form of intervention because it does not involve
the use of foreign currency reserves. Nonetheless, its simplicity doesn’t
always imply effectiveness. A nation whose central bank is known
to intervene more frequently and effectively than other nations is
usually more effective in verbal interventions.4
http://www.investing.com/technical/analysis/snb-verbal-intervention-sends-the-swiss-
4
franc-lower-28462
http://www.fxstreet.com/analysis/fx-strategy/2011/08/03/
64
‘jawboning’, this is the cheapest and simplest form of intervention because it does not involve the use of
foreign currency reserves. Nonetheless, its simplicity doesn’t always imply effectiveness. A nation whose
central bank is known to intervene more frequently and effectively than other nations is usually more
effective in verbal interventions.4
SNB verbally intervenes to address

strong appreciation of Swiss Franc
Figure 3.16 USD/CHF Spikes

Figure 3.16 Up on SNB’s
USD/CHF SpikesVerbal
UpIntervention
on SNB’s Saying
Verbal CHF is ‘Massively Overvalued’
Intervention
Saying
Source: CHF
Created withisFX
‘Massively
Primus Ltd.Overvalued’
• Operational Intervention
• Operational Intervention
This is the actual buying or selling of a currency by a nation's central bank, usually on behalf of the Finance
MinistryThis is the actual
or Treasury. Here are buying or selling
two examples of a interventions
of operational currency by a nation’s
in recent times: central
bank, usually on behalf of the Finance Ministry or Treasury. Here are
Japan, August 2011
two examples of operational interventions in recent times:
On 4 August 2011, the Bank of Japan (BOJ) intervened in the market by selling off its currency in order to
spur the nation’s economic recovery. As an export-driven country, a weaker yen is beneficial for the
Japan,
country’s August
exporters. The yen2011
sank more than 2 percent against the dollar after the intervention, which was
On 4 August 2011, the Bank of Japan (BOJ) intervened in the market
by selling off its currency in order to spur the nation’s economic
http://www.investing.com/technical/analysis/snb-verbal-intervention-sends-the-swiss-franc-lower-28462
recovery. As an export-driven country, a weaker yen is beneficial for
4
http://www.fxstreet.com/analysis/fx-strategy/2011/08/03/
the country’s exporters. The yen sank more than 2 percent against
the dollar after the intervention, which was its biggest drop in almost
a year.5 The BOJ boosted its asset purchases from 10 trillion yen to
50 trillion yen, while leaving interest rates unchanged at 0.1 percent.
Prior to the intervention, some of Japan’s largest exporters were
literally bleeding cash due to the strong yen. Car giant Mazda posted
5
http://money.cnn.com/2011/08/04/markets/yen_intervention/
65
its biggest drop in almost a year.5 The BOJ boosted its asset purchases from 10 trillion yen to 50 trillion
a 25.5 billion yen loss for the quarter ending 30 June 2011, in large
yen, while leaving interest rates unchanged at 0.1 percent. Prior to the intervention, some of Japan’s largest
part due to the yen’s appreciation. The car maker exports about 80
exporters were literally bleeding cash due to the strong yen. Car giant Mazda posted a 25.5 billion yen loss
for the quarterpercent
ending of30the vehicles
June 2011, inbuilt
largeinpart
Japan,
due and
to thea strong yen diminishes
yen's appreciation. The caritsmaker exports
price
about 80 percent ofcompetitiveness and
the vehicles built in shrinks
Japan, and athe income
strong from overseas
yen diminishes markets
its price competitiveness and
whenfrom
shrinks the income it isoverseas
converted back
markets to yen.
when it is converted back to yen.
Bank of Japan intervenes

to weaken the Yen
Figure 3.17 USD/JPY

Figure 3.17 USD/JPYShoots
ShootsUp
Upafter
after Intervention
Intervention
Switzerland, September 2011 September 2011

Switzerland,
On 6 September 2011, the Swiss 2011,
On 6 September Nationalthe
Bank (SNB)
Swiss intervened
National Bankin the market
(SNB) by setting a minimum
intervened
exchange rate in
of the
1.20market
francs toby
thesetting
euro. This
6 was an attempt
a minimum exchangeto weaken
rate the franc francs
of 1.20 as the value
to of the Swiss
currency was damaging
the euro.6 This was an attempt to weaken the franc as the value ofrate by buying
the country’s exports. The SNB said it would enforce the minimum
foreign currency in unlimited quantities.
the Swiss currency was damaging the country’s exports. The SNB
said it would enforce the minimum rate by buying foreign currency
in unlimited quantities.
6
http://www.bbc.co.uk/news/business-14801324
66
SNB intervenes by setting minimum

rate of 1.20 francs to 1 euro
Figure
Figure3.18
3.18EUR/CHF
EUR/CHFRises
RisesDue
Dueby SNB’sIntervention
by SNB’s Intervention
• Concerted Intervention
• Concerted Intervention
This happens when several nations coordinate to drive up or down
This happens when several nations coordinate to drive up or down a certain currency using their own
a certain
foreign currency currency
reserves. Its successusing their own
is dependent upon theforeign
numbercurrency reserves.
of countries Its amounts
and the actual
success isintervention
involved. Concerted dependentcould uponalso
thebenumber of countries
verbal when andseveral
officials from the actual
nations unite in
amounts
expressing their involved.
concern Concerted
over a continuously intervention
falling/rising could also be verbal when
currency.
officials from several nations unite in expressing their concern over
G7 Weakensa Yen
continuously falling/rising currency.
On 18 March 2011, the Group of Seven industrial nations (G7) joined the Bank of Japan (BOJ) in
stepping into the currency markets to curb the soaring yen. Recognising the damage that a strong yen could
do to Japan,G7
theWeakens
US Federal Yen
Reserve, Bank of England, Germany's Bundesbank, the Bank of France and the
On 18Bank
European Central March 2011,
joined the in
the BOJ Group of Seven
a coordinated industrial nations (G7) joined
intervention.
the Bank of Japan (BOJ) in stepping into the currency markets to curb
the Part of G7yen.
soaring statement, 18 March 2011
Recognising the damage that a strong yen could
“In response to recent movements
do to Japan, the US Federal Reserve, in the exchange
Bankrate ofofEngland,
the yen associated with
Germany’s
the tragic events
Bundesbank, the inBank
Japan,ofand at the and
France requestthe
of the Japanese authorities,
European Central Bankthe
authorities of the United States, the United Kingdom, Canada, and the
joined the BOJ in a coordinated intervention.
European Central Bank will join Japan, on March 18, 2011, in concerted
intervention in exchange markets. As we long have stated, excess volatility and
disorderly movements in exchange rates have adverse implications for economic
and financial stability. We will monitor exchange markets closely and cooperate
67
as appropriate."
Part of G7 statement, 18 March 2011

“In response to recent movements in the exchange rate of the yen
associated with the tragic events in Japan, and at the request of the
Japanese authorities, the authorities of the United States, the United
Kingdom, Canada, and the European Central Bank will join Japan,
on March 18, 2011, in concerted intervention in exchange markets.
As we long have stated, excess volatility and disorderly movements in
exchange rates have adverse implications for economic and financial
stability. We will monitor exchange markets closely and cooperate
as appropriate.”
The BOJThe BOJ reportedly

reportedly bought
bought USD25 USD25
billion in the billion
wake ofinthe
the
G7wake of the G7on the joint
announcement
announcement
intervention.7 on the joint intervention. 7
G7 nations come together in

concerted intervention to weaken Yen
Figure 3.19 USD/JPY Strengthens after Intervention

Figure 3.19 USD/JPY Strengthens after Intervention
• Sterilised
7 Intervention
http://www.theguardian.com/business/2011/mar/18/g7-japan-curb-soaring-yen-
In a sterilisedintervention
intervention, the actual intervention process (sale or purchase of foreign currencies) is
followed by the buying or selling of government
http://www.telegraph.co.uk/fi bonds in the same size as the intervention process.
nance/currency/8390032/G7-intervention-the-communique.
Conversely, anhtml
unsterilised intervention does not involve the purchase or sale of government securities after
the actual intervention.
68
The purpose of a sterilised intervention is to ensure that the monetary base does not change. Many
economists argue that unsterilised interventions have a more lasting effect on the currency than sterilised
• Sterilised Intervention
In a sterilised intervention, the actual intervention process (sale or
purchase of foreign currencies) is followed by the buying or selling
of government bonds in the same size as the intervention process.
Conversely, an unsterilised intervention does not involve the purchase
or sale of government securities after the actual intervention.
The purpose of a sterilised intervention is to ensure that the
monetary base does not change. Many economists argue that
unsterilised interventions have a more lasting effect on the currency
than sterilised interventions simply because the excess cash is not
drained from the system. The intervention by the Japanese government
in 2003-2004 was sterilised, which is part of the reason why it was
unsuccessful. The government sold yen with money financed by the
issuance of bills. When an intervention is not sterilised, the money
supply is increased because the funds used to sell the yen may be
raised by printing money.
3. Natural Disasters
Natural disasters can impact the currency market substantially. Here’s
a list of the top 10 natural disasters:
– Landslide
– Avalanche
– Drought
– Wildfire
– Flood
– Tsunami
– Volcanic eruption
– Tornado
– Earthquake
– Hurricane/typhoon
Let’s take a look at three examples of natural disasters, and the

subsequent impact on their currencies:
69
New Zealand Earthquake, February 2011

On Tuesday 22 February 2011 at 12.51 pm, Christchurch was badly
damaged by a magnitude 6.3 earthquake, which killed 185 people and
injured several thousand others. Considered the country’s deadliest
natural disaster in 80 years, the total cost to insurers of rebuilding was
originally estimated at NZ$15 billion. At the time, it was predicted
to be New Zealand’s costliest natural disaster, and the third-costliest
earthquake (nominally) worldwide. However, by April 2013, the
total estimated cost had ballooned to NZ$40 billion.8
NZD slumps after

Christchurch earthquake
Figure 3.20
Figure NZD/USD
3.20 Weakens
NZD/USD Weakensafter Christchurch
after Christchurch Earthquake
Earthquake
Thailand Flood, October 2011

Thailand Flood, October 2011
During theDuring the 2011season
2011 monsoon monsoon season
beginning at thebeginning
end of July,atfloods
the end
wereoftriggered
July, floods
by the landfall
were
of Tropical triggered
Storm Nock-ten. by thetime,
In no landfall of Tropical
the flooding soon spreadStorm Nock-ten.
through In ofnoNorthern,
the provinces
time,and
North-eastern theCentral
flooding soon along
Thailand, spread
the through
Mekong and theChao
provinces of Northern,
Phraya river basins. In October,
floodwaters reached the mouth of the Chao Phraya and inundated parts of the capital city of Bangkok.
North-eastern and Central Thailand, along the Mekong and Chao
Flooding persisted in some areas until mid-January 2012, and resulted in a total of 815 deaths and 13.6
Phraya river basins. In October, floodwaters reached the mouth of
million people affected. Sixty-five of Thailand's 77 provinces were declared flood disaster zones, and over
20,000 square kilometres of farmland was damaged.
8
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10709303
The disaster has been described as “the worst flooding yet in terms of the amount of water and people
http://www.bloomberg.com/news/2011-02-22/new-zealand-s-currency-declines-after-
affected.” The floods affected Thailand’s economy significantly from agricultural to industrial sectors, and
christchurch-hit-by-6-3-earthquake.html
economic activities including exports, consumption and private investments. The World Bank estimated
that the floods caused damages to the tune of 1,425 billion baht as of 1 December 2011.
70
As of 18 November 2011, Thailand’s baht had its third weekly decline as the worst floods in almost
70 years and Europe’s worsening debt crisis weaken the country’s growth outlook, sapping demand for its
the Chao Phraya and inundated parts of the capital city of Bangkok.
Flooding persisted in some areas until mid-January 2012, and resulted
in a total of 815 deaths and 13.6 million people affected. Sixty-five
of Thailand’s 77 provinces were declared flood disaster zones, and
over 20,000 square kilometres of farmland was damaged.
The disaster has been described as “the worst flooding yet in terms
of the amount of water and people affected.” The floods affected
Thailand’s economy significantly from agricultural to industrial
sectors, and economic activities including exports, consumption and
private investments. The World Bank estimated that the floods caused
damages to the tune of 1,425 billion baht as of 1 December 2011.
As of 18 November 2011, Thailand’s baht had its third weekly
decline as the worst floods in almost 70 years and Europe’s worsening
debt crisis weaken the country’s growth outlook, sapping demand for
its assets. The baht weakened 0.4 percent in that week and touched
31.05, which was the lowest level since October 21, according to
data compiled by Bloomberg.9
Philippines Typhoon, November 2013

On 8 November 2013, Typhoon Haiyan devastated portions of
Southeast Asia, particularly the Philippines. Days after the typhoon
hit the Visayas region, 1.9 million people were left homeless and
more than 6 million were displaced.
Considered the deadliest Philippines typhoon on record, it killed
at least 6,300 people and left over 1,060 people missing. The damage
caused by Typhoon Haiyan was estimated at over USD1.5 billion
at the end of 2013.
As a result of the catastrophe, the Philippine Stock Exchange
Index (PCOMP) slid 1.4 percent to 6,265.23 at the close in Manila,
the steepest drop since 30 September 2013. The peso also weakened
0.9 percent to 43.580 per dollar, the sharpest loss since 22 August
on the same year.10
9
http://www.bloomberg.com/news/2011-11-18/baht-set-for-third-weekly-drop-as-floods-
set-to-weaken-growth.html
10
http://www.bloomberg.com/news/2013-11-11/philippine-peso-falls-with-stocks-on-
typhoon-haiyan-devastation.html
71
4. Speculation
In Forex, speculation involves the buying and selling of currencies by
anticipating profits from market fluctuations. There are no guarantees
on the security of the initial investment as well as the return on
investment (ROI). To put it simply, any risk-taker could be a speculator.
However, what makes professional speculators authority figures are
their expertise in the Forex market and capacity to interpret variations
in market psychology despite having access to the same information
as everyone else. Judgment is key.
Speculators trade the Forex market purely for profit. There are two
categories of speculators in the market: Retail traders and hedge funds.
On average, more than 90 percent of the daily trading volume in the
Forex market is speculative in nature. Speculative moves are sometimes
called ‘smart money’ or ‘hot money’ because these moves are the first
to move in and out of countries. For example, if speculators believe
that a country’s economy has expanded too much and is in danger
of overheating, they may get out of the currency in anticipation of
cooling measures by the government. This would cause more supply
than demand for the currency, causing it to depreciate.
One of the world’s most remembered speculative plays on the
Forex market happened on 16 September 1992, also known as
Black Wednesday. On that day, currency speculator George Soros
bet heavily against the pound and made USD1 billion in the process.
Two weeks prior to Black Wednesday, currency speculators, including
Soros, sold billions of pounds, hoping to buy them back cheaply and
profit on the difference. The British government decided to intervene
by hiking interests rates to 12 percent. The Treasury also tried to
prop up the pound by spending £27 billion of reserves. However,
the government measures were all but futile. On the evening of 16
September, the British Conservative government announced its exit
from the European exchange rate mechanism (ERM), conceding
defeat that it could not hold the British pound/ Deutsche mark floor of
2.778. Within a few hours of the announcement, the pound tumbled
3 percent and was down more than 12 percent within three weeks.
In 1997, the UK Treasury estimated the cost of Black Wednesday to
72
factors that move the forex market
be GBP3.4 billion.
Speculation is not a bad thing in the context of the financial markets.
Speculators are said to create market efficiency. Their participation
increases the market’s liquidity, which guides price movements to
flow more smoothly. This in turn makes for narrower trading spreads
and enables the market to expand. Without the participation of
speculators, there would be fewer market participants. This would
create a wider spread and ultimately increase the cost of trading for
other market participants. With their absence, those who wish to
engage in Forex trading activities would be compelled to agree to the
prices of a non-liquid market. In such cases, the problem of finding
a ready buyer or seller dramatically increases.
5. Political Factors
In times of political turmoil, money rushes to safe haven assets such
as the US dollar, Japanese yen, Swiss franc and gold, causing their
prices to rise. Let’s have a look at two examples.
Political Tensions in Russia and Ukraine

On 3 March 2014, Russia’s intervention in Ukraine heightened
political tensions around the region. Prices for gold and US government
debt rose as investors sold any exposure to the region and flocked
to safe havens. Gold futures jumped 2.2 percent, rising $28.70 to
$1,350.30. US government bond prices also rose, causing the yields
to drop to 2.6030 percent, the lowest in a month. Japanese yields
touched a 10-month low as investors sought the safety of Japanese
government bonds.11
The scenario was the same in the Eurozone. Germany’s government
bonds rallied, with the 10-year yields falling the most in seven weeks.
In the currency markets, the risk currencies such as the Australian
dollar, New Zealand dollar and euro fell against the safe-haven
11
http://www.reuters.com/article/2014/03/03/markets-global-idUSL1N0M00V520140303
http://www.reuters.com/article/2014/03/03/us-markets-global-idUSBRE96S00E20140303
http://www.abc.net.au/news/2014-03-04/safe-haven-assets-rise-stocks-fall-on-ukraine-
tensions/5296618
73
Political tensions in Russia and Ukraine
On 3 March 2014, Russia’s intervention in Ukraine heightened political tensions around the region. Prices
for gold and US government debt rose as investors sold any exposure to the region and flocked to safe
havens. Gold futures jumped 2.2 percent, rising $28.70 to $1,350.30. US government bond prices also rose,
causing the yields to drop to 2.6030 percent, the lowest in a month. Japanese yields touched a 10-month
currencies,
low as investors sought the namely
safety of the US dollar,
Japanese Japanese
government bonds.yen
11 and Swiss franc. This
is whywas
The scenario there was aindrop
the same in the AUD/USD,
the eurozone. NZD/JPY, bonds
Germany’s government and EUR/CHF
rallied, with the 10-year
yields falling the most in seven weeks. In the
at the time of the political tensions. currency markets, the risk currencies such as the Australian
dollar, New Zealand Thedollar and euro
aversion fell also
to risk against the asafe-haven
took steep tollcurrencies,
on stocknamely the US
markets, withdollar, Japanese
yen and Swissthe franc. This is why there was a drop in the AUD/USD,
Moscow bourse slumping 11 percent, wiping nearly $60 billion NZD/JPY, and EUR/CHF at the
time of the political tensions.
of value off Russian companies. Russia’s central bank was also forced
The aversion to risk also took a steep toll on stock markets, with the Moscow bourse slumping 11
to spend $10 billion of reserves to prop up the rouble. Even Ukraine
percent, wiping nearly $60 billion of value off Russian companies. Russia’s central bank was also forced to
was not spared. Ukraine’s hryvnia currency fell to a record low against
spend $10 billion of reserves to prop up the rouble. Even Ukraine was not spared. Ukraine's hryvnia
the
currency fell to dollar,low
a record pushing thedollar,
against the country’s dollar
pushing bonds down
the country's 6 points.
dollar bonds down 6 points.
Ukraine tensions spur

USD demand
Figure3.21a
Figure 3.21 AUD/USD
AUD/USD Drops
DropsasasUSD
USD Strengthens
Strengthens
11 http://www.reuters.com/article/2014/03/03/markets-global-idUSL1N0M00V520140303
http://www.reuters.com/article/2014/03/03/us-markets-global-idUSBRE96S00E20140303
http://www.abc.net.au/news/2014-03-04/safe-haven-assets-rise-stocks-fall-on-ukraine-tensions/5296618
74

Yen demand
Figure 3.21b
Figure 3.22 NZD/JPY
NZD/JPY Falls asasJPY
Falls JPYStrengthens
Strengthens
Source: 3.21b NZD/JPY
FigureCreated Falls
with FX Primus asAll
Ltd. JPY Strengthens
rights reserved.

Swiss Franc demand
Figure 3.22 EUR/CHF Falls as CHF Strengthens

Source:
Figure
FigureCreated
3.22 with FX Primus
3.23EUR/CHF
EUR/CHF Ltd.
Fallsas
Falls asCHFAllStrengthens
CHF rights reserved.
Strengthens
The Syrian War
OnSyrian
The 27 August
War 2013, Reuters carried the headline: “Yen, Swiss franc rise as Syria fears spur demand for
safety.”12
On 27 August 2013, Reuters carried the headline: “Yen, Swiss franc rise as Syria fears spur demand fo
That day, safe haven currencies like the yen75and the franc rose while riskier currencies like the
safety.”12
Australian and New Zealand dollars fell as geopolitical tensions rose as Western countries were poised to
That day, safe haven currencies like the yen and the franc rose while riskier currencies like th
The Syrian War

On 27 August 2013, Reuters carried the headline: “Yen, Swiss franc
rise as Syria fears spur demand for safety.”12
That day, safe haven currencies like the yen and the franc rose
while riskier currencies like the Australian and New Zealand dollars
fell as geopolitical tensions rose as Western countries were poised to
take military action against the Syrian government.
Syrian war increases

demand for Swiss Franc
Figure
Figure3.24
3.23AUD/CHF
AUD/CHFDrops
Dropsas
as CHF
CHFStrengthens
Strengthens
Source:
Source: Created with FX
Created with FX Primus
PrimusLtd.
Ltd.All
Allrights
rightsreserved.
reserved.
12
http://www.reuters.com/article/2013/08/27/markets-forex-idUSL2N0GS1RW20130827
76
Figure 3.23 AUD/CHF Drops as CHF Strengthens
Syrian war increases

demand for Yen
Figure
Figure3.25
3.24NZD/JPY
NZD/JPYFalls
Fallsas
as JPY Strengthens
JPY Strengthens
Even goldEven
futures rose to
gold a three-and-a-half-month
futures high that day, as growing speculation
rose to a three-and-a-half-month high thatthe U.S. was
moving closer to taking military action against Syria’s government continued to boost safe-haven demand
day, as growing speculation the U.S. was moving closer to taking
for the precious metal. Gold rose because investors often buy gold as a refuge against geopolitical
military action against Syria’s government continued to boost safe-
uncertainty. Even an upbeat German business sentiment survey was largely ignored as traders focused on
the Middlehaven demand for the precious metal. Gold rose because investors
East conflict.
often buy gold as a refuge against geopolitical uncertainty. Even an
upbeat German business sentiment survey was largely ignored as
traders focused on the Middle East conflict.
77
Summary
There are five primary reasons which move the Forex market. These
are:
1. Economic factors. Some of these factors include interest rates,

inflation, GDP trade balance and retail sales.
2. Central bank intervention. Central banks usually intervene

when the nation’s currency is undergoing excessive downward or
upward pressure from market players. Examples of central bank
intervention include verbal intervention, operational intervention
and converted intervention.
3. Natural disasters. Examples include the earthquake in New

Zealand, the flood in Thailand and the typhoon in Philippines. In
most cases, natural disasters would cause the national currency
to fall against other currencies.
4. Speculation. Currencies can rise or fall abnormally fast when

speculation is rife. One of the most memorable speculative plays
in the currency world happened on 16 September 1992 when
George Soros shorted the British pound and reportedly made
USD1 billion on that trade.
5. Political factors. This can include wars and even elections. In most
cases, the currency tends to fall in times of political turmoil as traders
sell off and move their assets to a more stable environment.
78
C hapter 4
Key #4:
FX WAVES
“Success comes in waves.”

Guy Pearce
Over the years, it has come to my attention that one of the reasons
why traders don’t make good money in the Forex Market is because
they don’t take the big moves. Many traders are content to take either
20 to 30 pips from the market before exiting; only to find out that
the market moved several hundred pips after they exited!
My secret to taking the big moves in the Forex Market is a clinical
approach I call ‘FX Waves’. FX Waves is a study on the markets which
I took about three years to develop. Once you understand FX Waves,
taking the big moves becomes a lot easier. Before diving into the specifics
of FX Waves, I would like to introduce the term ‘Fraction Theory’.
Grasping the essence of Fraction Theory is paramount to understanding
the inner workings of FX Waves. Let’s get right into it.
79
FRACTION THEORy
A few years ago, one of my early mentors taught me a simple but

powerful concept. I shall call it the ‘Fraction Theory’. Let’s use the
EUR/USD to illustrate this concept.
Suppose the current price for EUR/USD is now 1.3365. Instead
of writing it as:
EUR/USD = 1.3365
Let’s write it as a fraction:

EUR
= 1.3365
USD
In this case, EUR is the numerator and USD is the denominator. If

the numerator becomes bigger while the denominator keeps constant,
the entire value of the fraction becomes bigger. This means that if the
euro strengthens, the EUR/USD currency pair will head higher.
Similarly, if the denominator becomes bigger while the numerator
remains constant, the entire value of the fraction becomes smaller.
This means that if the US dollar strengthens, the EUR/USD currency
pair will head lower. The crux of the fraction theory is in pairing
the strongest currency against the weakest currency at any point in
time. If we pair the strongest currency in the numerator against the
weakest currency in the denominator, we get a strong uptrend. Our
job in this case is to go long. If we pair the weakest currency in the
numerator against the strongest currency in the denominator, we get
a strong downtrend. Our job in this case is to go short.
Here’s an example of the Fraction Theory at play:
On April 3, 2012, Federal Reserve policymakers announced that

they would consider additional stimulus only if the economy
lost momentum or if inflation stayed below the 2 percent target.
This contrasted with their January meeting minutes, in which
some policymakers saw the economy requiring additional action
80
FX WAVES
‘before long’. The Federal Open Market Committee minutes

were more hawkish than expected and caught the market by
surprise, which strengthened the US dollar.
On April 3, 2012, Federal Reserve policymakers announced that they would consider
On the same day, Spain held its bond auction program. The
additional stimulus only if the economy lost momentum or if inflation stayed below the 2
percent auction proved
target. This to be awith
contrasted hugetheir
disappointment as Spain
January meeting minutes,managed
in which some
policymakers saw the economy requiring additional action ‘before long’. target
to sell only 2.69 billion euros out of a maximum of Open
The Federal
Market 3.5 billionminutes
Committee euros.were
Additionally,
more hawkishSpanish credit-default
than expected and caughtswaps
the market by
surprise,widened
which strengthened the US dollar.
out to 450 basis points—the highest reading in three
On the same day, Spain held its bond auction program. The auction proved to be a huge
months. This event weakened the euro.
disappointment as Spain managed to sell only 2.69 billion euros out of a maximum target of
3.5 billion euros. Additionally, Spanish credit-default swaps widened out to 450 basis points—
Using
the highest Fraction
reading TheoryThis
in three months. to event
explain thesetheevents,
weakened euro. we can say that
the euro weakened because of Spain’s disappointing bond auction,
Using Fraction
while theTheory to explain
US dollar these events, because
strengthened we can say of
thatthe
the hawkish
euro weakened because
stance by of Spain’s
disappointing bond auction, while the US dollar strengthened because of the hawkish stance by the Federal
the Federal Reserve. This combined action caused the EUR/USD to
Reserve. This combined action caused the EUR/USD to plummet, free-falling 300 pips in 1 day.
plummet, free-falling 300 pips in 1 day.
Figure
Figure4.1
4.1EUR/USD
EUR/USDPlummets 300Pips
Plummets 300 Pips
Source:
Source: Created with FX
Created with FX Primus
Primus Ltd.
Ltd. All
Allrights
rights reserved.
reserved.
FX WAvES PHENOmENON
FX WAVES PHENOMENON
The powerThe power

of the of Theory
Fraction the Fraction Theory set
set the foundation forthe
my foundation forresearch
ground-breaking my ground-
called FX Waves.
This is mybreaking
secret to creating massive, sustainable wealth in the Forex Market.
research called FX Waves. This is my secret to creating
During the global
massive, financial crisis,
sustainable the entire
wealth world
in the sat and
Forex watched as the financial world went into
Market.
meltdown. It was during this time that I began my research. Just how bad was the financial fiasco? Let’s
have a look. The first notable investment bank to fail was Bear Stearns. In March 2008, the Federal Reserve
81
Bank of New York provided an emergency loan to Bear Stearns in attempt to avert a sudden collapse of the
company. However, the company could not be saved and was sold to JP Morgan Chase for USD10 per
During the global financial crisis, the entire world sat and watched
as the financial world went into meltdown. It was during this time that
I began my research. Just how bad was the financial fiasco? Let’s have
a look. The first notable investment bank to fail was Bear Stearns.
In March 2008, the Federal Reserve Bank of New York provided
an emergency loan to Bear Stearns in an attempt to avert a sudden
collapse of the company. However, the company could not be saved
and was sold to JP Morgan Chase for USD10 per share, a price far
below its pre-crisis 52-week high of USD133.20 per share, but not
as low as the USD2 per share originally agreed upon by Bear Stearns
and JP Morgan Chase.
On 14 September 2008, the Bank of America announced that it
was buying Merrill Lynch in an all-stock deal worth USD50 billion.
Without the deal, Merrill Lynch would have become bankrupt. After
the acquisition, Bank of America became the world’s largest wealth
management corporation and enjoyed status as one of America’s
four largest banks – alongside Citigroup, JPMorgan Chase and
Wells Fargo.
On 15 September 2008, Lehman Brothers filed for bankruptcy. At
the time of its filing, the company was holding over USD600 billion
in assets, earning itself the dubious tag of the largest bankruptcy filing
in the history of the US. On 16 September 2008, the Federal Reserve
announced that it would provide an emergency loan to the tune of
USD85 billion to rescue the huge insurer AIG. Just the day before,
Lehman had been allowed to fail, but the regulators determined that
a disorderly failure of AIG would hurt the already delicate financial
markets and send shockwaves throughout the global economy. In
return, the government would receive a 79.9 percent equity stake
in AIG.
On 21 September 2008, the Federal Reserve announced that the
remaining two independent investment banks, Goldman Sachs and
Morgan Stanley, would become bank holding companies. The move
ended the supremacy of the two largest securities firms, 75 years after
the US Congress separated them from deposit-taking lenders. It was
also a signal that the Federal Reserve would not allow Goldman
82
FX WAVES
Sachs or Morgan Stanley to fail.

What a week on Wall Street!
To say that markets fell is a gross understatement.
On 29 September 2008, after the markets had a bit of time to
access the colossal damage on Wall Street, the Dow plummeted 777.68
points – its biggest one-day point drop in history – to close down 7
percent at 10365.45. The S&P 500 also logged its biggest one-day
point drop, falling 106.59, or 8.8 percent, to 1106.42. The Nasdaq
had its biggest one-day point decline since 2000, falling 199.61, or
9.1 percent, to 1983.73. The CBOE Volatility Index, widely viewed
as the best gauge of fear in the market, surged 33 percent to a record
46.72. The VIX hadn’t been above 40 in more than 10 years.
As a consequence of the financial crisis, safe haven assets such as
the Japanese yen, the Swiss franc, the US dollar and gold were more
attractive compared to other currencies during this period of time.
Figure 4.2 NZD/JPY

Figure 4.2 NZD/JPY Falls
FallsininFavour
Favour of
of Yen
Yen
83
Figure 4.3EUR/CHF
Figure4.3 EUR/CHF FallsFallsininFavour
FavourofofSwiss
SwissFranc
Franc
Source: Created
Source: with
Created withFX
FX Primus Ltd.AllAll
Primus Ltd. rights
rights reserved.
reserved.
84
FX WAVES
Figure 4.4 AUD/USD Falls in Favour of U.S. Dollar

Figure 4.4 AUD/USD Falls in Favour of U.S. Dollar
It was truly a time of financial Armageddon.

My research It on
was FXtruly
Wavesa started
time ofbecause
financial
of theArmageddon.
unprecedented moves in the markets following the
My research
global financial crisis. Two years on
later,FX Waves started
I completed because
my research and I of
wasthe unprecedented
ready to test it. Here are the seven
key points onmoves
FX Waves:in the markets following the global financial crisis. Two years
• later,
FX Waves areIcategorised
completedbymy research
large trendingand I was
moves in theready
Forexto test it. Here are the
Market
seven key points on FX Waves:
• These huge moves are caused by emotions such as fear and panic or hope and greed
• They occur in both uptrends and downtrends
• FX Waves are categorised by large trending moves in the Forex
• These hugeMarket
moves are typically over 500 pips in each event
• • These
FX Waves huge
are caused moves aregeo-political
by significant caused byoremotions
economic such
eventsas fear and panic
• In times oforhope
hopeandand greed
greed, currencies like the Australian dollar, the Canadian dollar, the New
Zealand dollar, the euro and the British pound tend to strengthen
• In times of fear and panic, currencies like the US dollar, the Japanese yen and the Swiss franc tend to
85
strengthen
• They occur in both uptrends and downtrends

• These huge moves are typically over 500 pips in each event
• FX Waves are caused by significant geo-political or economic
events
• In times of hope and greed, currencies like the Australian dollar,
the Canadian dollar, the New Zealand dollar, the euro and the
British pound tend to strengthen
• In times of fear and panic, currencies like the US dollar, the Japanese
yen and the Swiss franc tend to strengthen
Risk-on
In times of hope and greed, appetite for risk increases. This leads to
a ‘risk-on’ scenario where traders move money into risk assets like
equities, commodities and currencies with higher yields. In the Forex
market, the five ‘risk-on’ currencies are the Aussie, Kiwi (NZD),
Loonie (CAD), euro and sterling. Conversely, traders would move
money out of cash positions or low/no-risk positions such as US
Treasury bonds.
From the five currencies above, the Aussie, Kiwi and Loonie
would rise the most. This is because the three nations are rich in
commodities. In a risk-on environment, traders would move money
into commodities and commodity-backed currencies like the Aussie,
Kiwi and Loonie. This causes the currencies to rise. These currencies
are sometimes termed the ‘commodity currencies’.
Australia
Here are three reasons why the Aussie is considered a leading
commodity currency that tends to rise in a risk-on environment:
• Commodities. Australia is one of the world’s most resource-rich

countries. It is home to large holdings of gold, iron, coal and
aluminium. Australia also has very large farms that produce goods
such as wheat, beef and wool. In a risk-on environment, money
flows into commodities, causing the Aussie to rise.
86
currencies to rise. These currencies are sometimes termed the ‘commodity currencies’.
Australia
Here are three reasons why the Aussie is considered a leading commodity currencyFX
that tends to rise in a
WAVES
risk-on environment:
• • Interest
Commodities. Rates.
Australia is oneAustralia
of the world'shas
mostone of the highest
resource-rich countries.interest
It is homerates
to large holdings
of gold, iron,
amongcoal the
and G20
aluminium. Australia
nations. also has very
In a risk-on large farms that
environment, moneyproduce
flowsgoods such as
wheat, beef
to countries with high interest rates, including Australia. This the Aussie
and wool. In a risk-on environment, money flows into commodities, causing
to rise.
causes the Aussie to rise.
• Interest Rates. Australia has one of the highest interest rates among the G20 nations. In a risk-on
environment,
• China. money flowsistothe
China countries
world’s with high interest
largest exporter rates,
and including Australia.
Australia’s This causes the
largest
Aussie to rise.
trading partner. In a risk-on environment, world demand increases,
• China. China is the
causing world’s
China largest exporter
to export and Australia's
more goods out to thelargest
world.trading
This partner.
directlyIn a risk-on
environment, world demand increases, causing China to export more goods out to the world. This
impacts the amount of raw materials it gets from Australia, which
directly impacts the amount of raw materials it gets from Australia, which ultimately causes the
ultimately causes the Aussie to rise.
Aussie to rise.
Figure 4.5 Australia’s Commodity Exports in 2012

Figure 4.5 Australia’s Commodity Exports in 2012
Source: Bureau of Resources and Energy Economics,
Source: Bureau of ResourcesEnergy
and Energy Economics,
Information Energy Information Administration
Administration
New Zealand
Here are three reasons why the Kiwi is considered a leading commodity
currency that tends to rise in a risk-on environment:
• Interest Rates. New Zealand has one of the highest interest rates
among the developed nations. In a risk-on environment, money
flows to countries with high interest rates. In March 2014, New
Zealand became the first central bank amongst the developed
nations to hike interest rates for the first time in almost four years,
87
raising the benchmark rate from 2.5 percent to 2.75 percent. In

April 2014, the Reserve Bank of New Zealand (RBNZ) raised
rates a second successive time to 3 percent.
• Agriculture. New Zealand’s economy has been based on a

foundation of exports from its very efficient agricultural system.
Leading agricultural exports include meat, dairy products, forest
products, fruit and vegetables, fish, and wool. These resources result
in the country’s economy being heavily exposed to international
commodity prices. When money flows into commodities in a
risk-on environment, the Kiwi tends to rise.
• Proximity. Australia and New Zealand are partners in ‘Closer

Economic Relations’ (CER), which allows for free trade in goods
and most services. Since 1990, CER has created a single market
of more than 25 million people, and this has provided new
opportunities for New Zealand exporters. Australia is now the
destination of 19 percent of New Zealand’s exports, compared
to 14 percent in 1983. Both sides have also agreed to consider
extending CER to product standardisation and taxation policy. As
close trading partners, their currencies move almost in lock-step
to one another. In fact, the AUD/USD and NZD/USD currency
pairs have consistently demonstrated a high 85 percent positive
correlation over the last few years. This tells us that if the Aussie
goes up, there’s an 85 percent chance that the Kiwi will head up
as well.
Canada
Here are three reasons why the Loonie is considered a leading
commodity currency that tends to rise in a risk-on environment:
• Economy. According to a report by the International Monetary

Fund (IMF) in 2013, Canada is ranked 9th in the world in terms
of GDP per capita and enjoys a high standard of living. As a
member of the G7, Canada belongs to a special group which
88
fx waves
boasts more than 63 percent of the net global wealth (USD241

trillion) according to the Credit Suisse Global Wealth Report in
October 2013. Canada was also one of the founding members of
the Organisation for Economic Co-operation and Development
(OECD), which is an international economic organisation of
34 countries founded in 1961 to stimulate economic progress and
world trade. With a long coastal line, Canada has the 8th largest
commercial fishing and seafood industry in the world. It also
enjoys close geographic proximity with the US, the world’s largest
economy. The US is Canada’s largest trading partner. According
to data from the office of the United States Trade Representative,
two-way trade between US and Canada totalled USD632 billion
in 2013.1 As much as 75 percent of Canada’s exports land in the
US.
• Oil. Canada is blessed with large quantities of commodities

including natural gas, timber and oil. Data from the US Energy
Information Administration (EIA) shows that Canada is the 12th
largest oil exporter in the world.2 This makes Canada’s economy
very sensitive to oil prices. In a risk-on environment, oil demand
goes up, causing the Loonie to head up as well.
1
http://www.ustr.gov/countries-regions/americas/canada
2
http://www.eia.gov/countries/index.cfm?topL=exp
89
oil exporter
UNLOCKING THEin the world.2 This
WORLD’S makes Canada’s
LARGEST economySECRET
FINANCIAL very sensitive to oil prices. In a risk-on
environment, oil demand goes up, causing the Loonie to head up as well.
FigureFigure
4.6 Top World
4.6 Top World Oil Net
Oil Net Exporters
Exporters in 2012in 2012
• Interest rates. As of 1 May 2014, Canada has the highest interest rate among the G7 nations,
• Interest 1 percentAs
holding atRates. ofSeptember
since 1 May2010. 2014, In a Canada has themoney
risk-on environment, highest interest
flows to countries
with relatively higher interest rates.
rate among the G7 nations, holding at 1 percent since September
2010. In a risk-on environment, money flows to countries with
Risk-off
In times of fear and higher
relatively panic, appetite for risk decreases.
interest rates. This leads to a ‘risk-off’ scenario, where traders move
money away from risk assets like equities, commodities and currencies with higher yields to relatively safer
assets. These assets include bonds, gold and silver, and currencies with low yields like the US dollar,
Japanese yen and Swiss franc. These three currencies are sometimes called ‘safe haven currencies’ because
Risk-off
In times of fear and panic, appetite for risk decreases. This leads
tohttp://www.eia.gov/countries/index.cfm?topL=exp
2 a ‘risk-off’ scenario, where traders move money away from risk
assets like equities, commodities and currencies with higher yields
to relatively safer assets. These assets include bonds, gold and silver,
and currencies with low yields like the US dollar, Japanese yen and
Swiss franc. These three currencies are sometimes called ‘safe haven
currencies’ because traders seek refuge in the safety of these currencies
when markets are in panic mode. Safe haven currencies are expected
to serve as a reliable and stable store of value.
90
traders seek refuge in the safety of these currencies when markets are in panic mode. Safe haven currencie
fx waves
are expected to serve as a reliable and stable store of value.
US
US
Here are three reasons why the greenback is considered a leading safe
Here are three reasons why the greenback is considered a leading safe haven currency that tends to rise in a
haven currency that tends to rise in a risk-off environment:
risk-off environment:
• Reserve currency. A reserve
• Reserve currencyAisreserve
Currency. a currency that
currencyis held
is aincurrency that
significant quantities
is heldby government
and institutions
in significant quantities by governments and institutions asused
as part of their foreign exchange reserves. It is also commonly partin internationa
transactions. of
Latest figures fromexchange
their foreign the IMF reserves.
show that Ittheis US
alsois commonly
still the dominant
used inreserve currency
accounting for over 60 percent of the world’s Forex reserves (see figure below).
international transactions. Latest figures from the IMF show that
the US is still the dominant reserve currency, accounting for over
60 percent of the world’s Forex reserves (see figure below).
Figure4.7
Figure 4.7Majority
Majority of
of World’s
World’s Forex
ForexReserves
ReservesHeld
Heldin
inUS
US Dollars
Dollars3 3
• Bond Market. According to the Bank for International Settlement

• Bond market. According to the Bank for International Settlement (BIS) quarterly review issued in
(BIS) quarterly review issued in March 2014, the amount of debt
March 2014, the amount of debt globally has soared more than 40 percent to USD100 trillion since
globally has soared more than 40 percent to USD100 trillion since
the first signs of the financial crisis in mid-2007. The USD30 trillion increase from USD70 trillion
the first signs of the financial crisis in mid-2007. The USD30 trillion
between mid-2007 and mid-2013 is almost twice the US’s GDP. The US holds the #1 rank as the
largest bond increase
issuer in from USD70 trillion between mid-2007 and mid-2013
the world, primarily because it also holds the record of the world’s larges
is almost
deficit. The sheer size of twice
the USthe US’s
bond GDP.ensures
market The US thatholds the
there is #1 rank
enough as the
liquidity to absorb capita
largest bond issuer in the world,
when money rushes into bonds in times of fear and panic. primarily because it also holds
the record of the world’s largest deficit. The sheer size of the US
• Interest rates. The US has one of the lowest interest rates in the developed world. In a risk-off
environment,
3 money deleverages and flows back to countries with relatively lower interest rates
http://www.gailfosler.com/u-s-dollar-forever-interview-catherine-schenk
causing the currency to rise.
91
bond market ensures that there is enough liquidity to absorb capital

when money rushes into bonds in times of fear and panic.
• Interest Rates. The US has one of the lowest interest rates in the
developed world. In a risk-off environment, money deleverages
and flows back to countries with relatively lower interest rates,
causing the currency to rise.
Japan
Here are three reasons why the Japanese yen is considered a leading
safe haven currency that tends to rise in a risk-off environment:
• Top Creditor. In May 2013, The Wall Street Journal reported that
Japan held its position as the world’s largest creditor nation for the
22nd consecutive year.4 Japan’s net foreign assets – the difference
between its holdings of overseas assets, such as foreign currencies
and US Treasuries, and its liabilities, such as Japanese equities and
government debt held by foreigners – stood at JPY296.32 trillion
(USD2.93 trillion) at the end of 2012. That was up JPY30.89
trillion from a year earlier, and eclipsed the previous record of
JPY268 trillion in 2009. In a risk-off environment, creditor nations
are regarded as more stable, thus attracting money in the midst
of financial turmoil.
• Liquidity. The triennial central bank survey released by the BIS

in September 2013 showed that yen trading surged 63 percent
between 2010 and 2013. The survey also showed that the yen
held 23 percent of all Forex transactions worldwide, behind only
the euro and the US dollar. Much of the liquidity is driven by
Japanese government bonds (JGBs) which are fully backed by the
government. In a risk-off environment, money flows to low-risk
assets like high quality bonds.
4
http://online.wsj.com/news/articles/SB1000142412788732385580457851022180236
4326
92
fx waves
• Interest Rates. Japan has one of the lowest interest rates in the
developed world. In a risk-on environment, the yen is a preferred
candidate for the ‘carry trade’. A carry trade is the act of borrowing
money in a low interest rate environment and investing it in higher
yielding assets from other countries. In a risk-off environment,
money deleverages and flows back to Japan, causing the currency
to rise.
Switzerland
Here are three reasons why the Swiss franc is considered a leading
safe haven currency that tends to rise in a risk-off environment:
• Perception. It is a common belief that the Swiss franc is still backed

by gold. Not anymore though. In April 1999, Swiss voters approved
a new Constitution that eliminated the traditional requirement for
the country’s currency to be backed by gold. However, it is this
common belief that continues to form part of its allure. What also
helps the franc is the fact that Switzerland is one of the world’s
top ten holders of gold reserves.
• Sovereignty. Switzerland is not part of the European Union (EU). In

2001, the EU membership was voted against by the Swiss public in
a referendum. Interestingly enough, the EU is today Switzerland’s
largest trading partner, with over 120 bilateral agreements between
them. Switzerland thus gets to enjoy the best of both worlds –
maintaining its sovereign, while being a key trading partner to the
entire EU. In a risk-off environment, money in the EU countries
tends to move into Switzerland.
• Forex Reserves. The Swiss National Bank (SNB) has amassed record
foreign-exchange reserves through currency-market interventions
to defend the cap of 1.20 per euro it set on the franc in September
2011. The Zurich-based central bank’s holdings stood at 437.7
billion Swiss francs in January 2014, compared with 435.2 billion
93
francs in December 2013. The SNB’s fourth largest Forex reserves

in the world gives confidence in a risk-off environment.
From the research above, we can deduce that:
1. In times of hope and greed, currencies such as the Australian

dollar, the Canadian dollar, the New Zealand dollar, the euro
and the British pound will strengthen, while safe haven currencies
such as the US dollar, the Japanese yen and the Swiss franc will
weaken.
EUR
GBP USD
AUD JPY
CAD CHF
NZD
From the diagram above, we see that when hope and greed are
the dominant sentiments in the market, some of the currency pairs
will move in an uptrend, namely:
• EUR/USD
• AUD/USD
• NZD/JPY
• CAD/JPY
• AUD/CHF
• GBP/CHF
94
fx waves
2. In times of fear and panic, currencies such as the Australian dollar,

the Canadian dollar, the New Zealand dollar, the euro and the
British pound will weaken, while safe haven currencies such as the
US dollar, the Japanese yen and the Swiss franc will strengthen.
EUR
GBP USD
AUD JPY
CAD CHF
NZD
From the diagram above, we see that when fear and panic are
the dominant sentiments in the market, the same currency pairs will
move in a downtrend:
• EUR/USD
• AUD/USD
• NZD/JPY
• CAD/JPY
• AUD/CHF
• GBP/CHF
95
FX Waves in 2010
Greece and Ireland

On 2 May 2010, every major newswire reported that Greece had
accepted a record bailout from the European Central Bank (ECB),
European Commission (EC) and the International Monetary Fund
(IMF).
The international aid package for the debt-stricken country
was worth 110 billion euros over three years, and Greece had to
commit itself to years of painful austerity. In exchange for by far the
largest bailout ever assembled for a country, Prime Minister George
Papandreou announced further spending cuts and tax increases
totalling 30 billion euros over 3 years on top of the tough measures
already taken.5
The ‘dominant sentiment’ in the markets during that time was
that of fear and panic. This caused the risk currencies to fall and the
safe haven currencies to rise.
Figure 4.8 EUR/USD Dropped 1,213 Pips in May 2010

Figure 4.8 EUR/USD Dropped 1,213 Pips in May 2010
5
http://money.cnn.com/2010/05/02/news/international/greece_bailout/
After the Greek bailout, global policymakers put together an emergency rescue package worth about
96
750 billion euros to stabilise world financial markets. The package, hammered out by EU finance
ministers, central bankers and the IMF in marathon weekend talks, was the largest in more than two years
fx waves
After the Greek bailout, global policymakers put together an

emergency rescue package worth about 750 billion euros to stabilise
world financial markets. The package, hammered out by EU finance
ministers, central bankers and the IMF in marathon weekend talks,
was the largest in more than two years since G20 leaders threw
money at the global economy following the collapse of Lehman
Brothers in 2008.
On 22 November 2010, there was another casualty – Ireland.
EU finance ministers backed Ireland’s request for a three-year
package of loans totalling about 85 billion euros. Over 35 billion
euros would go towards propping up the Irish banking system with
the remaining 50 billion euros to help the government’s day-to-day
spending.
The crisis in the Irish Republic was brought on by the global
recession and the almost total collapse of the country’s debt-ridden
banks.
Did this bring about a similar case of fear and panic experienced
by the Greek saga just a few months before? You bet it did!
Figure
Figure 4.94.9 EUR/USDPlunged
EUR/USD Plunged 1,310
1,310 Pips
PipsininNovember
November2010
2010
Source:Created
with FX Primus Ltd.
FX Primus All rights
reserved.
97
Figure 4.9 EUR/USD Plunged 1,310 Pips in November 2010
Figure 4.10 GBP/USD Fell 605 Pips in November 2010

Figure 4.10 GBP/USD Fell 605 Pips in November 2010
FX WAvES IN 2011
Mubarak Steps Down

On 11 February 2011, Egyptian Vice-President Omar Suleiman
announced in a televised address that President Hosni Mubarak had
resigned from his post, handing over power to the Supreme Council
of the armed forces. Suleiman’s short statement was received with a
roar of approval and by celebratory chanting and flag-waving from
a crowd of hundreds of thousands in Cairo’s Tahrir Square. The
crowds in Tahrir were reportedly chanted, “We have brought down
the regime!”, while many were seen crying, cheering and embracing
one another.
The dominant sentiment here is hope. Let’s see how the currency
market reacted:
98
and flag-waving from a crowd of hundreds of thousands in Cairo's Tahrir Square. The crowds in Tahrir were
reportedly chanted, “We have brought down the regime!”, while many were seen crying, cheering and
embracing one another.
FX WAVES
The dominant sentiment here is hope. Let’s see how the currency market reacted:
Figure 4.11 GBP/JPY Rose 463 Pips in February 2011

Figure 4.11 GBP/JPY Rose 463 Pips in February 2011
Figure 4.12 Oil Price Trended Higher in February 2011

Figure 4.12 Oil Price Trended Higher in February 2011
Oil prices were rising due to concerns that the turmoil could spread into neighbouring countries or
even major oil producers further afield, such as Saudi Arabia. The unrest in Egypt followed the recent
overthrow of the regime in Tunisia, adding to the nervousness that more chaos could engulf the Middle
East, which accounts for almost a third of the world's oil production.6
Japan Earthquake
On 11 March 2011, a massive earthquake with a magnitude of 9.0 erupted off the Pacific coast of Tōhoku.
It was the most powerful earthquake ever recorded to have hit Japan, and the 5th most powerful earthquake
in the world since modern record-keeping began in 1900. The earthquake triggered powerful tsunami
99 over 10 km inland in some areas.
waves that reached heights of up to 40.5 m and travelled
On 10 February 2014, a Japanese National Police Agency report confirmed 15,884 deaths, 6,148
injured, and 2,633 people missing across twenty prefectures, as well as 127,290 buildings totally collapsed,
Oil prices were rising due to concerns that the turmoil could spread
into neighbouring countries or even major oil producers further
afield, such as Saudi Arabia. The unrest in Egypt followed the recent
overthrow of the regime in Tunisia, adding to the nervousness that
more chaos could engulf the Middle East, which accounts for almost
a third of the world’s oil production.6
Japan Earthquake
On 11 March 2011, a massive earthquake with a magnitude
¯
of 9.0 erupted off the Pacific coast of Tohoku. It was the most
powerful earthquake ever recorded to have hit Japan, and the 5th
most powerful earthquake in the world since modern record-keeping
began in 1900. The earthquake triggered powerful tsunami waves
that reached heights of up to 40.5 m and travelled over 10 km inland
in some areas.
On 10 February 2014, a Japanese National Police Agency report
confirmed 15,884 deaths, 6,148 injured, and 2,633 people missing
across twenty prefectures, as well as 127,290 buildings totally
collapsed, with a further 272,788 buildings ‘half collapsed’, and
another 747,989 buildings partially damaged. Japan’s economic losses
were massive, estimated at USD210 billion in the first nine months
following the disaster. This earthquake earned Japan the tag of the
costliest natural disaster in history.
Clearly a case of fear and panic for the markets, check out how
the safe haven currencies reacted after the earthquake:
6
http://www.theguardian.com/business/2011/jan/31/egypt-turmoil-pushes-oil-over-100-
dollars
http://www.nytimes.com/2011/02/12/world/middleeast/12egypt.html?pagewanted=all&_
r=0
100
FX WAVES
Figure 4.13
Figure 4.13 AUD/JPYDropped
AUD/JPY Dropped 1,020
1,020Pips
Pipsinin
March 2011
March 2011
Source:Created
with FX
FX Primus
Primus Ltd.
Ltd. All
All rights
rights reserved.
reserved.
Figure 4.13 AUD/JPY Dropped 1,020 Pips in March 2011
Figure 4.14 GBP/CHF Plummeted 1,056 Pips in March 2011

Source:
Figure 4.14Created
GBP/CHFwith FX Primus Ltd.
Plummeted AllPips
1,056 rights
in reserved.
March 2011
Figure 4.14 GBP/CHF Plummeted 1,056 Pips in March 2011
Source:Created
Source: Createdwith
with FX
FXPrimus
Primus Ltd.
Ltd. All
Allrights
rights reserved.
reserved.
A common question I received during the time of the earthquake was: “Why is the Japanese yen
strengthening in spite
A common of the earthquake?
question Shouldn’t
I received during it be of
the time weakening instead?”
the earthquake was: “Why is the Japanese yen
strengthening in spite of the earthquake? Shouldn’t 101
it be weakening instead?”
A common question I received during the time of the earthquake

was: “Why is the Japanese yen strengthening in spite of the earthquake?
Shouldn’t it be weakening instead?”
It’s a good question.
The answer is that unlike most countries, the Japanese yen is
considered a safe haven currency. In times of fear and panic, money
flows into safe haven assets. Hence, while the disaster happened in
Japan – which would have caused capital outflows in most other
countries – the event was viewed as a “global catastrophe” by the
markets. In times of global catastrophes, money flows into safe haven
assets. It just so happened that in this case, the earthquake happened
in a “country that has a currency that is considered a global safe
haven.” This is the reason why the Japanese yen strengthened.
The same scenario happened in US in September 2008. Although
huge investment banks were failing, the US dollar still strengthened
because the greenback is considered one of the world’s safe haven
currencies.
FX WAvES IN 2012
UK Falls into Double-dip Recession

On 25 April 2012, BBC News carried the following headlines: “UK
economy in double-dip recession.”7 In market talk, a recession is
defined as two consecutive quarters of negative growth. The economy
had shrunk by 0.3 percent in the fourth quarter of 2011 and the reading
for the first quarter of 2012 was negative 0.2 percent. According
to the Office for National Statistics, a sharp fall in construction
output was behind the surprise contraction. A recession in itself is
considered an economic taboo. A double-dip recession – which refers
to a recession followed by a short-lived recovery, followed by another
recession – is even worse.
Fear and panic or hope and greed? Let’s have a look at the GBP/
USD chart.
7
102
percent. According to the Office for National Statistics, a sharp fall in construction output was behind the
surprise contraction. A recession in itself is considered an economic taboo. A double-dip recession – which
refers to a recession followed by a short-lived recovery, followed by another recession – is even worse.
FX WAVES
Fear and panic or hope and greed? Let’s have a look at the GBP/USD chart.
Figure 4.15 GBP/USD Fell 663 Pips amid U.K’s Double-Dip Recession
Figure 4.15 GBP/USD Fell 663 Pips amid U.K’s Double-Dip Recession
European Central Bank Ready to Do “Whatever it Takes”

26 July 2012 was the day. In a speech at the Global Investment
7
Conference in London, European Central Bank (ECB) President
Mario Draghi said that policymakers would do “whatever it takes”
to preserve the euro, suggesting the ECB could intervene in bond
markets as surging yields in Spain and Italy threatened the existence
of the euro.8 The ECB had previously discontinued the Securities
Market Programme (SMP) in March, after buying about 220 billion
euros of government bonds in 2010 and 2011 under the programme.
Here’s an excerpt from Draghi’s speech:
“To the extent that the size of these sovereign premia hamper the
functioning of the monetary policy transmission channel, they come
within our mandate. Within our mandate, the ECB is ready to do
whatever it takes to preserve the euro,” he said, adding: “[and] believe
me, it will be enough.”
8
http://www.bloomberg.com/news/2012-07-26/draghi-says-ecb-to-do-whatever-needed-
as-yields-threaten-europe.html
103
Programme (SMP) in March, after buying about 220 billion euros of government bonds in 2010 and 2011
under the programme. Here’s an excerpt from Draghi’s speech:

“To the extent that the size of these sovereign premia hamper the functioning of the
monetary policy transmission channel, they come within our mandate. Within our
The merethehint
mandate, ECB isthat
readythe
to doECB would
whatever it takesact to lower
to preserve borrowing
the euro, costs
” he said, adding:
in “[and] believe me, it will be enough.”
some of the troubled countries like Spain and Italy sent the EUR/
USD sky high. At the time, Spain’s bond yields had risen to levels
The mere
that hint that the
prompted ECB would
bailouts foract to lower borrowing
Greece, costs in
Ireland and some of the troubled countries
Portugal.
like Spain and Italy sent the EUR/USD sky high. At the time, Spain’s bond yields had risen to levels that
The statement by Draghi sent EUR/USD upwards into a positive
prompted bailouts for Greece, Ireland and Portugal.
wave:
The statement by Draghi sent EUR/USD upwards into a positive wave:
Figure 4.16 EUR/USD Rallies More Than 1,000 Pips

Figure 4.16 EUR/USD Rallies More Than 1,000 Pips
FX WAvES IN 2013
Federal Reserve Talks about Winding Down Stimulus

8 http://www.bloomberg.com/news/2012-07-26/draghi-says-ecb-to-do-whatever-needed-as-yields-threaten-europe.html
On 19 June 2013, Federal Reserve Chairman Ben Bernanke mentioned
that the Federal Reserve could start winding down unprecedented
stimulus policies later that year. At the news conference after a two-
day Federal Reserve meeting, Bernanke said that a key marker for the
decision was a drop in the jobless rate, which stood at 7.6 percent at
the time. This was the first time the Federal Reserve had talked about
scaling back the massive USD85 billon monthly bond purchases and
markets naturally reacted. Fears that “easy money was vanishing”
started gripping the market.
Let’s have a look at how the AUD/USD chart reacted:
104
Federal Reserve meeting, Bernanke said that a key marker for the decision was a drop in the jobless rate,
which stood at 7.6 percent at the time. This was the first time the Federal Reserve had talked about scaling
back the massive USD85 billon monthly bond purchases and markets naturally reacted. Fears that “easy
money was vanishing” started gripping the market. FX WAVES
Let’s have a look at how the AUD/USD chart reacted:
Figure 4.17 AUD/USD Drops as USD Strengthens

Figure 4.17 AUD/USD Drops as USD Strengthens
Canada Warns of Deflation

On 12Canada
DecemberWarns
2013, BankofofDefl ation
Canada governor Stephen Poloz addressed a business audience at the
On 12 December 2013, Bank
Canadian Club in Montreal. Among other of Canada
things, Poloz governor
emphasised that he needed Stephen
to keep interestPoloz
rates
at historically low levels to head off the risk of deflation that would have dire consequences for the
addressed a business audience at the Canadian Club in Montreal.
Canadian economy.9 He went on to say that this would actually be cutting interest rates, if not for fears that
Among
the cut would addother
more things,
fuel to anPoloz
already emphasised that
overheated housing he needed
market and near to keep interest
record-high levels of
household debt. Worries over the prospects of the Canadian economy sent the Canadian dollar lower
rates at historically low levels to head off the risk of deflation that
against the US dollar:
would have dire consequences for the Canadian economy.9 He went on
to say that this would actually be cutting interest rates, if not for fears
that the cut would add more fuel to an already overheated housing
market and near record-high levels of household debt. Worries over
the prospects of the Canadian economy sent the Canadian dollar
lower against the US dollar:
9 http://business.financialpost.com/2013/12/12/risks-remain-at-top-of-bank-of-canadas-radar-poloz-says/
9
http://business.financialpost.com/2013/12/12/risks-remain-at-top-of-bank-of-canadas-
radar-poloz-says/
105
FigureDollar
Figure 4.18 Canadian 4.18 Canadian Dollar toward
Weakens on Worries Weakens on Economy
Canadian
Worries over Canadian Economy
FX WAVES IN 2014
FX WAvES IN 2014
New Zealand Raises Interest Rates
On 30New January Zealand Raises
2014, Reserve BankInterest Rates (RBNZ) Governor Graeme Wheeler said in a
of New Zealand
statement in Wellington that the central bank intended to start raising borrowing costs “soon”.10 Although
On 30 January 2014, Reserve Bank of New Zealand (RBNZ) Governor
the central bank left rates unchanged at 2.5 percent that day, markets started pricing in the possibility that
Graeme
New Zealand wouldWheeler
become onesaid
of thein a developed
first statement intoWellington
nations raise benchmarkthat the
interest central
rates in the next
centralbank
bank policy meeting. This was because of recent positive GDP
intended to start raising borrowing costs “soon”. Although and housing data.
10
On 13 March 2014, the RBNZ increased interest rates 25 basis points from 2.5 percent to 2.75
the
percent – itscentral
first hikebank left
since July rates
2010. unchanged
11 Here’s the statementatby2.5 percent
Governor that day, markets
Wheeler:
started pricing in the possibility that New Zealand would become
one of the first developed nations to raise benchmark interest rates
in the next central bank policy meeting. This was because of recent
positive GDP and housing data.
On 13 March 2014, the RBNZ increased interest rates 25 basis
points from 2.5 percent to 2.75 percent – its first hike since July
2010.11
10 http://www.bloomberg.com/news/2014-01-29/rbnz-holds-key-rate-at-2-5-expects-to-start-increases-soon-.html
11 http://www.rbnz.govt.nz/news/2014/5655497.html
10
http://www.bloomberg.com/news/2014-01-29/rbnz-holds-key-rate-at-2-5-expects-to-
start-increases-soon-.html
11
http://www.rbnz.govt.nz/news/2014/5655497.html
106
FX WAVES
Here’s the chart of NZD/USD, when markets cheered the first

rate hike in over three years:
Figure 4.19 NZD/USD Strengthens after Rate Hike

Figure 4.19 NZD/USD Strengthens after Rate Hike
Here’s a tip on how to spot potential news which could trigger FX Waves in the Forex market. In all
Here’s
the examples a tip
above, the newson
was how toannouncement
either an spot potential
that hadnews which
no precedent or itcould trigger
was the first time it
FX Waves
had occurred in years. in thea flashback
Here’s Forex market.
on the events:In all the examples above, the news
1. was
2010: either ana announcement
Greece gets that had no precedent or it was the first
bailout (1st time in history)
2. time it had occurred in years. Here’s a flashback on the events:
2010: Ireland gets a bailout (1 st time in history)
3. 2011: Mubarak steps down (1st time in history)

4. 1.
2011:2010: Greece(biggest
Japan earthquake gets ainbailout
Japan’s history)(1st time in history)
5. 2.
2012:2010: Ireland
UK double-dip gets (1
recession a bailout
st
(1st time in history)
time in 3 years)
6. 2012: ECB to do “whatever it takes” (1
3. 2011: Mubarak steps down (1st time in history)st such statement in history)
7. 4.
2013:2011:
Fed talksJapan earthquake
about winding down stimulus (biggest
(1st timein
in Japan’s
history) history)
8. 2013:
5. CanadaUK
2012: warnsdouble-dip
of deflation (1 time
st in over three
recession years)
(1st time in 3 years)
9. 2014: New Zealand raises interest
6. 2012: ECB to do “whatever it takes” rates (1 st time in over three years)
(1st such statement in
history)
This is one of the important components of FX Waves – the element of surprise. Suffice to say,
7. 2013:
understanding Fed
the news – ortalks about
fundamental winding
analysis down
– is important stimulus
to enable (1st
you to jump on antime in
early trend
and catch the big moves. However, understanding the news alone is not enough. Although it resolves the
history)
issue of going long or short, what it doesn’t address is your specific entry and exit points. This is where
8. analysis
technical 2013:comes Canada
in. warns of deflation (1st time in over three years)
9. 2014: New Zealand
To be a world-class Forex trader, youraisesneed interest rates and
both fundamental (1sttechnical
time analysis.
in overWethree
will be
discussing some technical strategies in Chapter 7. For now, I leave you with this quote: “Fundamentally
years)
driven, technically executed.”
107
This is one of the important components of FX Waves – the element

of surprise. Suffice to say, understanding the news – or fundamental
analysis – is important to enable you to jump on an early trend and
catch the big moves. However, understanding the news alone is not
enough. Although it resolves the issue of going long or short, what
it doesn’t address is your specific entry and exit points. This is where
technical analysis comes in.
To be a world-class Forex trader, you need both fundamental and
technical analysis. We will be discussing some technical strategies in
Chapter 7. For now, I leave you with this quote: “Fundamentally
driven, technically executed.”
Summary
The theory of FX Waves is an important phenomenon that occurs

in the Forex market. The first step in understanding FX Waves is
to realise that market sentiment tends to oscillate between ‘risk-on’
and ‘risk-off’. In a risk-on environment, the dominant sentiments are
hope and greed. In such a scenario, five currencies will strengthen,
namely the euro (EUR), pound (GBP), Aussie (AUD), Kiwi (NZD)
and Loonie (CAD).
In a risk-off environment, the dominant sentiments are fear and
panic. In such a scenario, three currencies will strengthen, namely
the US dollar (USD), yen (JPY) and franc (CHF).
FX Waves are caused by significant geo-political or economic
events. In a typical event that triggers FX Waves, it is common to
see the market move over 500 pips.
108
C hapter 5
Key #5:
UNDERSTANDING YOUR
TRADING PLATFORM
“Man is a tool-using animal. Without tools

he is nothing, with tools he is all.”
Thomas Carlyle
MetaTrader 4, also known as MT4, is an online trading platform

developed by MetaQuotes Software for online trading in the Forex
market, contract for differences (CFDs) and futures markets. The MT4
software can be downloaded directly from the MetaQuotes website
or through online Forex brokers. It provides tools and resources that
allow traders to analyse price movements and manage trades, as well
as employ automated trading techniques.
Let’s run through how to fully utilise the MT4 platform.
The first thing that you need to do is to check whether your MT4
trading platform is connected to the Internet. Check the bottom
lefthand corner of the platform to see whether the connection bars
are half green and half red, or half green and half blue. You are not
connected if the bars are red with ‘No connection’ status (Figure
5.1).
109
Figure 5.1 FXPRIMUS MT4 Status Bar Showing No Connection

The main icons on the MT4 toolbar include (Figure 5.2):
• Market Watch
• Data Window
• Navigator
• Terminal
• New Order
Figure 5.2 FXPRIMUS MT4 Main Toolbar Icons

Market Watch
The Market Watch window shows a list of currency pairs and other
tradable instruments provided by the broker, along with corresponding
bid and ask prices. Two tabs are located at the bottom of the Market
Watch window: ‘Symbols’ and ‘Tick Chart’. Symbols shows the list
of trading instruments, while Tick Chart shows the current price
activity of any selected instrument.
As explained in the first chapter, currency are traded in pairs.
The bid price is the current selling price, while the ask price is the
current buying price. The difference between the ask and bid price
is the spread that you pay to the broker.
Different colours on the prices indicate the price movement. If
prices are falling, the bid and ask price will be in red. If prices are
rising, they will be blue. In order to pull up a chart for the pair you
wish to trade, right-click on the pair in the Market Watch list and
select ‘Chart Window’, as shown in Figure 5.3, or simply click and
drag the pair onto the chart.
110
spread that you pay to the broker.
Different colours on the prices indicate the price movement. If prices are falling, the bid and ask
price will be in red. If prices are rising, they will be blue. In order to pull up a chart for the pair you wish to
trade, right-click on the pair in the Market Watch list and select ‘ChartYOUR
UNDERSTANDING Window’ , as shown PLATFORM
TRADING in Figure 5.3, or
simply click and drag the pair onto the chart.
Figure 5.3 Opening a New Chart from Market Watch

Figure 5.3 Opening a New Chart from Market Watch
Data Window
Data Window
The Data Window shows the details of the price level pointed by your cursor on the chart. The details
The the
include Data Window
date and shows
time, as well the details
as the opening, closing,of the and
highest price level
lowest price,pointed by your
and volume.
cursor on the chart. The details include the date and time, as well as
the opening, closing, highest and lowest price, and volume.
Figure 5.4 Details on USD/CAD Pair on H4 Timeframe from Data Window

111
Chart prices are normally represented in three ways:
• Line charts
• Bar charts
• Candlestick charts
Line Chart
The line chart is plotted by connecting the closing prices over a
specific timeframe. With a simple line, the price trend of a particular
currency can be seen. The line chart is applicable for all currency
pairs, across all timeframes. As a trader, it is important to select the
timeframe that you are comfortable with. A short timeframe can help
you to spot minor trends for quick profits, while a longer timeframe
can help you to align yourself with the dominant trend. However,
the simplicity of the line chart comes with one glaring drawback:
Because all the line ever records is the closing price, traders are not
able to see any drastic moves prior to the close of the period. Hence,
traders are not able to utilise vital market information to aid their
decision-making process.
Figure 5.5 AUD/USD on an Hourly Timeframe

Figure 5.5 AUD/USD on an Hourly Timeframe
Bar Chart
A bar chart displays slightly more information than a line chart because it records the open, high, low, and
close of the market price for the currency pair. Unlike112
the line chart, which gives data at only one point in
time, the bar chart offers more data about the price changes during the selected timeframe. Bar charts are
sometimes referred to as OHLC charts, because they capture the price for open, high, low, and close.
UNDERSTANDING YOUR TRADING PLATFORM
Bar Chart
A bar chart displays slightly more information than a line chart
because it records the open, high, low, and close of the market price
for the currency pair. Unlike the line chart, which gives data at only
one point in time, the bar chart offers more data about the price
changes during the selected timeframe. Bar charts are sometimes
referred to as OHLC charts, because they capture the price for open,
high, low, and close.
The OHLC readings on bar charts are:
• OPEN: The horizontal line on the left stands for the opening price
of the currency pair in a selected time period.
• HIGH: The top point of the vertical line shows the highest price
of the currency pair during that time period.
• LOW: The bottom point of the vertical line shows the lowest price
of the currency pair during that time period.
• CLOSE: The horizontal line on the right shows the closing price
of the currency pair in the selected time period.
The individual vertical bars in the chart (low and high) indicate
the currency pair’s trading range as a whole. Depending on the
timeframe selected, bar charts can summarise price activity over the
past minute, hour, day, or even month.
Figure 5.6 Price Bar

113
Figure 5.7 USD/JPY on a 15-Minute Timeframe

Figure
Source: 5.7 USD/JPY
Created with FXon a 15-Minute
Primus Timeframe
Candlestick
Candlestick Chart Chart
Candlestick charts were invented by the Japanese in the 1700s to study the movements in the price of rice
Candlestick charts were invented by the Japanese in the 1700s to study
on Japanese commodity exchanges. Candlestick charts show the same information as bar charts but in a
the movements
more visually appealing way.in the priceareoftherice
Candlesticks oncommon
most Japanese
visual commodity
representation ofexchanges.
moving prices in
currency charts. Candlesticks
Candlestick chartsare also
show usedthe
in stocks
same andinformation
other charting methods
as bar to charts
depict different
but in price
a more visually appealing way. Candlesticks are the most common

visual representation of moving prices in currency charts. Candlesticks
are also used in stocks and other charting methods to depict different
price movements. Candlesticks are the most preferred charts by traders
allmovements.
over the worldare(including
Candlesticks myself)
the most preferred to view
charts by traders all over movement ofmyself
the world (including market) to
prices. Takeofamarket
view movement lookprices.
at Take
thea two candlesticks
look at the two candlesticks inin Figure
Figure 5.8. 5.8.
FigureFigure 5.8 Bull

5.8 Bull andand Bear
Bear Candlesticks
Candlesticks
The OHLC readings are the same as with bar charts. For the definition of each reading, please see the
114chart).
explanatory note mentioned earlier in this section (Bar
A candlestick is considered bullish if the closing price is higher than the opening price. A candlestick
is considered bearish if the closing price is lower than the opening price. In Figure 5.8, the candlestick on
understanding your trading platform
The OHLC readings are the same as with bar charts. For the
definition of each reading, please see the explanatory note mentioned
earlier in this section (Bar chart).
A candlestick is considered bullish if the closing price is higher
than the opening price. A candlestick is considered bearish if the
closing price is lower than the opening price. In Figure 5.8, the
candlestick on the left is considered bullish and the one on the right
is considered bearish.
The ‘real body’ of the candlestick represents the range between the
opening price and the closing price for a particular timeframe. Real
bodies can be either long or short. The ‘wicks’ or shadows above and
below the candlestick represent the highest and lowest prices reached
during a particular timeframe. Shadows can be long or short. Figure
5.9 shows a bullish candlestick on the 30-minute (M30) timeframe
for the EUR/USD currency pair.
Here’s how we would interpret the candlestick, assuming that the
candle started forming at 11am:
At 11am, the price for EUR/USD was 1.3340. At 11:30 am, the
price for EUR/USD closed higher at 1.3365. In the half-hour
period, prices fluctuated such that the highest price reached
was 1.3378 and the lowest price reached was 1.3322.
Figure 5.10 shows a bearish candlestick on the 4-hour
(H4) timeframe for the USD/JPY currency pair. Here’s how
we would interpret the candlestick, assuming that the candle
started forming at 2pm: At 2pm, the price for USD/JPY was
81.78. At 6pm, the price for USD/JPY closed lower at 81.02.
In the 4-hour period, prices fluctuated such that the highest
price reached was 81.92 and the lowest price reached was
80.87. In summary, reading candlesticks can give us an idea
of which group— buyers or sellers—was in control at any
point of time.
115
Figure 5.9
Figure 5.9Bullish Candlestick
Bullish Candlestick
Figure 5.9 Bullish Candlestick
Figure 5.10 Bearish Candlestick

To change the chart type, you can go to ‘Charts’ on the platform main options and select ‘Bar Chart’,
To or
‘Candlesticks’
To changechange
‘Line
the the
Chart’
chart , chart
type, asyou cantype,
shown in to
go you5.11.
Figure can
‘Charts’ gomay
onYou
the to also
‘Charts’
platform click
mainon on
the the
andplatform
icons
options for the‘Bar
select respective
Chart’,
chart type. Alternatively, you can go to ‘Properties’ and choose your preferred chart type under the
main options and select ‘Bar Chart’, ‘Candlesticks’ or ‘Line Chart’,
‘Candlesticks’ or ‘Line Chart’ , as shown in Figure 5.11. You may also click on the icons for the respective
‘Common’
chart type. tab. More detailsyou
Alternatively, on can
‘Properties’ will be explained
go to ‘Properties’ later. your preferred chart type under the
and choose
as shown in Figure 5.11. You may also click on the icons for the
‘Common’ tab. More details on ‘Properties’ will be explained later.
respective chart type. Alternatively, you can go to ‘Properties’ and
choose your preferred chart type under the ‘Common’ tab. More
details on ‘Properties’ will be explained later.
116
Figure 5.11 Types of Candlesticks from the ‘Charts’ Option

Figure
Source: Types of
5.11Created Candlesticks
with from
FX Primus Ltd. Allthe ‘Charts’
rights Option
reserved.
Navigator Navigator
In Navigator,Intraders
Navigator,
are able traders are account(s),
to view their able to view their
as well as aaccount(s), as wellExpert
variety of indicators, as Advisors,
a variety
Custom Indicators of indicators, Expert Advisors, Custom Indicators and
and Scripts.
Scripts.
• Accounts
One way
• to differentiate between a Demo and Live account on the MT4 platform is to see whether
Accounts
the account is under ‘Live’ or ‘Practice’. The icon for a Live account is yellow/gold, while a Practice
One way to differentiate between a Demo and Live account on
account has a green icon.
the MT4 platform is to see whether the account is under ‘Live’
or ‘Practice’. The icon for a Live account is yellow/gold, while a
Practice account has a green icon.
117
Figure 5.12 Accounts under Navigator

• Indicators
• Steps
Indicators
to apply an indicator to a chart:
i.
Steps to apply an
Click the Indicators
indicator
option to expand
tothealist
chart:
ofLtd.
default
Source: Created with FX Primus All indicators already installed.
rights reserved.
ii.i. Click thethe
Right-click Indicators option
indicator you’d like to to
useexpand
and select the listtoof
‘Attach default
a chart’ indicators
. Alternatively, click on
• the
Indicators already
indicator and installed.
drag and drop it onto the chart, or simply double-click the indicator.
Steps toii.apply
Right-click
an indicatorthe indicator you’d like to use and select ‘Attach
to a chart:
Figure 5.13a shows how to apply an indicator from Navigator window.
i. Clicktothea Indicators
chart’. Alternatively,
option to expand the clicklist on the indicator
of default and drag
indicators already and
installed.
ii. drop it
Right-click theonto the you’d
indicator chart, likeorto simply double-click
use and select ‘Attach to a thechart’indicator.
. Alternatively, click on
the indicator and drag and drop it onto the chart, or simply double-click the indicator.
Figure 5.13a shows how to apply an indicator from Navigator
Figure 5.13a shows how to apply an indicator from Navigator window.
window.
Figure 5.13a Applying an Indicator from Navigator

An indicators list is also available at ‘Indicators’ under ‘Insert’ option and ‘Indicators’ icon on the
toolbar.
Figure 5.13a Applying an Indicator from Navigator

Source: Created
Figure with FX Primus
5.13a Applying Ltd. All
an Indicator rights
from reserved.
Navigator
118
An indicators list is also available at ‘Indicators’ under ‘Insert’ option and ‘Indicators’ icon on the
toolbar.
An indicators list is also available at ‘Indicators’ under ‘Insert’

option and ‘Indicators’ icon on the toolbar.
• Expert Advisors, Custom Indicators and Scripts

To attach an Expert Advisor, Custom Indicator or Script, you may
follow the same steps of applying an indicator from Navigator
by selecting the respective options. The Expert Advisor (EA)
programme is used to implement automated trading methods. The
Expert Advisors, Custom Indicators and Scripts
proprietary programming language is called ‘MetaQuotes Language
•
To attach an Expert Advisor, Custom Indicator or Script, you may follow the same steps of applying
an4’indicator
or MQL4. You can
from Navigator write your
by selecting own custom
the respective options. The indicators and/or
Expert Advisor (EA)
programme is used to implement automated trading methods. The proprietary programming
strategies using the platform’s ‘MetaEditor’ feature. To access
language is called ‘MetaQuotes Language 4’ or MQL4. You can write your own custom indicators
thisstrategies
and/or feature, usingclick on ‘Tools’
the platform's and
‘MetaEditor’ select
feature. ‘MetaQuotes
To access this feature, clickLanguage
on ‘Tools’ and
select ‘MetaQuotes
Editor’, Language Editor’
as shown , as shown
in Figure in Figureor
5.13b, 5.13b, or click
click ononthe
the ‘MetaEditor’ icon in
‘MetaEditor’
the toolbar. This will open the programming window.
icon in the toolbar. This will open the programming window.
Figure 5.13b Opening MetaQuotes Language Editor

Figure
Source: 5.13b Opening
Created with FXMetaQuotes
Primus Ltd.Language Editor
You can also download custom indicators and EAs from sources on the Internet. Once you
You can also download custom indicators and EAs from sources
have installed your indicator or EA, you will need to restart the MT4 platform for it to appear in the
onCustom
the Internet.
Indicators or Once you have
Expert Advisors installed
section. EAs, Custom your indicator
Indicators, or(programmes
and Scripts EA, you
that are executed on request which are intended to perform a single action) can be added to a chart
will need to restart the MT4 platform for it to appear in the Custom
by following the same steps in applying an indicator. As the details on using or coding an EA are not
Indicators
written at thisorbook,
Expert Advisors
you may click on thesection. EAs,
‘Help’ option Custom
in the MT4 windowIndicators, and
and select ‘Help
Scripts (programmes that are executed on request which are intended
Topics’. The MT4 User Guide will be opened and you can read more on information regarding the
creation and application of Expert Advisors, Custom Indicators and Scripts. Additionally, you can
toclick
perform a single action) can be added to a chart by following the
on the ‘Help’ menu in the MetaEditor window.
same steps in applying an indicator. As the details on using or coding
Terminal
an EA are not written at this book, you may click on the ‘Help’
Terminal is where all your trading information is stored. When you click the Terminal icon, a window will
option
appear in theofMT4
at the bottom window
the platform andtabs:
with several select ‘Help
Trade, Topics’.
Account TheAlerts,
History, News, MT4Mailbox,
User
Market, Signals, Code Base, Experts and Journal.
Guide will be opened and you can read more on information regarding
Trade: This is where open and pending orders can be viewed, including the trade entry price, stop
the creation and application of Expert Advisors, Custom Indicators
•
loss levels, take profit levels, closing price, floating (unrealised) profit/loss and account balance
(funds available in the account).
119
and Scripts. Additionally, you can click on the ‘Help’ menu in the
MetaEditor window.
Terminal
Terminal is where all your trading information is stored. When you
click the Terminal icon, a window will appear at the bottom of the
platform with several tabs: Trade, Account History, News, Alerts,
Mailbox, Market, Signals, Code Base, Experts and Journal.
• Trade: This is where open and pending orders can be viewed,

including the trade entry price, stop loss levels, take profit levels,
closing price, floating (unrealised) profit/loss and account balance
(funds available in the account).
Figure 5.14 Trade Tab under Market Watch

FIGURE 5.14 Trade Tab under Market Watch
FIGURE 5.14 Trade Tab under Market Watch
• Account History: This lists all
Source: of thewith
Created trading activitiesLtd.
FX Primus thatAll
have occurred,
rights reserved.including closed orders.
• TheAccount History: This lists all of the trading activities that have
history can be exported and saved to HTML or Excel as a report for review by right-clicking
• on occurred,
the Account
Account including
History
History: asclosed
area,all
This lists shown
of the in orders. Thethat
Figureactivities
trading 5.15. history can beincluding
have occurred, exported and
closed orders.
saved
The tocan
history HTML or and
be exported Excelsavedas
to aHTML
report for review
or Excel as a reportby
for right-clicking
review by right-clicking
on the Account History area, as shown in Figure 5.15.
on the Account History area, as shown in Figure 5.15.
Figure 5.15 Account History Tab under Market Watch

Figure 5.15 Account History Tab under Market Watch
Figure
Source: 5.15 Account
Created with FXHistory
Primus TabLtd.
under
AllMarket
rights Watch
reserved.
• News: This is where the flashCreated
Source: economic
withnews are listed.
FX Primus Ltd.Right-click and choose View, as shown in
Figure 5.16, or double-click to read further. News may play an important role in your trading
decisions, especially if you’re trading based on fundamentals.
•
• News:
News:This isThis
where is thewhere
flash economic
the flnews
ash are listed. Right-click
economic newsand arechoose View,Right-
listed. as shown in
Figure 5.16, or double-click to read further. News may play an important role in your trading
click especially
decisions, and choose if you’reView, as shown
trading based in Figure 5.16, or double-click
on fundamentals.
120
Figure 5.15 Account History Tab under Market
UNDERSTANDING WatchTRADING PLATFORM
YOUR
• toThis
News: read further.
is where News
the flash maynews
economic play
are an important
listed. role
Right-click and in your
choose trading
View, as shown in
decisions,
Figure especially
5.16, or double-click if you’re
to read trading
further. News based
may play on fundamentals.
an important role in your trading
decisions, especially if you’re trading based on fundamentals.
Figure 5.16 News Tab under Market Watch

Figure 5.16 News Tab under Market Watch
• Alerts: This is useful to alert traders to where the price has reached according to their preference. To
• Alerts:
create This
a new alert, is useful
simply toonalert
right-click traders
the Terminal to where
window the Create,
and choose price ashas reached
shown in Figure
5.17.according to their preference. To create a new alert, simply right-
click on the Terminal window and choose Create, as shown in

Figure 5.17.
Figure 5.17 Alert Tab under Market Watch

Figure 5.17 Alert Tab under Market Watch
Mailbox: This is where traders receive mail from the broker. Traders may also contact the
• Mailbox: This is where traders receive mail from the broker.
•
administrator or support team by right-clicking and selecting Create.

•
Traders
Market: This may alsoallcontact
is where the administrator
the applications, including indicators orand support team
Expert Advisors, by
trading
right-clicking
magazines and booksand can beselecting
purchased. InCreate.
order to purchase the EAs in the Market, you will need to
open an MQL5.community account.
• Market: This is where all the applications, including indicators and
• Signals: This is where other traders share their trading signals. You can subscribe to these signals if
Expert Advisors,
you have an MQL5.community trading magazines and books can be purchased.
account.
• InCode
order to purchase
Base: This the EAs
is where other traders in the
share their ownMarket,
coded EA. you will need to open
• an MQL5.community
Experts: If you have an EA installedaccount.
in your platform, this is the activity log where you can check for
errors and whether it has been installed correctly.
• Signals: This is where other traders share their trading signals. You
• Journal: This is a full journal of all the actions on your account, including editing a trade, applying an
can subscribe to these signals if you have an MQL5.community
EA and closing a position.
account.
New Order
• Code Base: This is where other traders share their own coded
There are several ways of creating a new order:
• EA.
Click the ‘New Order’ button at the toolbar
• Go to the ‘Tools’ option and select ‘New Order’
• Right-click the pair you want to trade in the ‘Market Watch’ area, right-click and select ‘New Order’
• Go to the Trade tab under Terminal window, right-click on the Trade tab area and select ‘New
Order’ 121
• Click on the chart of the pair you want to trade and press ‘F9’
• Right-click on the chart, go to ‘Trading’ and select ‘New Order’
• Experts: If you have an EA installed in your platform, this is the

activity log where you can check for errors and whether it has
been installed correctly.
• Journal: This is a full journal of all the actions on your account,
including editing a trade, applying an EA and closing a
position.
New Order
There are several ways of creating a new order:
• Click the ‘New Order’ button at the toolbar

• Go to the ‘Tools’ option and select ‘New Order’
• Right-click the pair you want to trade in the ‘Market Watch’ area,
right-click and select ‘New Order’
• Go to the Trade tab under Terminal window, right-click on the
Trade tab area and select ‘New Order’
• Click on the chart of the pair you want to trade and press ‘F9’
• Right-click on the chart, go to ‘Trading’ and select ‘New Order’
Figure 5.18 Creating New Order from ‘Tools’ Option


Creating Source: Created
an Instant with FX Primus Ltd. All rights reserved.
Order
Before clicking ‘Sell’ or ‘Buy’ you need to ensure that the currency
reating an Instant
pairOrder
at ‘Symbol’ is the pair you want to trade. You will then enter the
efore clicking ‘Sell’ or ‘Buy’ you need to ensure that the currency pair at ‘Symbol’ is the pair you want to
ade. You will then enter the lot size you want to 122
place at ‘Volume’. You can set the Stop Loss and Take
rofit at the respective field when you first place your trade, or leave it blank to modify it later (see
Source: Created with FX Primus Ltd. All rights
UNDERSTANDING YOUR reserved.
TRADING PLATFORM
Creating an Instant
lot sizeOrder
you want to place at ‘Volume’. You can set the Stop Loss and
Before clicking ‘Sell’ or ‘Buy’ you need to ensure that the currency pair at ‘Symbol’ is the pair you want to
Take Profit at the respective field when you first place your trade, or
trade. You will then enter the lot size you want to place at ‘Volume’. You can set the Stop Loss and Take
leave it blank to modify it later (see ‘Modifying an Order’ section on
Profit at the respective field when you first place your trade, or leave it blank to modify it later (see
pageOrder
Modifying Open 124).section
Choose ‘Instant
on page XX). Execution’
Choose ‘InstantforExecution’
the typeforofthe
order.
type of order.
Figure 5.19 Creating an Instant Order

Source: Created withCreating
Figure 5.19 FX PrimusanLtd.
Instant Order
By will
By now, you now,
haveyou will havetheunderstood
understood thethe
concept behind concept behind
three points the three
in every trade, namely the
Entry Price, points
Stop Lossinand
every
Taketrade,
Profit. namely the Entry Price, Stop Loss and Take
To recap, if t.
Profi we expect prices to go up, we will execute a Long or Buy trade. In a long trade, we have
the Entry Price, To
a Stop Loss which
recap, if we isexpect
lower than the Entry
prices to goPrice
up, and
we awill
Takeexecute
Profit which is higher than the
a Long
Entry Price. or
Conversely, if we expect prices to go down, we will execute a Short
Buy trade. In a long trade, we have the Entry Price, a Stop Loss or Sell trade. In a short
trade, we have the Entry Price, a Stop Loss which is higher than the Entry Price and a Take Profit which is
which is lower than the Entry Price and a Take Profit which is higher
lower than the Entry Price.
than the Entry Price. Conversely, if we expect prices to go down, we
will execute a Short or Sell trade. In a short trade, we have the Entry
Price, a Stop Loss which is higher than the Entry Price and a Take
Profit which is lower than the Entry Price.
Creating a Pending Order

To create a pending order, switch the type of order to ‘Pending Order’
and you will see the different options of pending order, as shown in
Figure 5.20.
123
ating a Pending Order
create a pending order, switch the type of order to ‘Pending Order’ and you will see the different options
pending order,UNLOCKING
as shown inTHE
Figure 5.20.LARGEST FINANCIal secret
WORLD’S
Figure 5.20 Creating

Figure 5.20 Creating aa Pending
Pending Order
Order
Source: Created
Source: with
Created withFX
FX Primus Ltd.
Primus Ltd. AllAll rights
rights reserved.
reserved.
Buy Limit is aBuy buyLimit

pending is aorder
pendingin which you want
buy order to buy
in which youbelow
want the current
to buy belowmarket price, while
y Stop is a buythepending
currentorder in which
market price,you wantBuy
while to buy
Stopabove the current
is a buy pendingmarket
order price.
in Similarly, Sell
mit is used whenwhich you want to buy above the current market price. Similarly, Sell Stop is used
you want to execute a sell order above the current market price and
en you want toSellsell Limit
below istheused
current
whenmarket
you price.
want to execute a sell order above the
You may notice
currentthatmarket
limit orders
priceallow
andyou SelltoStop
enterisatused
a better
when price,
youi.e.want
lowerto price
sellto buy and higher
ce to sell; whilebelow
stop orders are more
the current conservative
market price. since we want to wait for confirmation that the price
ly moves in our favour.
You mayThe notice
pendingthatorder willorders
limit not be allow
placedyouif a wrong
to entervalue
at is
a entered,
better e.g. lower price
n the current market price
price, i.e. for Buy
lower Stop
price to buyor lower price than
and higher pricethe
tocurrent market
sell; while stopprice for Sell Limit.
orders
You can also set an expiry date for the pending order for the period
are more conservative since we want to wait for confirmation that of its validity.
the price really moves in our favour. The pending order will not be
difying an Order
placed if a wrong value is entered, e.g. lower price than the current
modify your open
marketor pending order,
price for Buy right-click on theprice
Stop or lower orderthan
and select ‘Modify
the current or Delete Order’. After
market
difying your Stop
priceLoss
forand
SellProfit
Limit.Target at the value you prefer, click ‘Modify’.
You can also set an expiry date for the pending order for the
period of its validity.
Modifying an Order
To modify your open or pending order, right-click on the order and
select ‘Modify or Delete Order’. After modifying your Stop Loss and
Profit Target at the value you prefer, click ‘Modify’.
124
Modifying an Order
To modify your open or pending order, right-click on the order and select ‘Modify or Delete Order’. After
modifying your Stop Loss and Profit Target at the value you prefer, click ‘Modify’.
Figure 5.21 Modifying an Open Order

Figure 5.21 Modifying an Open Order
As for a pending order, you can modify the entry price at the
level you wish by also taking the spread into consideration and even
delete the order. You can’t modify entry prices and delete orders for
As for a pending order, you can modify the entry price at the level you wish by also taking the spread
open orders. Besides right-clicking the order, you can also click the
into consideration and even delete the order. You can’t modify entry prices and delete orders for open
‘x’ sign
orders. Besides under thetheProfit
right-clicking order,tabyou and click
can also ‘Modify’
click to under
the ‘x’ sign modifythe the
Profitorder
tab and click
‘Modify’or ‘Delete’
to modify the to delete
order the order.
or ‘Delete’ to delete the order.
Figure 5.22 Modifying or Deleting a Pending Order

Closing an Open Order

Similar to modifying an order, you can right-click the open order and choose ‘Close Order’. Alternatively,
Similar to modifying an order, you can right-click the open order
you can click the ‘x’ sign under the Profit tab, next to the floating profit/loss or double click on the order
and clickand choose
‘Close’ to close‘Close
the openOrder’. Alternatively,
order. Be careful not to click you can
‘Sell’ or click
‘Buy’ at thethe ‘x’ sign
pop-up window while
under
closing the order the Profit
as these tab,
buttons willnext toa the
execute floating profit/loss or double click
new order.
125

Similar toon
modifying
the orderan order, you can‘Close’
and click right-click
to the openthe
close order and order.
open choose ‘Close Order’. not
Be careful Alternatively,
you can click the ‘x’ sign under the Profit tab, next to the floating profit/loss or double click on the order
to click ‘Sell’ or ‘Buy’ at the pop-up window while closing the order
and click ‘Close’ to close the open order. Be careful not to click ‘Sell’ or ‘Buy’ at the pop-up window while
asorder
closing the these buttons
as these will
buttons willexecute a new
execute a new order.
order.
Figure 5.23 Closing an Open Order

Figure 5.23 Closing an Open Order
126
COmmONLy USED FUNCTIONS

COMMONLY USED FUNCTIONS
1. Properties
1. Properties
This is the area in which you can modify your chart display settings,
This is the area in which the
including you colours
can modify your chart display
of background, settings,
candles, including
order theascolours
levels, of background,
well as
candles, orderthe
levels, as well as the objects displayed on the chart, chart types
objects displayed on the chart, chart types and chart functions and chart functions (Figure
5.24).
(Figure 5.24).
Figure 5.24 ‘Properties’ window

Figure 5.24 ‘Properties’ window
To view, ‘Properties’,
To view ‘Properties’ go the
go to ‘Charts’ on to ‘Charts’
platform on
maintheoptions
platform main options
and choose ‘Properties’, or simply
right-click onand choose
the chart and‘Properties’, or simply
choose ‘Properties’. right-click on the chart and choose
‘Properties’.
2. Timeframes
To change the 2. time period on your charts, click on ‘Charts’ under the platform main options, go to
Timeframes
‘Periodicity’ and select the time period you require. You can also click the ‘Periods’ icon on the toolbar and
To change the time period on your charts, click on ‘Charts’ under the
choose the timeframe you prefer. The simplest way to switch between different timeframes is to click on the
platform main options, go to ‘Periodicity’ and select the time period
independent timeframe icon on the toolbar, as shown in Figure 5.25.
you require. You can also click the ‘Periods’ icon on the toolbar and
choose the timeframe you prefer. The simplest way to switch between
different timeframes is to click on the independent timeframe icon
on the toolbar, as shown in Figure 5.25.
Figure 5.25 Different Timeframe Icons on the Toolbar
127
Figure 5.25 Different Timeframe Icons on the Toolbar

Symbol Time-frame description

M1 1-minute chart
M5 5-minute chart
M15 15-minute chart
M30 30-minute chart
H1 Hourly chart
H4 4-hourly chart
D1 Daily chart
W1 Weekly chart
MN Monthly chart
3. Zoom
To zoom in on the chart, click the ‘Zoom In’ icon. To zoom out,
click the ‘Zoom Out’ icon.
Figure 5.26 Zoom Icons on the Toolbar

4. Auto Scroll and Chart Shift

When the Auto Scroll function is enabled, the chart will scroll to
the latest candle whenever there is price movement. The Chart Shift
function shifts the chart to the latest candle.
Figure 5.27 Auto Scroll and Chart Shift Icons on the Toolbar
128
5. Lines
Different types of lines can also be found on the toolbar (Figure
5.28).
Figure 5.28 Vertical line, Horizontal Line and

Trend Line Icons on the Toolbar
– Vertical line. A vertical line is useful to make a mark on a specific

- Vertical line. A vertical line
candlestick or onis useful to make a indicator,
an Oscillator mark on a specific
such ascandlestick
Stochasticor on
andan Oscillator
indicator, MACD
such as (Moving
Stochastic Average
and MACD (Moving Average Convergence/Divergence)
Convergence/Divergence) to help traders to help
traders in making trading decisions.
in making trading decisions.
Figure 5.29 Vertical Line on a Chart with Stochastic Indicator

Figure
Source: Vertical with
5.29 Created LineFX
onPrimus
a ChartLtd.
withAllStochastic Indicator
rights reserved.
– Horizontal line. A horizontal line is used when traders want to see

- Horizontal line. A horizontal line is used when traders want to see the support and resistance levels in
the support and resistance levels in a bigger picture. A resistance is
a bigger picture. A resistance is an area where prices pause and fail to move further up. A support is
an area
an area where priceswhere prices
pause and pause
fail to moveand faildown.
further to move further up. A support
is an area where prices pause and fail to move further down.
129
- Horizontal line. A horizontal line is used when traders want to see the support and resistance levels in
a bigger picture. A resistance is an area where prices pause and fail to move further up. A support is
an area where prices pause and fail to move further down.
Figure 5.30 Horizontal Lines on a Chart

Figure 5.30 Horizontal Lines on a Chart
– Trend line. A trend can go either up or down. A trend that is moving
- upwards
Trendline. A trend is
cancalled anupuptrend.
go either or down. A Atrend
trend that
that is moving
is moving upwardsdownwards
is called an uptrend. A
is called
trend that is movingadownwards
downtrend. Figure
is called 5.31 illustrates
a downtrend. an uptrend
Figure 5.31 illustrates lineline drawn
an uptrend
on USD/JPY
drawn(4-hour timeframe).
on USD/JPY Figure timeframe).
(4-hour 5.32 demonstrates a downtrend
Figure line on the AUD/USD
5.32 demonstrates
(1-houratimeframe).
downtrend line on the AUD/USD (1-hour timeframe).
Figure
Figure 5.31
5.31 Trendline
Trend Drawn on
line Drawn onUSD/JPY
USD/JPYUptrend
Uptrend
Source:Created
with FX
FX Primus
Primus Ltd.
Ltd.All
Allrights
rights reserved.
reserved.
130
Figure 5.31 Trendline Drawn on USD/JPY Uptrend
Figure 5.32 Trend line Drawn on AUD/USD Downtrend

Figure
Source:5.32 Trendline
Created Drawn
with FX on Ltd.
Primus AUD/USD
All rightsDowntrend
reserved.
6. Crosshair
A crosshair is used to measure the distance or number of pips between
candles. You can find this tool by clicking the ‘Crosshair’ icon on the
toolbar. The short-cut to this function is to press the mouse scroll
button in the middle and click on the chart to measure. In figure
5.33, you will see that there are three figures when you click on the
chart and stretch using the crosshair. The first or left-most figure is
the number of candles. The second or the middle figure is the number
of pips. The third or right-most figure is the price level.
131
button in the middle and click on the chart to measure. In figure 5.33, you will see that there are three
figures when you click on the chart and stretch using the crosshair. The first or left-most figure is the
number of candles. The second or the middle figure is the number of pips. The third or right-most figure is
the price level.
Figure 5.33 Figures on Crosshair

Figure 5.33 Figures on Crosshair
Figure
Source: Created FX Figures
with5.33 PrimusonLtd.
Crosshair
7. Text and Text Label
Text
7. and Text
Text At
and Label
times,
Text you may want to label or annotate the chart for your own
Label
es,Atyou may
times, youwant to label
reference.
may want This or
to label annotate
is where the the
or annotate the chart
‘Text’ foryour
functions
chart for your own
comes
own reference.
in. ‘Text’
reference. This
is is
This used is where
where the ‘T
the ‘Text’
ns comes in. when
functions ‘Text’the
comes in. is used
‘Text’text when
is used theintext
when
remains the text remains position,
remains
its original in its original
in its whileposition,
original position, whilewhileis ‘Text Label’ is u
‘Text
‘Text Label’ Label’ is used
when the text
he text written written
follows
used follows
whenthe the
thechartchart
text as as we scroll.
we scroll.
written follows the chart as we scroll.
Figure 5.34 Text Tools on Toolbar

Figure5.34
Source:Figure
Created 5.34FX
with Text Tools
Primus
Text on
Ltd.
Tools Toolbar
onAll rights reserved.
Toolbar
8. Templates
Templates are8. used to save different chart settings to apply on different charts. This is especially useful when
Templates
Templates
traders have Templates
more than are one used
strategy and different
use multiple combinations of indicators. In order to access
to save chart settings to apply on different
ates are usedgototosave
Templates, different
‘Charts’ under thechart settings
platform tooptions
main apply onanddifferent charts.orThis
select ‘Template’ is especially
right-click useful w
on the chart
charts. This is especially useful when traders have more than one
have more ‘Template’
and choose than one strategy
. Click ‘Save and use multiple
Template’ to save thecombinations
settings on the of
strategy and use multiple combinations of indicators. In order to
indicators.
current chart andInyour
order
savedto ac
templates will be
ates, go to ‘Charts’ saved and listed there. If you want to remove your template(s), go to ‘Remove Template’
accessunder the platform
Templates, main options
go to ‘Charts’
and select the template(s) you wish to delete.
under the and select ‘Template’
platform main options or and
right-click on the c
oose ‘Template’ . Click
select ‘Save Template’
‘Template’ or right-clickto save
on the thechart
settings on the ‘Template’.
and choose current chart and your sa
tes will be saved and
Click listed
‘Save there. If to
Template’ you want
save thetosettings
removeonyour
the template(s),
current chartgoand
to ‘Remove Temp
ect the template(s) you wish
your saved to delete.
templates will be saved and listed there. If you want to
remove your template(s), go to ‘Remove Template’ and select the
template(s) you wish to delete.
132
Figure 5.35 Templates

Figure 5.35 Templates
Source: Created
Figurewith
5.35 FX Primus Ltd. All rights reserved.
Templates
9. Profiles Source: Created with FX Primus Ltd. All rights reserved.
9. Profi le is useful to save a combination of different charts that you want
Profiles
9. Profiles
to ismonitor.
Profile useful to In saveorder to view Profi
a combination les, click
of different on the
charts that tab
you atwantthetobottom
monitor. In order to
Profile is useful to save a combination of different charts that you want to monitor. In order to view
Profiles, click
of the
Profiles, on the
platform
click tab at the
on the tab atlabeled bottom of
the bottom‘Default’. the platform
Tolabeled
of the platform labeled
save‘Default’ ‘Default’
the current . To save
combination
. To save the the current
of of combinatio
current combination
charts, you
charts, youmay
charts, may click
clickmay
you ononthethe
tabtab
click and
andon
selectselect ‘Save
‘Savetab
the Profile
and Profile
As…’. As…’
select .
‘Save Profile As…’.
Figure 5.36 Profiles

Figure5.36 Profiles
Source:
Source: Created
Created withFX
with FXPrimus
Primus Ltd.
Ltd.All
Allrights
rightsreserved.
reserved.
Figure
133
5.36 Profiles
MT4 Shortcut Keys
Here is a list of shortcut keys to perform various tasks on the MT4

trading platform.
• Function Keys
F1: open ‘User guide’
F2: open ‘History Center’ window
F3: open ‘Global Variables’ window
F4: open ‘MetaEditor’
F6: open ‘Tester’ window for testing the expert attached to the
chart window
F7: open ‘Properties’ window of the expert attached to their chart
window in order to change settings
F8: open ‘Chart Setup’ window
F9: open ‘New Order’ window
F10: open ‘Popup prices’ window
F11: enable/disable full screen mode
F12: shift the chart to the left by one bar
• Shift Combination Keys

Shift+F5: change to the previous profile
Shift+F12: shift the chart to the right by one bar
• Ctrl Combination Keys

Ctrl+F5: change to the next profile
Ctrl+F6: switch to the next chart window
Ctrl+F9: open ‘Terminal’ window and switch to ‘Trade’ tab
Ctrl+A: change all indicator windows heights by default
Ctrl+B: open ‘Objects List’ window
Ctrl+C or Ctrl+Insert: copy to the clipboard
Ctrl+D: open/close ‘Data Window’
Ctrl+E: enable/disable Expert Advisor
Ctrl+F: enable ‘Crosshair’
Ctrl+G: display/hide grids
134
Ctrl+H: display/hide OHLC line

Ctrl+I: open ‘Indicators List’ window
Ctrl+L: display/hide volumes
Ctrl+M: open/close ‘Market Watch’ window
Ctrl+N: open/close ‘Navigator’ window
Ctrl+O: open ‘Options’ window
Ctrl+P: print the chart
Ctrl+R: open/close ‘Tester’ window
Ctrl+S: save the chart in the following formats: ‘csv’, ‘prn’,
‘htm’
Ctrl+T: open/close ‘Terminal’ window
Ctrl+W or Ctrl+F4: close the chart window
Ctrl+Y: display/hide period separators
Ctrl+Z: undo object deletion
• Alt Combination Keys

Alt+F4: close the platform
Alt+1: convert the chart into a bar chart
Alt+2: convert the chart into candlesticks
Alt+3: convert the chart into a line chart
Alt+A: copy all test/optimisation results into the clipboard
Alt+W: open the chart managing window
Alt+Backspace: undo object deletion
• Other Shortcut Keys

‘-’ : chart zoom out
‘+’ : chart zoom in
Enter: open/close fast navigation window
Backspace: delete the latest objects included in the chart
window
Esc: close any dialogue windows
Delete: delete all selected graphical objects
Home: shift the chart to the start point
Page Up: fast chart scrolling to the left
Page Down: fast chart scrolling to the right
135
End: shift the chart to the end point

‘<‘: scroll the chart to the left
‘>’: scroll the chart to the right
‘ ’: scroll the chart to the left or, if the scale is defined, chart
scrolling up
‘ ’: scroll chart to the right or, if the scale is defined, chart scrolling
down
Numpad 5: restoring of automatic chart vertical scale after
adjustments
Summary
Your trading platform is the place to execute your trades. Hence,

it is important for you to be able to confidently navigate around it.
The most popular Forex trading platform in the world today is the
MetaTrader 4, or the MT4 for short.
Some of the most important tabs in the platform include:
1. Market Watch. This window shows a list of currency pairs and

other tradable instruments provided by the broker along with
corresponding bid and ask prices.
2. Data Window. This shows the details of the price level pointed by
your cursor on the chart. The details include the date and time,
as well as the opening, closing, highest, and lowest price, and
volume.
3. Terminal. The Terminal is where all your trading information is

stored. When you click the Terminal icon, a window will appear
at the bottom of the platform with several tabs, namely Trade,
Account History, News, Alerts, Mailbox, Market, Signals, Code
Base, Experts and Journal.
136
The most important function to familiarise yourself with is the

‘Orders’ function. This is where you can create instant orders, pending
orders and even modify your levels of stop loss or profit targets.
Once you familiarise yourself with the platform, your confidence in
trading Forex will naturally increase.
137
C hapter 6
Key #6:
Candlestick and
chart patterns
“To understand is to perceive patterns.”

Isaiah Berlin
Candlestick chart patterns are ways to look at price fluctuations in

different financial instruments such as stocks, commodities and of
course, Forex. These patterns reveal the overall market sentiment at
any given time. Most of the time, candlestick patterns are standalone
and do not require any other indicators. Traders combine it with
using oscillators such as Stochastic or RSI expecting for a reversal
of a trend.
• Uptrend, Overbought area, Do a sell trade

• Downtrend, Oversold area, Do a buy trade
138
candlestick and chart patterns
Top 5 candlestick patterns
As traders, we need to be aware of some of the most consistent

candlestick patterns that occur:
1. Doji formations
2. Piercing and cloud cover formations
3. Engulfing formations
4. Hammer and shooting star formations
5. Harami formations
1. Doji Formations
Doji formations are widely regarded as strong indicators of a probable
reverse. They both consist of a single horizontal line indicating that
both the closing and opening prices are identical. As a result, there is
no body. A Doji represents indecison in the market and is considered
significant if it appears in a trending market. The wick is either
rising for a bearish gravestone Doji or falling for a bullish dragonfly
Doji. The gravestone pattern implies depleted bullish sentiment and,
consequently, a downward movement will subsequently appear. A
dragonfly pattern is an opposite bullish type of signal.
i. Bullish Dragonfly Doji

The Bullish Dragonfly Doji is a single candlestick pattern that
occurs at the bottom of a trend or during a downtrend. The pattern
looks like the letter ‘T’, with identical opening and closing prices.
It has no body.
Figure 6.1 Bullish Dragonfly Doji Pattern
139
Recognition
• There is an overall downtrend in the market.
• The Bullish Dragonfl y Doji appears at the bottom of the
trend.
• The Doji has an extremely long lower shadow.
• The Doji does not have any upper shadow.
Explanation
The market is in an overall bearish mood characterised by a
downtrend. Although the candle opens and sells off sharply,
the selling pressure ceases and prices reverse direction. Prices
continue to go up for the length of the entire candle and close at
the candle’s highest price. This explains the long lower shadow
– selling pressure starts at the candle opening session, but bulls
step in to stop the selling and start pushing prices up.
The failure of the market to continue in the selling side reduces
the bearish sentiment. Now the shorts are increasingly uneasy
with their bearish positions. If the next candle starts moving
higher, many shorts will have a strong incentive to cover their
short positions and go long.
How to trade it
The Bullish Dragonfly Doji is a bullish pattern. However, a
confirmation of the trend reversal implied by this pattern is seen
by the next candlestick. If the next candlestick is white – implying
that prices closed higher than it opened – an uptrend could be
forming.
Trade call: go long.
140
CANDLESTICK AND CHART PATTERNS
Figure 6.2 Bullish Dragonfly Doji Pattern on EUR/USD Daily Chart

Source:
Figure 6.2 Created
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Pattern AllEUR/USD
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Daily Chart
ii. Bearish Gravestone Doji
The Bearish Gravestone Doji is a pattern in which the opening and
ii. Bearish Gravestone Doji
closing prices are at the low of the day. Looking like an inverted
The Bearish Gravestone Doji is a pattern in which the opening and closing prices are at the low of the
“T”,
day. Looking likeItanappears
inverted at theIt top
“T”, of aat chart,
appears the topusually signalling
of a chart, the endthe end of an
usually signalling
uptrend. of an uptrend.
Figure 6.3 Bearish Gravestone Doji Pattern
141
Figure 6.3 Bearish Gravestone Doji Pattern

Recognition
• Market is characterised by an uptrend.
• The Doji is usually preceded by a white candlestick before it.
• Doji candle appears with no lower shadow.
• Upper shadow of the Doji is usually long.

Explanation
The Bearish Gravestone Doji after a rally has bearish implications
for the following reason. Bulls dominate during an uptrend. After
a while, the rally cannot be sustained during the day and prices
start to fall. At the start of the Doji, bulls are in control and
push prices up. However, selling pressure increases and pushes
prices back down to the opening price of the candle. The Bearish
Gravestone Doji thus represents the end of the bullish sentiment
for that period.

How to trade it
The longer the upper shadow and the higher the price level, the
more bearish the implications of the Bearish Gravestone Doji will
be. A confirmation is required on the next candle to determine
price direction. Ideally, the next candle should open lower with a
gap and close as a dark candle. This means sellers were in control
of the session and pushed prices lower than the opening price.
Trade call: go short.
142
direction. Ideally, the next candle should open lower with a gap and close as a dark candle. This
means sellers were in control of the session and pushed prices lower than the opening price.
Figure
Figure 6.46.4 BearishGravestone
Bearish Gravestone Doji
DojiPattern
Patternonon
GBP/USD M5M5
GBP/USD Chart
Chart
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with FX Primus Ltd.
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2. Piercing and Cloud Cover Formations

2. Piercing
Both of these formationsand Cloud mirror
are basically Coverimages
Formations
of each other and represent reversal signal patterns.
Both
The piercing of these
pattern formations
consists arecandlestick
of a long black basicallyfollowed
mirror by images
a long of each
white oneother
that closes over
halfway upand
the black candlestick.
represent reversal signal patterns. The piercing pattern consists
Theofimplication
a long blackis thatcandlestick
market participants whobysold
followed on the
a long first one
white session in closes
that anticipation of a
continuing downtrend had to cover their shorts, causing prices to rise.
over halfway up the black candlestick.
The implication is that market participants who sold on the first
session in anticipation of a continuing downtrend had to cover their
shorts, causing prices to rise.
The cloud cover pattern, on the other hand, is a bearish indicator for
similar reasons and is formed by a long white candlestick followed by a
long black one that closes over halfway below the first candlestick.
i. Bullish Piercing Line

The Bullish Piercing Line is a bottom reversal pattern. A long black
candlestick is followed by a gap lower during the next candle while
the market is in downtrend. The next candle ends up as a strong
white candlestick, which closes more than halfway into the prior
black candlestick’s body.
143
Figure 6.5 Bullish Piercing Line Pattern
Recognition
• Market is characterised by a downtrend.
• We see a long black candlestick followed by a long white
candlestick whose opening price is below the previous black
candle’s low price.
• The white candle’s closing price is contained within the black
candle’s body, but higher than its mid-point.
• The white candle fails to close above the black candle’s body.

Explanation
The market is moving in a downtrend. The first black real body
reinforces this view. The next candle shows the market opening
with a gap down. It seems that the bears are still in control of the
downtrend. However, the prices suddenly surge toward the close,
leading the prices to close sharply above the previous black candle.
Now the bears are losing their confidence and re-evaluating their
short positions. Potential buyers start to think that new lows may
not hold and that it might be time to take long positions.

How to trade it
In the Bullish Piercing Line pattern, the greater the degree of
penetration into the black real body, the more likely it will be a
bottom reversal. An ideal piercing pattern will have a white body
that pushes more than half way into the prior session’s black body.
144
A confirmation of the trend reversal is seen by the next white

candlestick.
Figure6.6
Figure Bullish Piercing
6.6Bullish Piercing Line
LinePattern
Patternonon
AUD/USD
AUD/USDDaily
DailyChart
Chart
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ii. Bearish Dark Cloud

ii. Bearish Dark Cloud
The Bearish Dark Cloud Cover Pattern is a two-candlestick pattern
The Bearish Dark Cloud Cover Pattern is a two-candlestick pattern signalling a top reversal after an
uptrend. signalling
At the top aoftop reversalwe
an uptrend, after
seean uptrend.
a strong whiteAtcandlestick.
the top ofThe
an uptrend,
second candle opens
we see
strongly above theaprevious
strong white
candle’scandlestick.
high. However,The
thesecond candle
market closes opens
near strongly
the low of the session and
well within the prior candle’s white body at the end of the session.
above the previous candle’s high. However, the market closes near
the low of the session and well within the prior candle’s white
body at the end of the session.

Figure 6.7 Bearish Dark Cloud Pattern
Figure 6.7 Bearish Dark Cloud Pattern
Recognition
• We see a long white candlestick at the top followed by a black body characterised by an open
above the high of the previous candle on145
the second candle.
• The second black candlestick closes within and below the midpoint of the previous white
body.
Recognition
• We see a long white candlestick at the top followed by a black
body characterised by an open above the high of the previous
candle on the second candle.
• The second black candlestick closes within and below the
midpoint of the previous white body.

Explanation
Market goes up in an uptrend. At the top of the uptrend we see
a strong white candlestick followed by a gap up which suggests
Explanation
that the bulls are firmly in control. However, the rally does not
Market goes up in an uptrend. At the top of the uptrend we see a strong white candlestick followed
continue.
by a gap up At the
which suggests thatsecond
the bullscandle,
are firmlythe price suddenly
in control. However, the closes at or
rally does not continue.
near the lows of the same session. Longs are shaken somehow
At the second candle, the price suddenly closes at or near the lows of the same session. Longs are
and short
shaken somehow and sellers nownow
short sellers have
havea abenchmark
benchmark toto place
place a stop,
a stop, whichwhich
is at theisnew high of
the second session.
at the new high of the second session.
How to trade it
How to trade it
If the black body’s close penetrates deeper into the prior white body, the chance for a reversal
If the black body’s close penetrates deeper into the prior white
increases.
body,
Trade call:the chance for a reversal increases.
go short.
Figure
Figure6.8
6.8Bearish DarkCloud
Bearish Dark CloudPattern
Patternonon EUR/USD
EUR/USD H1H1Chart
Chart
3. Engulfing Formations
146
The engulfing patterns and the Doji candlestick are likely the most common candlestick patterns in the
Forex market. The bullish engulfing formation consists of a short black body candlestick followed by a
3. Engulfing Formations
The engulfing patterns and the Doji candlestick are likely the most
common candlestick patterns in the Forex market. The bullish engulfing
formation consists of a short black body candlestick followed by a
taller white bodied candlestick that begins below and ends above the
previous candle’s trading range. This means prices on the second candle
opened lower than the first and closed higher. This is a highly bullish
formation and indicates that a long position should be considered.
A bearish engulfing pattern would be the opposite with a short
white bodied candlestick followed by a longer black bodied candlestick.
Here, the signal is bearish and consideration should be made to go
short.
i. Bullish Engulfing Pattern

The Bullish Engulfing Pattern is characterised by a large white
body engulfing a preceding small black real body, which appears
during a downtrend. The white body does not necessarily engulf
the shadows of the black body but totally engulfs the black body
itself. The Bullish Engulfing Pattern is an important bottom reversal
signal.
Figure 6.9 Bullish Engulfing Pattern
Recognition
• We see a small black body.
• The next candle shows a white body that completely engulfs
the black real body of the preceding candle.

147
Explanation
While the market sentiment is bearish, we see some subsided selling
reflected by the short, black body of the black candle somewhere
at the bottom of the downtrend. The next candle shows the
strength of the bulls as the candle closes at or above the previous
candle’s opening price. This tells us that the downtrend is now
losing momentum and the bulls are starting to take the lead.
How to trade it
The relative size of the bodies in the first and second candle
respectively is important. If the first black candle of the Bullish
Engulfing Pattern is characterised by a very small body (it may
even be a Doji or similar to a Doji) and the second candle is
characterised by a very long real body, this strongly indicates that
the bearish power is diminishing and that a bullish sentiment is
forming.
Figure 6.106.10
Figure Bullish Engulfi
Bullish ng Pattern
Engulfing Patternonon EUR/USD
EUR/USD M5 Chart
M5 Chart
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ii. ii. Bearish

Bearish Engulfi
Engulfing ng Pattern
Pattern
TheThe
Bearish Engulfing Pattern
Bearish Engulfing is a large black is
Pattern body that engulfs
a large black a prior
body smaller
thatwhite body in an
engulfs
uptrend. The Bearish Engulfing Pattern is an important top reversal signal.
a prior smaller white body in an uptrend. The Bearish Engulfing
Pattern is an important top reversal signal.
148
Figure 6.11 Bearish Engulfing Pattern
Recognition
• We see a white candlestick at the top of the trend followed by
a black candlestick that completely engulfs the body of the
prior white candle.
Explanation
The market is in a bullish mood. The buying pressure then starts
to slow down, as evidenced by the short white candle at the top
of the trend. This is followed by a strong sell-off, which leads to
a close at or below the previous candle’s opening price. Bulls start
to lose momentum and bears start to gain strength.

How to trade it
Relative sizes of the first and second candles in the pattern are
important. If the first day of the Bearish Engulfing Pattern is a
very small body (it may even be a Doji or similar to a Doji) and
the second day has a very long real body, it tells us that the bears
are starting to gain control.
149
Bearish Engulfing Pattern is a very small body (it may even be a Doji or similar to a Doji) and the
second day has a very long real body, it tells us that the bears are starting to gain control.
Figure 6.12
Figure Bearish Engulfing
6.12 Bearish EngulfingPattern
Patternonon
USD/CAD
USD/CADM15
M15 Chart
Chart
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4. Hammer and Shooting Star Formations

4. Hammer and Shooting Star Formations
These patterns are short candles with one long wick. The wick points
These patterns are short candles with one long wick. The wick points downwards for the Hammer, whereas
downwards
for the Shooting for upwards.
Star, it points the Hammer, whereas
The Hammer for the Shooting
is considered bullish inStar, it points
that price action clearly was
upwards. The Hammer is considered bullish in that price actionfor a similar
able to reverse all selling sentiment, while the Shooting Star would be viewed as bearish
clearly was able to reverse all selling sentiment, while the Shooting
reasoning logic.
Star would be viewed as bearish for a similar reasoning logic.
i. Bullish Hammer Pattern
The Bullish Hammer
i. Bullish Pattern Pattern
Hammer is a significant candlestick that occurs at the bottom of a trend or
during a downtrend. It is called a Hammer because of its shape - it is characterised by a candle head
The Bullish Hammer Pattern is a significant candlestick that
with no top shadow and a long lower shadow.
occurs at the bottom of a trend or during a downtrend. It is called
a Hammer because of its shape - it is characterised by a candle
head with no top shadow and a long lower shadow.
Figure 6.13 Bullish Hammer Pattern

150
Recognition
• The market is characterised by a prevailing downtrend.
• Then we see a small body at the bottom of the downtrend.
N.B. The colour of the body is not important – it could be
black or white.
• Ideally, the lower shadow should be at least twice the length
of the body.
• There is no upper shadow.

Explanation
The overall direction of the market is bearish, characterised by a
downtrend. The market then opens with a sharp sell-off, implying
the continuation of the downtrend. However, prices suddenly
turn upwards, the sell-off is quickly abated and bullish sentiment
continues during the session with a closing price at or near to its
high for the day. This causes the long lower shadow. The market
fails to continue in the selling side which reduces the bearish
sentiment. Short traders become increasingly uneasy with their
bearish positions as they sense an impending reversal.

How to trade it
If the Hammer is characterised by a white body instead of black,
the situation is even more favourable for the bulls.
151
Figure 6.14 Bullish Hammer Pattern on GBP/USD M15 Chart

Figure 6.14 Bullish Hammer Pattern on GBP/USD M15 Chart
ii. BearishStar
ii. Shooting
Bearish Shooting
Pattern Star Pattern
The Bearish
TheShooting
BearishStar pattern suggests
Shooting that prices
Star pattern may be that
suggests approaching
prices amay
top. be
The pattern is
characterised by a small body with a long upper shadow.
approaching a top. The pattern is characterised by a small body
with a long upper shadow.

Figure 6.15 Bearish Shooting Star Pattern
Figure 6.15 Bearish Shooting Star Pattern
Recognition
Recognition
• • Market
Market is characterised
is characterised by an uptrend.by an uptrend.
• We• seeWea white
seecandlestick near the top. near the top.
a white candlestick
• Prices
• Prices then open up,
then open with a gap creating
with a gapa small real body ata the
up, creating top of
small thebody
real uptrend.
at
• Upper shadow of the pattern on the second candle is usually at least twice as long as the real
the top of the uptrend.
body.
• The• Shooting
UpperStarshadow of the
candle has pattern
no lower on and
shadow, thethe
second
colour candle is usually
of the body is not important.
at least twice as long as the real body.
152
• The Shooting Star candle has no lower shadow, and the colour
of the body is not important.

Explanation
The Shooting Star simply tells us that the market rally was not
sustainable. The key indicator here is the opening of the Shooting
Explanation
StarStar
The Shooting candle with
simply tellsausgap
thatup
the from
marketthe
rallyprior candle.
was not sustainable. The key indicator here is
the opening of the Shooting Star candle with a gap up from the prior candle.
How to trade it
How to
trade
An itideal Shooting Star has a real body which gaps away from the
An ideal Shooting Star has a real body which gaps away from the prior real body.
prior real body.
Figure
Figure6.16
6.16Bearish
Bearish Shooting StarPattern
Shooting Star Patternonon USD/CAD
USD/CAD M5M5Chart
Chart
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5. Harami Formations
5. Harami Formations
The term ‘Harami’ means pregnant in Japanese. The term is used
The term ‘Harami’ means pregnant in Japanese. The term is used in this candlestick formation because it is
characterisedinbythis candlestick
a larger candlestickformation because
‘giving birth’ it iscandle.
to a smaller characterised by a larger
A bullish Harami consists of a long
candlestick ‘giving birth’ to a smaller candle. A bullish Harami consists
black candlestick with a close near the low, followed by a short white candle. It is a two-candle pattern. The
pattern tellsof
us athat
long black
selling candlestick
pressure dominatedwith a close
on the nearbut
first candle thewas
low, followed
halted by a It suggests
on the second.
that upwardshort
movement in prices might continue. A bearish Harami has the
white candle. It is a two-candle pattern. The pattern tells us exact opposite structure and
interpretation.
that selling pressure dominated on the first candle but was halted
on the second. It suggests that upward movement in prices might
i. Bullish Harami
A bullish Harami is a candlestick pattern which has a large candlestick followed by a smaller
153
candlestick whose body is located within the vertical range of the larger body. In terms of candlestick
colours, the bullish Harami is a black candle engulfing a small white candle. This gives a sign of a
continue. A bearish Harami has the exact opposite structure and

interpretation.
i. Bullish Harami
A bullish Harami is a candlestick pattern which has a large
candlestick followed by a smaller candlestick whose body is
located within the vertical range of the larger body. In terms of
candlestick colours, the bullish Harami is a black candle engulfing a
small white candle. This gives a sign of a reversal of the downward
trend.
Figure 6.17 Bullish Harami Pattern
Recognition
• We see a black candle at the bottom, with the closing price
near the low.
• The next candle opens with a gap up and has a smaller, white
body.
• The body of the smaller white candle is engulfed by the previous
black body.
Explanation
Because the bullish Harami indicates that the falling downtrend
may be reversing, it signals a good time to enter into a long
position to catch a potentially big move. The smaller the second
white candle, the more likely the reversal.
154
How to trade it
The bullish Harami is widely considered as one of the classic
reversal patterns since it is located at the bottom of the downtrend.
The smaller the body of the second white candle, the more likely
the reversal.
Figure 6.186.18
Figure Bullish Harami
Bullish HaramiPattern
Pattern ononGBP/USD
GBP/USD M30
M30 Chart
Chart
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ii. Bearish Harami

ii. Bearish
The Harami
bearish Harami is a candlestick pattern that has a large candlestick followed by a smaller
The bearish
candlestick whose bodyHarami is a the
is located within candlestick
vertical range pattern that has
of the larger body. a large
In terms of candlestick
colours, the bearish Harami is a white candle engulfing a small black
candlestick followed by a smaller candlestick whose body is located candle. This gives a sign of a
reversal of the uptrend.
within the vertical range of the larger body. In terms of candlestick
colours, the bearish Harami is a white candle engulfing a small
black candle. This gives a sign of a reversal of the uptrend.
155
Figure 6.19 Bearish Harami Pattern
Recognition
• We see a white candle at the top, with the closing price near
the high.
• The next candle opens with a gap down and has a smaller,
black body.
• The body of the smaller black candle is engulfed by the previous
white body.
Explanation
As the bearish Harami indicates that the rising uptrend may be
reversing, it signals a good time to enter into a short position to
catch a potentially big move. The smaller the second black candle,
the more likely the reversal.
How to trade it
The bearish Harami is widely considered as one of the classic
reversal patterns since it is located at the top of an uptrend. The
smaller the body of the second black candle, the more likely the
reversal.
156
the top of an uptrend. The smaller the body of the second black candle, the more likely the reversa
Figure 6.20 Bearish Harami Pattern on USD/CHF H4 Chart

FigureSource: Created with FX Primus Ltd. All rights reserved.
6.20 Bearish Harami Pattern on USD/CHF H4 Chart
mOST COmmON CHART PATTERNS
The Forex market is traded by humans who are emotional creatures. As

discussed in Chapter 1, some of these emotions are: anger, happiness,
surprise and fear.
These common emotions are experienced by all people regardless
of language or culture. As traders trade the Forex market, these
emotions are “projected” onto the market, giving rise to some common
patterns. Over time, these patterns start to repeat themselves with
predictable results.
List of Chart Patterns

Here’s a list of the seven most common chart patterns:
1. a. Head & Shoulders

b. Inverted Head & Shoulders
157
2. a. Double Top
b. Double Bottom
3. Symmetrical Triangle
4. a. Ascending Triangle
b. Descending Triangle
5. Flags & Pennants
6. a. Triple Top
b. Triple Bottom
7. a. Rising Wedge
b. Falling Wedge
1a. Head & Shoulders

The Head & Shoulders pattern is one of the most reliable and well-
known chart formations. It consists of three consecutive rallies. The
shoulders in the first and third rallies have about the same height,
while the head in the middle rally is the highest. All three rallies are
based on the same support line known as the neckline.
Prior to point A, the neckline is a resistance line that prices cannot
break through. As shown in Figure 6.21, once the resistance line is
broken, it turns into a significant support line. The price bounces
off it twice, at points B and C. The neckline is eventually broken at
point D, causing a reversal.
Once the neckline is broken, a retracement can be expected to retest
the neckline (point E), which is now a resistance line. If the resistance
line is held, the price can be expected to fall to around point F. The
distance from the neckline to the “head” is approximately equal to
the distance from the neckline to point F.
158
Figure 6.21 Head-and-shoulders Pattern

Figure 6.21 Head-and-shoulders Pattern
Key points from the Head & Shoulders formation:

•
Key points from the Head & Shoulders formation:
The support line - This is based on points B and C.
• The resistance line - After giving in at point D, the market may retest the neckline at point E.
• The support line - This is based on points B and C.
• The price direction - If the neckline holds the buying pressure at point E, prices can be expected to fall
• The resistance line - After giving in at point D, the market may
diametrically opposed to the direction of the head & shoulders (bearish).
retest the neckline at point E.
• The price targetprice
• The - Once prices fail- to
direction If breakthrough
the necklinepointholdsE, it
thecanbuying
be expected to fallat
pressure to point F, a
distance approximately equal from point D to the “head”. One of the main requirements of the
point E, prices can be expected to fall diametrically opposed to
successful development of this formation is that the breakout through the neckline occurs under
the direction
heavy market volume. Aofbreakout
the head on &lightshoulders
volume is (bearish).
a strong warning that it could be a false
• The price target - Once prices fail
breakout and might trigger a sharp backlash in the currencyto breakthrough
price. The longerpoint E, it time, the
the formation
can bethe
more significant expected
pattern. to fall to point F, a distance approximately equal
from point D to the “head”. One of the main requirements of
How to trade it
the successful development of this formation is that the breakout
Go short once prices fail to push through point E.
through the neckline occurs under heavy market volume. A
breakout on light volume is a strong warning that it could be a
false breakout and might trigger a sharp backlash in the currency
price. The longer the formation time, the more significant the
pattern.
How to trade it
Go short once prices fail to push through point E.
159
Figure Head-and-shoulders
6.226.22
Figure Head-and-shouldersPattern
Pattern on EUR/USD
on EUR/USD H4 H4 Chart
Chart
Source: Created
Source: with
Created FX
with FXPrimus Ltd.
reserved.
Inverse Head 1b.&Inverse

Shoulders
Head & Shoulders
verse Head & Shoulders Head
The inverse formation is a mirror
& Shoulders image ofisthe
formation previous
a mirror pattern.
image Prior to point A,
of the
previous pattern. Prior to point A, the neckline is a support line that
ne is a support line that prices cannot break through. Once the support line is broken, it turns in
cant resistanceprices
line.cannot
As shownbreak
inthrough. Oncethe
Figure 6.23, theprice
support line isoff
bounces broken, it turns
it twice, at points B and C.
into a signifi cant resistance line. As
ne is eventually broken at point D, causing a reversal. shown in Figure 6.23, the price
bounces off it twice, at points B and C. The neckline is eventually
Once the neckline is broken, a retracement can be expected to retest the neckline (point E), whic
broken at point D, causing a reversal.
support line. If the support line is held, the price can be expected to rise to around point F.
Once the neckline is broken, a retracement can be expected to retest
The distance from the neckline to the “head” is approximately equal to the distance from
the neckline (point E), which is now a support line. If the support line
ne to point F.
is held, the price can be expected to rise to around point F.
The distance from the neckline to the “head” is approximately
equal to the distance from the neckline to point F.
160
Once the neckline is broken, a retracement can be expected to retest the neckline (point E), which
now a support line. If the support line is held, the price can be expected to rise to around point F.
The distance from the neckline to the “head” is approximately equal to the distance from th
neckline to point F.
Figure 6.23 Inverse Head-and-shoulders Pattern

How to trade it Figure 6.23 Inverse Head-and-shoulders Pattern
Go long once prices fail to push through point E.
How to trade it
Go long once prices fail to push through point E.
Figure 6.24 Inverse Head & shoulders Pattern on AUD/NZD H4 Chart

InverseCreated
Figure 6.24 Source: Head & shoulders Pattern on AUD/NZD H4 Chart
with FX Primus Ltd. All rights reserved.
161
2a. Double Top Formation

Figure 6.24 Inverse Head & shoulders Pattern on AUD/NZD H4 Chart
2a. Double Top Formation
Double Top formations are reversal patterns and, together with
Double Top Formation
Double Bottom formations, are one of the most common patterns for
ble Top formations aretrading.
currency reversalDouble
patternsTops
and,are
together with
identified Double
by two Bottompeaks
consecutive formations, are one o
common patterns for height,
of similar currency trading.
with Double
a moderate Tops
pull backarein identified by two consecutive pea
between (neckline)
ar height, with a moderate pull back in between (neckline) (Figure 6.25). The(ifDouble Top can
(Figure 6.25). The Double Top can be a major reversal pattern
found(if
reversal pattern onfound
a dailyon
chart) that can
a daily be formed
chart) that can after
be an extended
formed afteruptrend.
an extended uptrend.
This pattern is confirmed when the currency pair breaks below
rn is confirmed when the currency pair breaks below the neckline after the second the peak is formed
neckline after the second peak is formed.
Figure 6.25 Double Top Formation

Figure 6.25 Double Top Formation
A Double Top formation is a distinct chart pattern characterised
by the following steps:
• A rally to a new high (Peak 1 or resistance level)

• A moderate pull back to the neckline (support level)
• A second rally to test the same high (Peak 2) again
• Prices fall to the neckline
• Prices break support level at the neckline and head downwards
How to trade it
Go short once the candle closes below the neckline, after Peak 2
has been formed.
162
How to trade it
Go short once the candle closes below the neckline, after Peak 2 has been formed.
Figure 6.26 Double Top Pattern on NZD/USD H1 Chart

Figure 6.26 Double Top Pattern on NZD/USD H1 Chart
Source: Created
Source: with
Created FX
with FXPrimus Ltd.
Primus Ltd. AllAll rights
rights reserved.
reserved.
2b. Double Bottom PatternBottom Pattern

2b. Double
Double Bottom formations are reversal
Double Bottom patternsare
formations andreversal
togetherpatterns
with Double Top formations,
and together with are one of
most common patterns
DoubleforTopcurrency trading.areDouble
formations, one ofBottoms
the mostare identified
common by twofor
patterns consecutive low
imilar height, with
currency trading. Double Bottoms are identified by two consecutive on a daily ch
a moderate pull back up in between (neckline) (Figure 6. 27). If found
he Double Bottom canofbesimilar
lows a majorheight,
reversalwith
pattern that can bepull
a moderate formed
backafter
up inan between
extended downtrend.
pattern is confirmed when the
(neckline) currency
(Figure pairIfbreaks
6.27). foundabove the neckline
on a daily after
chart, the the second
Double Bottomlow is formed.
can be a major reversal pattern that can be formed after an extended
downtrend. This pattern is confirmed when the currency pair breaks
above the neckline after the second low is formed.
163
Figure 6.27 Double Bottom Pattern
Figure 6.27 Double Bottom Pattern

Source: Created
A Double with FX Primus
Bottom formation Ltd.
is a distinct Allpattern
chart rightscharacterised
reserved.
by a rally to a new low (Low 1 or support) followed by a moderate
uble Bottompull back up toisthe
formation neckline chart
a distinct (resistance level)characterised
pattern and a second rally
by a to
rally to a new lo
test the same support level again. The two lows (bottoms or support
ollowed bylevels)
a moderate pull back up to the neckline (resistance level) and a second r
are at approximately the same price level. What follows is a
port level again. Theuptwo
pull back lows the
to above (bottoms or support levels) are at approximately the
neck line.
ollows is a pull back up to above the neck line.
How to trade it
Go long once the candle closes above the neckline, after the second
o trade it
bottom has been formed.
ng once the candle closes above the neckline, after the second bottom has been forme
164
How to trade it
Go long once the candle closes above the neckline, after the second
CANDLESTICK bottom
AND CHART has been formed
PATTERNS
Figure 6.28 Double Bottom Pattern on AUD/USD H4 Chart

Figure 6.28 Double Bottom Pattern on AUD/USD H4 Chart
3. Symmetrical Triangle
This pattern shows two converging trend lines that act as support
and resistance levels. The formations could be either bearish or
bullish. It is a bearish pattern when it forms during a downtrend and
a bullish pattern when it forms during an uptrend. In both cases, the
symmetrical triangle acts as a continuation pattern for the prior trend
to continue. This pattern is confirmed when the price breaks out of
the symmetrical triangle formation. The break could happen on either
side. If it breaks to the downside and the candle closes below the
lower support line, it is a continuation of the prior downtrend. If it
breaks to the upside and the candle closes above the upper resistance
line, it is a continuation of the prior uptrend.
165
candle closes below the lower support line, it is a continuation of the prior downtrend. If it breaks to the
upside and the candle closes above the upper resistance line, it is a continuation of the prior uptrend.
Figure 6.29 Symmetrical Triangle Pattern
Figure 6.29 Symmetrical Triangle Pattern

The Symmetrical Triangle is marked by two important trend lines.
At its top, there is a line of resistance where traders are willing to
The Symmetrical Triangle is marked by two important trendlines. At its top, there is a line of
sell the
resistance currency
where traders arepair. This
willing resistance
to sell the currencyline
pair.communicates
This resistance linethe fact thatthe fact that
communicates
bearish
bearish currency
currency traders aretraders are
willing to paywilling toare
prices that pay prices that
progressively areforprogressively
lower the currency pair over time,
indicating a possible breakout to the downside. At its bottom,
lower for the currency pair over time, indicating a possible the support line communicates
breakoutthe fact that
bullish currency traders are willing to pay prices that are progressively higher for the currency pair over
to the downside. At its bottom, the support line communicates the
time, indicating a possible breakout to the upside. This is the main reason why the two trendlines seem to
fact over
converge thattime.
bullish currency traders are willing to pay prices that are
progressively higher for the currency pair over time, indicating a
How to trade
possible it
breakout to the upside. This is the main reason why the two
It is best that a prior trend exists before the formation of the Symmetrical Triangle.
trend lines seem to converge over time.
Trade call: go short if the candle closes below the support level of the triangle. Go long if the candle
closes above the resistance level of the triangle.
How to trade it
It is best that a prior trend exists before the formation of the
Symmetrical Triangle.
Trade call: go short if the candle closes below the support level
of the triangle. Go long if the candle closes above the resistance
level of the triangle.
166
Figure 6.30 Symmetrical Triangle Continuation Pattern

Figure 6.30 Symmetrical Triangle Continuation
on USD/JPY Pattern on USD/JPY H4 Downtrend
H4 Downtrend
Source: Created
Source: with
Created withFX
FX Primus Ltd.
Primus Ltd. All All rights
rights reserved.
reserved.
4a. Ascending4a. Ascending Triangle

Triangle
The Ascending Triangle chart pattern
The Ascending showschart
Triangle two converging
pattern showstrendlines (support and
two converging resistance levels)
trend
lines (support and resistance levels) that usually form during a prior
usually form during a prior uptrend. It is considered a bullish formation that continues the prior uptr
uptrend.
The only difference between It isthe
considered
Ascending a bullish
Triangle formation
and the that continues
previous the prior
Symmetrical Triangle is that
uptrend.
upper resistance level The
for the only difference
Ascending Trianglebetween the Ascending
is horizontal. This patternTriangle and when the
is confirmed
breaks out of the the previous
Ascending Symmetrical
Triangle Triangle
formation to theisupside
that the
andupper
closesresistance
above thelevel
upper resistance l
However, when the forprice
the Ascending
breaks out toTriangle is horizontal.
the downside, This pattern
the Ascending is confi
Triangle rmed
is now considered a rev
pattern. when the price breaks out of the Ascending Triangle formation to the
upside and closes above the upper resistance level. However, when
the price breaks out to the downside, the Ascending Triangle is now
considered a reversal pattern.
167
breaks out of the Ascending Triangle formation to the upside and closes above the upper resistance level.
However, when the price breaks out to the downside, the Ascending Triangle is now considered a reversal
pattern.
Figure
Figure 6.31
6.31 AscendingTriangle
Ascending Triangle Pattern
Pattern
The Ascending Triangle is marked by two important trend lines

(Figure 6.31). At its top, there is a line of resistance where traders
are selling the currency pair. At its bottom, we see a rising support
trend line where traders are willing to buy the currency pair. This
support line communicates the fact that bullish currency traders are
willing to pay progressively higher prices for the currency pair over
time, indicating a possible breakout to the upside.
How to trade it
168

How to trade it
Trade call: go short if the candle closes below the support level of the triangle. Go long if the candle
Figure 6.32 Ascending Triangle Reversal Pattern on GBP/JPY Daily Chart

Ascending
Figure 6.32Source: Triangle
Created Reversal
with FX Primus Pattern on GBP/JPY
Ltd. All rights reserved.Daily Chart
4b. Descending Triangle

4b. Descending Triangle
This pattern isThis pattern
similar to theis Ascending
similar toTriangle
the Ascending Triangle
chart pattern, but chart pattern,
in reverse, but in
it shows two converging
trendlines thatreverse, it shows
usually form two
during converging
a prior trend
downtrend. It islines that usually
considered form
a bearish duringthat continues
formation
a priorThe
the prior downtrend. downtrend. It is considered
only difference between the aDescending
bearish formation that
Triangle and thecontinues
Symmetrical Triangle is
that the lowerthe prior
support downtrend.
level The only
for the descending difference
triangle between the Descending
is horizontal.
This pattern is confirmed
Triangle and the when the priceTriangle
Symmetrical breaks outis of thethe
that Descending Trianglelevel
lower support formation to the
downside andfor closes
thebelow the lowertriangle
descending support is
level. However, when the price breaks out to the upside, the
horizontal.
Descending Triangle is now considered a reversal pattern.
This pattern is confirmed when the price breaks out of the
Descending Triangle formation to the downside and closes below the

lower support level. However, when the price breaks out to the upside,
the Descending Triangle is now considered a reversal pattern.
169
Figure 6.33 Descending Triangle Pattern

Figure 6.33 Descending Triangle Pattern
The Descending Triangle is marked by two important trend lines.

The Descending Triangle is marked by two important trendlines. At its top, there is a line of
resistanceAt its traders
where top, there is atoline
are willing ofcurrency
sell the resistance where
pair. This traders
resistance are willingthe
line communicates tofact that
sell thetraders
bearish currency currency pair.toThis
are willing resistancelower
pay progressively lineprices
communicates thepairfact
for the currency over time,
indicatingthat
a break out to the downside.
bearish currency traders are willing to pay progressively lower
At its bottom, we notice the support trend line where Forex traders are willing to buy the currency
prices for the currency pair over time, indicating a break out to the
pair.
downside.
How toAt itsitbottom, we notice the support trend line where Forex traders
trade
Trade call: go short
are willing toifbuy
the candle closes belowpair.
the currency the support level of the triangle. Go long if the candle
How to trade it
170
Figure 6.34 Descending Triangle Pattern on EUR/AUD H4 Chart

Figure 6.34 Descending Triangle Pattern on EUR/AUD H4 Chart
5. Flags and Pennants
5. Flags and Pennants
Flags and Pennants are very short consolidation periods that appear
Flags and Pennants
within avery
are short consolidation
fast-moving trend. Both periods that appearbywithin
are preceded a sharpa fast-moving
move thattrend. Both are
preceded by a sharp move that is nearly a vertical line and both show
is nearly a vertical line and both show consolidation against consolidation against
thethe direction of
the trend. The Flag is a pattern formed by two parallel lines sloping against the trend, while the Pennant is a
direction of the trend. The Flag is a pattern formed by two parallel
pattern of two converging lines that appear very similar to the Symmetrical Triangle formation.
lines sloping against the trend, while the Pennant is a pattern of two
Flags and Pennants are some of the most common and reliable continuation patterns. These
converging lines that appear very similar to the Symmetrical Triangle
formations occur after sharp price moves, usually in the middle of steep price trends. The Flag resembles a
formation.
small rectangle sloping against the dominant trend. The Pennant looks like a small symmetrical
Flags
triangle. Both of the and Pennants
patterns are completedare when
somethe of prices
the most
breakcommon
through oneandofreliable
their trendlines – the
continuation patterns. These formations
upper trendline in uptrends and the lower trendline in downtrends. occur after sharp price moves,
You canusually in themeasuring
use the same middle oftechnique
steep price trends.
for Flags andThe Flag resembles
Pennants: a smallfrom the point
find the distance
when the pricesrectangle
started tosloping against
rise or fall the
sharply, todominant trend.
the first point The
of the Pennant
pattern looks like
and project this distance up or
down from thealevel
smallof symmetrical
the breakout. triangle. Both of the patterns are completed when
the prices break through one of their trend lines – the upper trend
line in uptrends and the lower trend line in downtrends.
171
You can use the same measuring technique for Flags and Pennants:
find the distance from the point when the prices started to rise or fall
sharply, to the first point of the pattern and project this distance up
or down from the level of the breakout.
Figure 6.35 Flag and Pennant

FIGURE 6.35 Flag and Pennant
Figure 6.36 Different Types of Flags and Pennants
The Flag and Pennant patterns are two continuation patterns

Figure 6.36 Different Types of Flags and Pennants
that closely resemble each other, differing only in their shape during
theTheconsolidation period.
Flag and Pennant patterns areThis twoiscontinuation
why thepatterns
termsthatFlag andresemble
closely Pennant each other,
are often
differing only inused interchangeably.
their shape Fromperiod.
during the consolidation the figures above,
This is why the termsyou
Flagcan see are
and Pennant
often used interchangeably. From the figures above, you can see that a Flag is a rectangular shape, while the
that a Flag is a rectangular shape, while the Pennant looks more like
Pennant looks more like a triangle. These patterns are formed when there is a sharp price movement
a triangle.
followed These
by a general patterns
sideways movement,are
which formed
is the Flagwhen there
or Pennant whenis a sharp
prices price
consolidate.
movement followed by a general sideways movement, which is the
The pattern is complete when there is a price breakout in the same direction of the initial sharp price
movement. The following move will see a similarly sharp move in the same direction as the prior sharp
Flag or Pennant when prices consolidate.
move. The complete move of the chart pattern – from the first sharp move to the last sharp move – is
referred to as the Flag Pole.
172
The pattern is complete when there is a price breakout in the same

direction of the initial sharp price movement. The following move will
see a similarly sharp move in the same direction as the prior sharp
move. The complete move of the chart pattern – from the first sharp
move to the last sharp move – is referred to as the Flag Pole.
The Flag or Pennant is considered to be flying at half-mast, as the
distance of the initial price movement is thought to be roughly equal
to the proceeding price move. The reason these patterns form is that
after a large price movement, the market consolidates, or pauses,
before resuming the initial trend.
How to trade it
Always trade Flag and Pennants in the direction of the previous
trend:
• If the previous trend was up, wait for a break out to the upside
and go long when the candle closes above the upper resistance
trend line.
• If the previous trend was down, wait for a break out to the
downside and go short when the candle closes below the lower
support trend line.
Figure 6.37 Bullish Flag and Pennant Pattern on USD/JPY H1 Chart

173
Figure 6.38
Figure Bearish
6.38 Flag
Bearish Flagand
andPennant
PennantPattern on USD/JPY
Pattern on USD/JPY H1
H1Chart
Chart
6a. Triple Top

6a. Triple Top Top formations are reversal patterns with a bearish bias. This
Triple
Triple Top pattern,
formationswhile
are reversal
similarpatterns
to thewith a bearish
Double bias.isThis
Top, not pattern, whilein
often seen similar
the to the Double
Top, is not often seen in the Forex market. Triple Tops are identified by three consecutive highs of similar
Forex market. Triple Tops are identified by three consecutive highs
height with 2 moderate pull backs in between (neckline).
of similar height with 2 moderate pull backs in between (neckline).
The Triple Top can be a major reversal pattern (if found on a daily chart) that can be formed after an
The Triple Top can be a major reversal pattern (if found on a daily
extended uptrend. This pattern is confirmed when the currency pair breaks below the neckline after the
chart)
third peak has beenthat can be formed after an extended uptrend. This pattern is
formed.
confirmed when the currency pair breaks below the neckline after
the third peak has been formed.
Figure 6.39 Triple Top Pattern
Figure 6.39 Triple Top Pattern

174
A Triple Top formation is a distinct chart pattern characterised by a rally to a new high (Peak 1)
A Triple Top formation is a distinct chart pattern characterised

by a rally to a new high (Peak 1) followed by:
• A moderate pullback to the neckline or support level

• A second rally to test the same high (Peak 2)
•
• A moderate pullback to the neckline or support level again
A moderate pullback to the neckline or support level
• • A third and fi
A second rally to test the nal rally to test the same high again (Peak 3)
same high (Peak 2)
• • A break below the neckline to the downside
A moderate pullback to the neckline or support level again
• A third and final rally to test the same high again (Peak 3)
• A break below the neckline to the downside
How to trade it
Go short once the candle closes below the support level after the
How to trade it
Go shortthird peak
once the hascloses
candle beenbelow
formed.
the support level after the third peak has been formed.
Figure 6.40 Triple Top Pattern on USD/JPY H1 Chart

Source:
Figure Created with
6.40 Triple FXPattern
Top Primus on
Ltd.USD/JPY
All rights H1
reserved.
Chart
6b Triple Bottom
Triple Bottom formations are reversal patterns with a bullish bias. This pattern, while similar to the Double
175
Bottom, is not often seen in the Forex market. Triple Bottoms are identified by three consecutive lows of
similar height with 2 moderate pull backs in between (neckline). The Triple Bottom can be a major reversal
6b. Triple Bottom

Triple Bottom formations are reversal patterns with a bullish bias.
This pattern, while similar to the Double Bottom, is not often seen in
the Forex market. Triple Bottoms are identified by three consecutive
lows of similar height with two moderate pull backs in between
(neckline). The Triple Bottom can be a major reversal pattern (if found
on a daily chart) that can be formed after an extended downtrend.
This pattern is confirmed when the currency pair breaks above the
neckline after the third low has been formed.
Figure 6.41 Triple Bottom Pattern

FIGURE 6.41 Triple Bottom Pattern
A Triple Bottom formation is a distinct chart pattern characterised
A Triple Bottom formation
by a rally to a new is alow
distinct
(Lowchart pattern characterised
1) followed by: by a rally to a new low (Low 1)
llowed by:
A moderate pullback to the neckline or resistance level
• A moderate pullback to the neckline or resistance level
A second rally to test the same low (Low 2)
• A second rally to test the same low (Low 2)
A moderate pullback to the neckline or resistance level again
• A moderate pullback to the neckline or resistance level again
A third and final rally to test the same low again (Low 3)
• A third and fi nal rally to test the same low again (Low 3)
A break above the neckline to the upside
• A break above the neckline to the upside
How to trade it
How to trade it
Go long once the candle closes above the resistance level after the third low has been formed.
Go long once the candle closes above the resistance level after the
third low has been formed.
176
ow to trade it
o long once the candle closes above the resistance level afterAND
CANDLESTICK theCHART
thirdPATTERNS
low has been form
Figure 6.42 Triple Bottom Pattern on EUR/AUD H4 Chart

Figure 6.42 Triple Bottom Pattern on EUR/AUD H4 Chart
7a. Rising Wedge
At its most basic level, Rising Wedge formations are bearish continuation
patterns and look similar to triangle patterns (Ascending, Descending
and Symmetrical) because of the converging trendlines and narrowing
price ranges. Rising Wedges slope up and have a bearish bias because
they are usually found in downtrends. However, they can become a
reversal pattern if the price moves above the upper resistance trend
line.
177
narrowing price ranges. Rising Wedges slope up and have a bearish bias because they are usually found in
downtrends. However, they can become a reversal pattern if the price moves above the upper resistance
trendline.
Figure 6.43 Rising Wedge Pattern
Figure 6.43 Rising Wedge Pattern

How to trade it
How to• trade
Go short when the candle closes below the lower support trend
it
• Go line.
shortThis
whenisthe candle closes below
a continuation the lower support trendline. This is a continuation
pattern.
pattern.
• Go long when the candle closes above the upper resistance
• Go long when the candle closes above the upper resistance trendline. This is a reversal pattern.
trend line. This is a reversal pattern.
Figure 6.44 Rising Wedge Reversal Pattern on

Figure 6.44 Rising Wedge Reversal Pattern on EUR/USD Downtrend in Daily Chart
EUR/USD Downtrend in Daily Chart
7b. Falling Wedge

178
At its most basic level, Falling Wedge formations are bullish continuation patterns and look similar to
triangle patterns (Ascending, Descending and Symmetrical) because of the converging trendlines and
Figure 6.44 Rising Wedge Reversal Pattern on EUR/USD Downtrend in Daily Chart
7b. Falling Wedge

7b.basic
At its most Falling
level,Wedge
Falling Wedge formations are bullish continuation patterns and look similar t
At its most basicDescending
triangle patterns (Ascending, level, Falling Wedge formations
and Symmetrical) because of theareconverging
bullish trendlines an
narrowingcontinuation patterns
price ranges. Falling and look
Wedges slope similar
down andto have
triangle patterns
a bullish (Ascending,
bias because they are usually foun
Descending
in uptrending and Symmetrical)
markets. However, because
they can become of the pattern
a reversal converging
if the trend lines below the low
price moves
support trendline.
and narrowing price ranges. Falling Wedges slope down and have a
bullish bias because they are usually found in uptrending markets.
However, they can become a reversal pattern if the price moves below
the lower support trend line.
Figure 6.456.45
Figure Falling Wedge
Falling Pattern
Wedge Pattern
How to trade it
• Go long when the candle closes above the upper resistance
trend line. This is a continuation pattern.
• Go short when the candle closes below the lower support trend
line. This is a reversal pattern.
179
pattern.
• Go short when the candle closes below the lower support trendline. This is a reversal pattern.
Figure 6.46 FallingFigure

Wedge6.46
Continuation Pattern
Falling Wedge on AUD/NZD
Continuation Pattern Uptrend
on in H4 Chart
AUD/NZD Uptrend in H4 Chart
SUmmARy
SUMMARY
Understanding candlesticks can give you an edge over other Forex

derstanding candlesticks can give you an edge over other Forex traders because it provides valuable
traders because it provides valuable insights on market behaviour.
ghts on market behaviour. Remember, at any time, there are always buyers and sellers in the game. The
Remember, at any time, there are always buyers and sellers in the
mation of the candlesticks and subsequent chart patterns can provide much needed insight into whether
game. The formation of the candlesticks and subsequent chart patterns
should consider a long or short trade.
can provide much needed insight into whether you should consider
The top five candlestick patterns and top seven chart patterns that occur frequently in the Forex
a long or short trade.
rket should form an important part of any trader’s toolbox.
The top five candlestick patterns and top seven chart patterns that
occur frequently in the Forex market should form an important part
of any trader’s toolbox.
180
THE LAW OF STRATEGIES
PA R T I I
THE SIX LAWS OF

SUCCESSFUL TRADING
181
“Lawless are they that make their wills their law.”

William Shakespeare
Part 1 of this book had a lot to do with understanding key concepts

about the global Forex market, the advantages of trading Forex
and how to navigate the trading platform confidently. Part 2 will
explore the six laws that every trader must follow to be successful in
trading the Forex Market. I hope this segment will shed some light
on successful trading, and how we can all master these simple yet
elusive concepts. Let’s start with the definition of a successful trader.
To me, the benchmark of a successful trader is being consistently
profitable.
Emphasis should be placed on the word ‘consistently’. I’m almost
always never impressed when I hear someone “making 500 percent
in a month”. Don’t get me wrong – these are great results – but
any trader worth his salt must know that the game plan is to stay
consistently profitable. It almost seems like a trend, that the select
few who make exorbitant returns in a month get washed out the
very next month. Why?
The answer is that they probably took on (and continue to take
on) excessive risk. Remember, you might be able to make 500 percent
during that particular month trading Forex, but all you need to do
is to lose 100 percent once and you are out of the market forever. So
how does one become consistently profitable in the Forex Market?
Let’s start with these three laws:
1. Strategies
2. Money Management
3. State of Mind
182
THE SIX LAWS OF SUCCESSFUL TRADING
Money Management
S S
Strategies State of Mind
Figure II MSS Model
I call these the MSS Laws (Figure II). Let’s study each one in
detail.
183
C H A P TE R 7
KEY #7:
“What do you want to achieve or avoid? How

will you go about achieving your desired result?
The answer to this, you can call strategy.”
WILLIAM E. ROTHSCHILD
Having had the privilege to speak to audiences worldwide, I have

noticed that a common question often raised by participants is: “What
is the best strategy to trade Forex?”
Each time I hear the question, I can’t help but smile. After all,
that was my biggest question when I first started trading. It’s almost
always: “Give me the strategy first, and we’ll talk about successful
trading later!” There are three basic ways to profit from the Forex
Market. They are:
1. Trend
2. Range
3. Breakout
184
1. TREND
Uptrend
An uptrend is identified as prices having a series of higher highs and
higher lows. The highs are the peaks that prices reach intermittently.
The lows are the valleys that prices fall to before heading up again.
Hence, an uptrend is formed when there is a series of highs going
higher and a series of lows going higher. Figure 7.2 illustrates an
uptrend while Figure 7.3 shows an example of EUR/USD (1-hour
timeframe) moving in an uptrend. Figure 7.4 shows an example of
USD/JPY (4-hour timeframe) moving in an uptrend.
Figure 7.2 Series of Higher Highs and Higher Lows

Figure 7.2 Series
Figure of of
7.2 Series Higher Highs
Higher Highs and Higher
and Higher Lows Lows
Figure 7.3 EUR/USD Moving in an Uptrend

Figure7.3
Figure EUR/USDMoving
7.3EUR/USD Moving in an
anUptrend
Uptrend
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with FX
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Primus Ltd.
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rights reserved.
reserved.
185
Figure 7.4 USD/JPY Moving in an Uptrend

DowntrendDowntrend
A downtrend
A has prices moving
downtrend hasinprices
a seriesmoving
of lower highs and lower
in a series lows (See
of lower Figure
highs and7.5). Figure 7.6 shows
lower
an examplelows
of USD/JPY (1-hour
(See Figure 7.5).timeframe)
Figure
Source: withmoving
Created 7.6 Primusin
shows
FX anaAll
Ltd. downtrend.
example of Figure
rights reserved. 7.7 shows
USD/JPY (1-houran example of
EUR/AUD (4-hour timeframe) moving in a downtrend.
timeframe)
Downtrend moving in a downtrend. Figure 7.7 shows an example of
A downtrend has prices moving in a series of lower highs and lower lows (See Figure 7.5). Figure 7.6 shows
an example of USD/JPY (1-hour timeframe) moving in a downtrend. Figure 7.7 shows an example of
Figure 7.5 Series of Lower Lows and Lower Highs

186
Figure 7.6 USD/JPY Moving in a Downtrend

Figure
Figure7.7
7.7EUR/AUD
EUR/AUDMoving
Moving in
in aa Downtrend
Downtrend
Figure 7.7 EUR/AUD Moving in a Downtrend
Traders use a trending strategy when the market is moving in
Traders use a trending strategy when the market is moving in an uptrend or a downtrend. When the market
an uptrend or a downtrend. When the market is in an uptrend, we
is in an uptrend, we would go long. If the market is moving in a downtrend, we would go short.
would
Traders use go strategy
a trending long. Ifwhen
thethe market ismoving
market is moving inuptrend
in an a downtrend, we would
or a downtrend. When the market
is in an uptrend, we would go long. If the market is moving in a downtrend, we would go short.
When arego short. Used?
Trendlines
Trend lines are lines that are drawn to show the prevailing direction of price. They are visual representations
toWhen
give are Trendlines
usWhen
insight intoUsed?
are where prices
Trend Lines could
Used?go next. In an uptrend, we draw a trend line by joining the
Trend lines are lines that are drawn to show the prevailing direction of price. They are visual representations
significant higher lows. In a downtrend, we draw the trend line by joining the significant lower highs. The
to give usTrend
insightlines are lines
into where pricesthat
couldaregodrawn
next. Into
anshow
uptrend,theweprevailing
draw a trend direction
line by joining the
steeper the angle of the trend line, the stronger the momentum. However, it is important to note that
significantofhigher
price.lows. In aare
They downtrend,
visual we draw the trend line
representations to by
givejoining
us the significant
insight into lower highs. The
where
trends with steep angles are very often short-lived. Traders use trend lines to show three things:
steeper the angle of the trend line, the stronger the momentum. However, it is important to note that
trends with steep angles are very often short-lived. Traders
187 use trend lines to show three things:
prices could go next. In an uptrend, we draw a trend line by joining

the significant higher lows. In a downtrend, we draw the trend line
by joining the significant lower highs. The steeper the angle of the
trend line, the stronger the momentum. However, it is important to
note that trends with steep angles are very often short-lived. Traders
use trend lines to show three things:
i.i. The direction of the trend

i.TheThe direction
direction of the trend
of the trend
ii.
ii. The angle
ii.TheThe of
angleanglethe trend
of the of the trend
trend
iii.
iii. Possible
iii. chart
Possible
Possible patterns
chart chart that may
may evolve
patternspatterns
that evolve
that may evolve
Figure 7.8 Trendlines Drawn on AUD/USD Uptrend

Figure
Figure 7.8 Trendlines
7.8 Trend Drawnon
Line Drawn on AUD/USD
AUD/USD Uptrend
Uptrend
Source:
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rights reserved.
Figure 7.9 Trendlines Drawn on AUD/JPY Uptrend

Figure 7.9 Trendlines Drawn on AUD/JPY Uptrend
FigureSource:
7.9 Trend Line
Created withDrawn on AUD/JPY
FX Primus Downtrend
When the Forex Market catches a trend, it can carry on for a long time. Many traders like to trade in the
When the Forex Market catches a trend, it can carry on for a long time. Many traders like to trade in the
opposite direction of the trend. A common technique is to go short in an uptrend or to go long in a
opposite direction of the trend. A common technique
188
is to go short in an uptrend or to go long in a
downtrend. Traders do this because they are concerned that prices have either reached ‘too high’ (which
downtrend. Traders do this because they are concerned that prices have either reached ‘too high’ (which
causes them to sell) or ‘too low’ (which causes them to buy). This is a very dangerous technique because no
causes them to sell) or ‘too low’ (which causes them to buy). This is a very dangerous technique because no
one knows for sure when the trend will turn. It is always more prudent to trade in the same direction as the
When the Forex Market catches a trend, it can carry on for a long
time. Many traders like to trade in the opposite direction of the trend.
A common technique is to go short in an uptrend or to go long in a
downtrend. Traders do this because they are concerned that prices
have either reached ‘too high’ (which causes them to sell) or ‘too
low’ (which causes them to buy). This is a very dangerous technique
because no one knows for sure when the trend will turn. It is always
more prudent to trade in the same direction as the trend.
Understanding a Trend
In an uptrend, it is easy to conclude that prices rise because there
are more buyers than sellers. However, this is not true. In the Forex
Market, the number of contracts bought always equals the number of
contracts sold. For example, if you want to buy five lots of EUR/USD,
the contract must be available from someone who wants to sell it.
Conversely, if you want to sell three lots of USD/CHF, someone must
be willing to buy it. Hence, the number of long and short positions
in the Forex Market is always equal. This raises the question: If the
number of contracts bought and sold is always equal, why do prices
move up and down?
The reason lies in the intensity of emotions between the buyers
and the sellers. In an uptrend, the buyers are in control because they
are willing to pay a high price. They buy high because they expect
prices to rise even higher. Sellers are nervous in an uptrend, and they
agree to sell only at a higher price. The price moves up because the
intensity of the buyers’ greed overpowers the fear and anxiety of the
sellers. The uptrend starts to fail only when buyers refuse to buy at
higher prices.
In a downtrend, the sellers are in control because they are willing
to sell at a low price. They sell low because they expect prices to
drop even further. Buyers are nervous in a downtrend and agree to
buy only at a discount. The price moves down because the intensity
of the sellers’ greed overpowers the buyers’ fear and anxiety. The
downtrend starts to fail only when sellers refuse to sell at lower
prices. Hence, there are three key principles we need to follow when
189
dealing with a trending market:
i. Always trade in the direction of the trend

ii. In an uptrend, go long
iii. In a downtrend, go short
When prices are moving in a trend, we need to be mindful that

momentum is steadily building in one direction. Remember, the trend
is your friend.
Trend Strategy
Timeframe
When trading, I prefer the slightly higher timeframes of M30, H1,
H4 and D1. Timeframes lower than M30 tend to have too much
“noise” and whipsaws.
Indicators
No indicators are used for this strategy. We use Trend lines only.
Currency Pairs
This strategy is suitable for all currency pairs listed on the broker’s
platform, especially the seven major currency pairs:
• EUR/USD
• USD/JPY
• GBP/USD
• USD/CHF
• USD/CAD
• AUD/USD
• NZD/USD
190
How to Trade an Uptrend
An uptrend is defined by having a series of higher highs and higher lows. On the chart, we will look for the
How
price to to following
have the Trade an Uptrend
pattern:
i. An
Oneuptrend
high (pointis A)defined by having a series of higher highs and higher
ii. lows.
One lowOn theB)chart, we will look for the price to have the following
(point
How to Trade an Uptrend
iii. pattern:
One An
higher high
uptrend (pointbyC)
is defined having a series of higher highs and higher lows. On the chart, we will look for the
iv. One price
higherto have the following pattern:
low (point D)
i. One high (point A)
i. One high (point A)
ii. One low (point B)
ii. One low
iii. One (point
higher B)C)
high (point
iii. One higher
iv. One high
higher low (point(point
D) C)
iv. One higher low (point D)
Figure 7.10 Concept of Uptrend Strategy

Figure 7.11 Uptrend on AUD/USD Daily Chart

Figure
Figure 7.11
7.11 Uptrendon
Uptrend on AUD/USD
AUD/USDDaily
DailyChart
Chart
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reserved.
Once we spot this pattern, we can proceed to draw a trend line.

The entry price for long will be the next immediate time when
the price touches the trend line (point D). The stop loss is placed a
few pips below the last low. This is because we are anticipating the
191
Once we spot this pattern, we can proceed to draw a trendline.

Once
The we spot
uptrend
entry pricethis
to pattern,
long willwe
for continue. be can proceed
Hence,
the we to do
drawnot
next immediate atime
trendline.
expect
when the theprice
price to fall
touches the back
trendline (point
D). TheThe stopentry
loss price
is for long
placed a fewwillpips
be below
the next
theimmediate
last low. timeiswhen
This the we
because price
aretouches the trendline
anticipating the uptrend(point
to
below the last low. The profit target is taken at a ratio of 1:2. This
D). The stop loss is placed a few pips below the last low. This is because we are anticipating
continue. Hence, we do not expect the price to fall back below the last low. The profit target is taken at a the uptrend to
means that if the distance between the entry price and stop loss is
continue.
ratio of 1:2.Hence, we dothat
This means notifexpect the price
the distance to fallthe
between back below
entry pricetheand
laststop Theis profit
low.loss target
50 pips, the isprofit
takentarget
at a
ratio of 50
1:2. pips,
This means the profi
that if thet target
distance should
between be
the 100
entry pips
price from
and stop the
loss isentry
should be 100 pips from the entry price. Similarly, if the distance between the entry price and stop loss is50 pips, price.
the profit target
should
100 Similarly,
pips,bethe
100 pipstarget
profit fromif the distance
the entry
should be price. between
Similarly,
200 pips from theifthe
theentry
distance
entry price
price. andthe
between stop
entryloss is and
price 100stop loss is
100 pips, pips,
the profitthetarget
profi should
t targetbe 200 pips from
should be the200 entry
pips price.
from the entry price.
Figure 7.12 Long Trade on AUD/USD Daily Uptrend

Figure
Figure7.12
7.12Long
LongTrade on AUD/USD
Trade on AUD/USD Daily
DailyUptrend
Uptrend
Figure
Figure 7.13 Long
7.13 Long Trade
Trade on AUD/USD
on AUD/USD Daily
Daily Uptrend
Uptrend Hitting
Hitting Profit
Profi Target
t Target
Figure 7.13 Long Trade on AUD/USD Daily Uptrend Hitting Profit Target
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192
Figure 7.14 Uptrend on NZD/USD H1 Chart

Figure 7.14 Uptrend on NZD/USD H1 Chart
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Uptrend Ltd. All rights
on NZD/USD reserved.
H1 Chart
Figure 7.15 Long Trade on NZD/USD H1 Uptrend

Source:
Figure Created
7.15 withTrade
Long FX Primus Ltd. All rights reserved.
Figure 7.15 Long Tradeon onNZD/USD
NZD/USD H1H1Uptrend
Uptrend
Source:
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reserved.
193
Figure 7.167.16
Figure Long Trade
Long Tradeon
on NZD/USD
NZD/USD H1
H1Uptrend HittingProfit
Uptrend Hitting ProfiTarget
t Target
Source:
Source:Created
Createdwith
with FX
FX Primus
Primus Ltd.
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rights reserved.
Figure 7.16 Long Trade on NZD/USD H1 Uptrend Hitting Profit Target
How toHowTrade ato Trade a Downtrend
Downtrend
A downtrend
A downtrend is defined byis defianed
having seriesby
of having
lower lowsaand
series
lowerof lower
highs. lows
On the and
chart, lower
we will look for the
How to to
price Trade
have athe
Downtrend
following pattern:
highs. On the chart, we will look for the price to have the following
A downtrend is defined by having a series of lower lows and lower highs. On the chart, we will look for the
i. One low (point A)
pattern:
price to have the following pattern:
ii. One high (point B)
i. One low (point A)
iii. i. lower
One Onelow
low (point
(point C) A)
ii. One high (point B)
iv. ii. lower
One Onehigh
high (point
(point D) B)
iii. Oneiii.
lower lowlower
One (point low
C) (point C)
iv. Oneiv.
lower high
One (pointhigh
lower D) (point D)
Figure 7.17 Concept of Downtrend Strategy
Figure7.17
Figure 7.17 ConceptofofDowntrend
Concept Downtrend Strategy
Strategy
194
Figure 7.18 Downtrend on EUR/USD H4 Chart

7.18 Downtrend
FigureCreated
Source: on EUR/USD
with FX Primus H4reserved.
Ltd. All rights Chart
Once we spot this pattern, we can proceed to draw a trend line.

The entry price for short will be the next immediate time when
Once we spot this pattern, we can proceed to draw a trendline.
theprice
The entry pricefor touches
short will the trend
be the next line (pointtime
immediate D).when
The the
stop loss
price is placed
touches a
the trendline (point
fewispips
D). The stop loss placedabove
a few the
pipslast
abovehigh. This
the last is because
high. we are
This is because weanticipating
are anticipating the
the downtrend
downtrend
to continue. Hence, to continue.
we do not Hence,
expect the price to risewe doabove
back not the
expect the The
last high. price to target
profit rise is taken at a
ratio of 1:2. This
backmeans
abovethatthe
if the distance
last high. between
The profi thet entry
targetprice and stop
is taken at loss is 50 of
a ratio pips, the profit target
1:2.
should be 100 pipsmeans
This from the entry
that price.
if the Similarly,
distance if the distance
between between
the entry pricetheand
entry
stopprice and stop loss is
loss
100 pips, the is
profit target should be 200 pips from the entry price.
50 pips, the profit target should be 100 pips from the entry price.
Similarly, if the distance between the entry price and stop loss is 100
pips, the profit target should be 200 pips from the entry price.
195
Figure 7.19 Short Trade on EUR/USD H4 Downtrend

Figure
Figure 7.19
7.19Short
Short Trade on EUR/USD
Trade on EUR/USD H4
H4Downtrend
Downtrend
Source:Created
Source: Createdwith
with FX
FX Primus
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rightsreserved.
reserved.
Figure7.20
Figure Short Trade
7.20Short Trade on
on EUR/USD H4Downtrend
EUR/USD H4 Downtrend Hitting
Hitting Profi
Profitt Target
Target
Short Trade
Figure 7.20Source:
Source: onwith
Created
Created EUR/USD
with FX H4Ltd.
Primus
FX Primus Downtrend
Ltd. Allrights
All Hitting
rightsreserved.Profit Target
reserved.
196
Figure 7.21 Downtrend on USD/CAD M30 Chart

Figure 7.21 Downtrend
Figure7.21 Downtrendon onUSD/CAD
USD/CAD M30 M30Chart
Chart
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reserved.
Figure
Figure 7.22 Short
Figure 7.22 ShortTrade
Short Tradeon
Trade onUSD/CAD
on USD/CAD M30
USD/CAD Downtrend
M30 Downtrend
M30 Downtrend
Source:
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Source: Createdwith
Created withFX
with FX Primus
FX Primus Ltd. All
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Primus Ltd. rights
Allrights reserved.
rightsreserved.
reserved.
197
Figure7.23
Figure ShortTrade
7.23Short Trade on
on USD/CAD M30 Downtrend
USD/CAD M30 Downtrend Hitting
Hitting Profit
ProfitTarget
Target
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reserved.
2. RANGE
2. RANGE
Figure 7.23 Short Trade on USD/CAD M30 Downtrend Hitting Profit Target
Support and Support
Resistanceand Resistance
The bottomTheand bottom
the top borders
and theof top
tradeborders
channels aretrade
2. of
calledchannels
RANGE
Support and
areResistance respectively (Figure
called Support
7.24). Resistance
and Resistance respectively (Figure 7.24). Resistance is a level at which is a level at
is a level at which the selling pressure exceeds the buying pressure. Support
which theSupport
buyingand
pressure exceeds to the selling pressure.
Resistance
the selling pressure exceeds the buying pressure. Support is a level at
The bottom and the top borders of trade channels are called Support and Resistance respectively (Figure
which
7.24). the isbuying
Resistance a level at pressure exceeds
which the selling pressureto the the
exceeds selling
buyingpressure.
pressure. Support is a level at
which the buying pressure exceeds to the selling pressure.
Figure
Figure
Figure7.24
7.24 Concept ofof
7.24Concept
Concept a Range
of aaRange
Range
198
Figure 7.25
Figure7.25 Range
Range on
7.25Range on GBP/JPY M30M30 Chart
Figure on GBP/JPY
GBP/JPY M30Chart Chart
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Source:
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Created with FX
with FX
Primus Ltd.
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All
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Allrights
rights reserved.
reserved.
Figure 7.26 Range on EUR/JPY Daily Chart

Figure7.26
Figure Range on
7.26 Range EUR/JPY
EUR/JPYDaily Chart
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Primus Ltd. AllDaily
rightsChart
reserved.
The more the The pricesmore

bounce offprices
the support and resistance, the strongerandthese levels become.
the However,
The more the prices bouncetheoff the support bounce off the support
and resistance, the stronger resistance,
these levels become. However,
these levels will be broken through sooner or later. Once a strong support is broken, that level is likely to
these stronger these levels become. However, these levels will be broken
turnlevels
into awill be broken
strong through
resistance. sooneronce
Conversely, or later. Once
a strong a strong
resistance supportthat
is broken, is broken, that level
level is likely is likely
to turn into ato
turn into a through
strong sooner
resistance. or later.
Conversely, Once
once a a strong
strong support
resistance is is
broken,broken,
that that
level is level
likely
strong support. This is called a level of conversion, i.e. when support turns to resistance or when resistance to turn into a
strong
turnssupport. This
to support. It is
is likely isto turna level
called
important for of
into aconversion,
the strong i.e. when
note ofsupport
trader toresistance.
take turnsofto
Conversely,
these levels resistance or when
once a because
conversion strong resistance
it can help
turns
youtoto support. It is important for the trader to take note of these levels
resistance is broken, that level is likely to turn into a strong support.
fine-tune where to place your stop loss and profit target. of conversion because it can help
you to fine-tune where to place your stop loss and profit target.
This is called a level of conversion, i.e. when support turns to resistance
199
or when resistance turns to support. It is important for the trader

to take note of these levels of conversion because it can help you to
fine-tune where to place your stop loss and profit target.
Figure 7.27 Conversion Level on AUD/NZD H4 Chart

Source:7.27
Figure
Figure Created
7.27 with FXLevel
Conversion
Conversion Primus
LevelonLtd.
on All rightsH4
AUD/NZD
AUD/NZD reserved.
H4 Chart
Chart
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reserved.
Figure
Figure7.28
7.28Conversion Levelon
Conversion Level onGBP/JPY
GBP/JPYDaily
DailyChart
Chart
Source:
Figure Created
7.28 with FXLevel
Conversion Primus
onLtd. All rights
GBP/JPY reserved.
Daily Chart
Range Strategy
Range Strategy
Timeframe
When trading, I prefer the slightly higher timeframes of M30, H1, H4 and D1. Timeframes lower than
Timeframe
M30 tend
When to have
trading, too much
I prefer ‘noise’ and
the slightly whipsaws.
higher timeframes
200 of M30, H1, H4 and D1. Timeframes lower than
M30 tend to have too much ‘noise’ and whipsaws.
Indicators
Range Strategy
Timeframe
When trading, I prefer the slightly higher timeframes of M30, H1,
H4 and D1. Timeframes lower than M30 tend to have too much
‘noise’ and whipsaws.
Indicators
No indicators are used for this strategy. We use Support and Resistance
only.
Currency Pairs
• EUR/USD
• USD/JPY
• GBP/USD
• USD/CHF
• USD/CAD
• AUD/USD
• NZD/USD
How to Trade a Range

A range is defined as a chart with no series of higher highs and higher
lows, and no series of lower highs and lower lows. Before we can
trade a range, we need to identify where the levels of Support and
Resistance are.
The best way to spot the start of the range is a failure for prices
to reach higher in an uptrend or lower in a downtrend. On the
chart, we will look for the price to bounce off the levels of Support
or Resistance before marking these levels out.
201
The best way to spot the start of the range is a failure for prices to reach higher in an uptrend or lower in a
owntrend. On the chart, we will look for the price to bounce off the levels of Support or Resistance before
marking these levels out.
Figure7.29
Figure 7.29Support
SupportandandResistance
ResistanceLevels
Levels ononAUD/NZD
AUD/NZD H4 H4Chart
Chart
ong Trade Long Trade

An entry for a long
Antrade
entryisfor
taken whentrade
a long we spot a whitewhen
is taken candle
wethat bounces
spot offcandle
a white the Support
that level and closes
bove it. We would then go
bounces offlong
the at the opening
Support levelof thecloses
and aboveAit.stop
next candle. Weloss is placed
would thenbelow
go the bottom of
long at the opening of the next candle. A stop loss is placed below the
bottom of the Support level because we do not expect prices to fall
below that, especially since the white candle has closed above it. The
profit target is taken about 80 percent of the range measured from
the support level. This means that if the distance between the Support
and Resistance is 100 pips, the profit target is placed 80 pips away
from the support. The risk-to-reward is taken at a ratio of 1:1. This
means if the distance between the entry price and profit target is 50
pips, the stop loss should be 50 pips from the entry price. Similarly,
if the distance between the entry price and target profit is 100 pips,
the stop loss should be 100 pips from the entry price.
The main reason we exit before the price reaches the top of the
range is because the Resistance level is easily spotted by both retail
202
80 pips away from the support. The risk-to-reward is taken at a ratio of 1:1. This means if the distance
between the entry price and profit target is 50 pips, the stop loss should be 50 pips from the entry price.
Similarly, if the distance between the entry price and target profit is 100 pips, the stop loss should be 100
pips from the entry price. THE LAW OF STRATEGIES
The main reason we exit before the price reaches the top of the range is because the Resistance level is
easily spotted by both retail and institutional traders alike. It pays to exit earlier since we do not know how
and
the price willinstitutional traders
react once it reaches alike. level.
the Resistance It pays to exit earlier since we do not
know how the price will react once it reaches the Resistance level.
Figure 7.30
Figure Long
7.30 LongTrade onAUD/NZD
Trade on AUD/NZDH4
H4 Range
Range
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Figure 7.31
Figure Long
7.31 Trade
Long Tradeon
onAUD/NZD
AUD/NZDH4
H4Range HittingProfit
Range Hitting ProfiTarget
t Target
Source:
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Created with
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rights reserved.
203
Figure
Figure 7.31
7.31 Long
Long Trade
Trade on on AUD/NZD
AUD/NZD H4H4 Range
Range Hitting
Hitting Profit
Profit Target
Target
Source:
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Created with
with FXFX Primus
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Ltd.
AllAll rights
rights reserved.
reserved.
Figure
Figure
Figure 7.32
7.32 Long
Long
7.32 Trade
Trade
Long on on
Trade onCAD/JPY
CAD/JPY
CAD/JPY H1H1 Range
Range
H1 Range
Source:
Source:
Source: Created
Created
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with FXFX
with Primus
Primus
FX Ltd.
Ltd.
Primus All
AllAll
Ltd. rights
rights
rights reserved.
reserved.
reserved.
Figure
Figure
Figure 7.33
7.33 Long Trade
Tradeon
LongTrade
7.33Long onCAD/JPY
on CAD/JPYH1
CAD/JPY H1 Range
H1 RangeHitting
Range Hitting
HittingProfit
ProfiTarget
Profit tTarget
Target
Source:
Source:Created
Source: Createdwith
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with FXPrimus
FX PrimusLtd.
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rights reserved.
reserved.
Short
ShortTrade
Trade
AnAnentry
entryforShort
for aashort Trade
shorttrade
tradeisistaken
takenwhen
whenwe wespot
spotaablack
blackcandle
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leveland
and
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then go trade
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abovethethetop
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theResistance
Resistance level
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because we
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not expect
expect prices
pricesto
torise
rise
bounces off the resistance level and closes below it. We would then above
above that,
that, especially
especially since
since the
the black
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hasclosed
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belowit.it.The profittarget
targetisistaken
takenabout about80 80percent
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rangemeasured
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go short at the opening of the next candle. A stop loss is placed above
level.
level.This
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Resistanceisis100100pips,
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weatdo not
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and profit since
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andtarget
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The
Themain
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exitbefore
beforethe
theprice
pricereaches
reachesthe
thebottom
bottomofofthetherange
rangeisisbecause
becausethe theSupport
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isiseasily
easilyspotted
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retailand
andinstitutional
institutionaltraderstradersalike.
alike.ItItpays
paystotoexit
exitearlier
earliersince
sincewe wedodonot
notknow
know
profit target is taken about 80 percent of the range measured from

the Resistance level. This means if the distance between the Support
and Resistance is 100 pips, the profit target is placed 80 pips away
from the Resistance. The risk-to-reward is taken at a ratio of 1:1. This
means if the distance between the entry price and profit target is 50
pips, the stop loss should be 50 pips from the entry price. Similarly,
if the distance between the entry price and target profit is 100 pips,
the stop loss should be 100 pips from the entry price.
The main reason we exit before the price reaches the bottom of
the range is because the Support level is easily spotted by both retail
and institutional traders alike. It pays to exit earlier since we do not
know how the price will react once it reaches the support level.
Figure
Figure 7.34 Short Trade
7.34Short Trade on
onGBP/AUD
GBP/AUDM30
M30Range
Range
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205
Figure 7.34 Short Trade on GBP/AUD M30 Range
Figure
Figure 7.35
7.35 ShortTrade
Short Tradeon
on GBP/AUD
GBP/AUD M30
M30 Range
RangeHitting
HittingProfit
ProfiTarget
t Target
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with FX Primus Ltd.
FX Primus Ltd. All
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rights reserved.
reserved.
Figure
Figure 7.36
Figure Short
7.36
7.36 Trade
Short
Short on AUD/USD
Trade
Trade on
onAUD/USD
AUD/USD Daily Range
Daily
DailyRange
Range
Source: Created
Source:
Source: withwith
Created
Created FX FX
with Primus Ltd.Ltd.
Primus
FX Primus All All
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Allrights
rights reserved.
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206
Figure 7.36 Short Trade on AUD/USD Daily Range
Figure 7.37 Short Trade on AUD/USD Daily Range Hitting Profit Target
Figure 7.37 Short Trade on AUD/USD Daily Range Hitting Profit Target
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reserved.
For the range strategy, it is important to wait for the confirmation candle before going long or short.
In the example for long, we have to wait for the white candle to close above the Support level before
For the range strategy, it is important to wait for the confirmation
entering. Similarly, in the example for short, we have to wait for the black candle to close below Resistance
candle before
before entering. Many going
traders long
do not wait or
for short. In the example
the confirmation candle andfor
hurrylong, welong
to enter have
when prices
to wait
are dropping towards forSupport
the white candle
or hurry to enterto close
short whenabove theheading
prices are Support level
towards before
Resistance.
entering. Similarly, in the example for short, we have to wait for the
black candle to close below Resistance before entering. Many traders
do not wait for the confirmation candle and hurry to enter long when
prices are dropping towards Support or hurry to enter short when
prices are heading towards Resistance.
What’s the reason you ask, especially as prices always bounce
off support and resistance? That’s the catch right there. We must be
careful to eliminate the words ‘always’ and ‘never’ from our trading
vocabulary. What if prices don’t ‘always’ bounce off? What if it
breaks below Support or above Resistance? Let’s have a look at the
following diagram:
207
What’s the reasonTHE
UNLOCKING you WORLD’S
ask, especially as prices
LARGEST always bounce
FINANCIAL SECREToff support and resistance? That’s the
catch right there. We must be careful to eliminate the words ‘always’ and ‘never’ from our trading
vocabulary. What if prices don’t ‘always’ bounce off? What if it breaks below Support or above Resistance?
Let’s have a look at the following diagram:
Figure 7.38 Price Moves towards Support on EUR/AUD H4 Range

Figure 7.38 Price Moves towards Support on EUR/AUD H4 Range

Source:
If a trader Created
rushes with FXlong
to enter Primus Ltd. All
when rightsare
prices reserved.
falling towards
Support, he would get a rude awakening because prices would have
If a trader rushes to enter long when prices are falling towards Support, he would get a rude
awakening crashed through
because prices crashedthe Support
through level. level.
the Support
Figure7.39
Figure PriceBreaks
7.39Price Breaks Support
Supportonon
EUR/AUD
EUR/AUDH4
H4Range
Range
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208
We don’t always know when this will happen. This is why we

must wait for the confirmation white candle for a reasonably higher
probability that prices have bounced off the Support level and will
continue to head up.
Let’s compare two traders. One of them entered at point A and
the other entered at point B. There is technically no difference in
their entry price. The only difference is that the trader who entered
at point B chose to wait for the confirmation white candle before
going long. The wisdom in waiting out for the confirmation candle
could potentially save him from a losing trade should the price
have crashed through the Support level after point A. Look at the
following chart:
Figure 7.40 Two Different Entry Points for Long Range Trade
The same is true for a short trade. Let’s have a look at the following
diagram:
209
Figure 7.41 Price Moves towards Resistance on AUD/JPY H4 Range

If a trader rushes to enter short when prices are rising towards

Resistance, he would get a rude awakening because prices would
have surged above the Resistance level.
210
Figure 7.42 Price Breaks

Figure 7.42 Breaks Resistance
ResistanceononAUD/JPY
AUD/JPY H4 H4Range
Range
We don’t always know when

We don’t alwaysthisknow
will happen. This will
when this is why we mustThis
happen. wait isforwhy
the confirmation
we blac
candle for a reasonably
must waithigher
for theprobability
confirmationthat black
prices candle
have bounced off the resistance
for a reasonably higher level and wi
continue to head down. Let’s look at the following chart:
probability that prices have bounced off the resistance level and will
continue to head down.
211
Let’s compare the two traders. One entered at point A while

the other entered at point B. There is technically no difference in
their entry price. The only difference is that the trader who entered
at point B chose to wait for the confirmation black candle before
going short. The wisdom in waiting out for the confirmation candle
could potentially save him from a losing trade should the price have
surged through the resistance level after point A. Let’s look at the
following chart:
Figure 7.43 Two Different Entry Points for Short Trade

A key mantra when trading the range is: “Never predict, always
react.”
212
the law of strategies
3. BREAKOUT
Breakout Strategy
Timeframe
Any timeframe can be applied, but we can include the M15 timeframe
here since breakouts normally happen after news announcements.
Hence, any timeframe from M15 to D1 would be ideal.
Indicators
No indicators are used for this strategy. We use Support and Resistance
only.
Currency Pairs
• EUR/USD
• USD/JPY
• GBP/USD
• USD/CHF
• USD/CAD
• AUD/USD
• NZD/USD
How to Trade a Breakout

The breakout trade is the answer when prices don’t respect levels
of support and resistance. This normally happens when major news
announcements are made and traders around the world rush in to
buy and sell. The news creates heavy momentum and can cause prices
to breakthrough levels of Support and Resistance, especially when
the data misses market expectations.
213
Long Trade
We must first mark out the Support and Resistance levels.
An entry for long is taken when we spot a white candle which closes
above the Resistance level. We would then go long at the opening of
the next candle. A stop loss is placed at the midpoint of the range
because we do not expect prices to fall below that, especially since the
white candle has closed above the Resistance level. The profit target
is taken at a ratio of 1:1. This means that if the distance between
the entry price and stop loss is 50 pips, the profit target should be
50 pips from the entry price. Similarly, if the distance between the
price and stop loss is 50 pips, the profit target should be 50 pips from the entry price. Similarly, if the
entry price and stop loss is 100 pips, the profit target should be 100
distance between the entry price and stop loss is 100 pips, the profit target should be 100 pips from the
entry price.
pips from the entry price.
Figure7.44
Figure Long Breakout
7.44 Long BreakoutTrade
Tradeon
onAUD/USD
AUD/USDH4
H4 Chart
Chart
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214
Figure 7.44 Long Breakout Trade on AUD/USD H4 Chart
Figure 7.45Figure 7.45 Long

Long Breakout Breakout
Trade Trade H4
on AUD/USD on AUD/USD
Chart Hitting H4Profit Target
Chart Hitting Profit Target
Figure
Figure 7.467.46 LongBreakout
Long Breakout Trade
Tradeonon
NZD/USD Chart
NZD/USD Chart
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215
UNLOCKING THEFigure 7.46 Long
WORLD’S Breakout
LARGEST Trade on NZD/USD
FINANCIAL SECRET Chart
Figure 7.47 Long Breakout Trade on NZD/USD Chart Hitting Profit Target
Figure 7.47 Long Breakout
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Primus Ltd. All Chart Hitting Profit Target
rights reserved.
Short Trade
We must first mark out the Support and Resistance levels.
An entry for short is taken when we spot a black candle which
closes below the Support level. We would then go short at the opening
of the next candle. A stop loss is placed at the midpoint of the range
because we do not expect prices to rise above that, especially since
the black candle has closed below the Support level. The profit target
is taken at a ratio of 1:1. This means that if the distance between
the entry price and stop loss is 50 pips, the profit target should be
50 pips from the entry price. Similarly, if the distance between the
entry price and stop loss is 100 pips, the profit target should be 100
pips from the entry price.
216
Support level. The profit target is taken at a ratio of 1:1. This means that if the distance between the entry
price and stop loss is 50 pips, the profit target should be 50 pips from the entry price. Similarly, if the
distance between the entry price and stop loss is 100 pips, the profitTHE target should be 100 pips from the
LAW OF STRATEGIES
entry price.
Figure 7.48
Figure Short
7.48 ShortBreakout Trade
Breakout Trade onon EUR/USD
EUR/USD Chart
Chart
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Figure
Figure 7.497.49 Short
Short BreakoutTrade
Breakout Trade on
onEUR/USD
EUR/USDChart
ChartHitting
HittingProfit Target
Profi t Target
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217
UNLOCKING THE Short
Figure 7.49 Breakout
WORLD’S Trade on
LARGEST EUR/USDSECRET
FINANCIAL Chart Hitting Profit Target
Figure 7.50
Figure Short
7.50 ShortBreakout Trade
Breakout Trade onon GBP/USD
GBP/USD Chart
Chart
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Figure
Figure 7.517.51 Short
Short BreakoutTrade
Breakout Trade on
onGBP/USD
GBP/USDChart
ChartHitting
HittingProfit
ProfiTarget
t Target
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A good website to refer to for data announcements is Forex Factory: www.forexfactory.com. In the
website, you will notice three different-coloured flags
218– red, orange and yellow. Red flags represent news
that is considered to have a ‘high impact’. Orange flags represent ‘medium impact’, and yellow flags ‘low
impact’. I normally pay attention to the red and orange flags only, since there’s a higher likelihood that
A good website to refer to for data announcements is Forex

Factory: www.forexfactory.com. In the website, you will notice
three different-coloured flags – red, orange and yellow. Red flags
represent news that is considered to have a ‘high impact’. Orange
flags represent ‘medium impact’, and yellow flags ‘low impact’. I
normally pay attention to the red and orange flags only, since there’s
a higher likelihood that prices will move after the news is announced.
For a more detailed analysis of other trading strategies, please refer
to my book 17 Proven Currency Trading Strategies: How to Profit
in the Forex Market.
SUmmARy
This chapter covers the three essential strategies that every trader must
know – trend, range and breakout. It is of paramount importance
for us to trade along the trend, simply because momentum is picking
up on one side. We always go long in an uptrend and go short in a
downtrend. When prices are moving in a range, we should go short
once prices turn down from the Resistance level and go long when
prices turn up from the Support level. In a breakout, we will wait for
the candle to close either above the Resistance level or close below
the Support level before taking a trade. Waiting for this ‘confirmation
candle’ is necessary so as not to get caught in ‘false breakouts’.
We can employ all three strategies on any currency pair, especially
the major seven pairs.
219
C hapter 8
Key #8:
The Law of Money

Management
“There was a time when a fool and his money were

soon parted, but now it happens to everybody.”
Adlai E. Stevenson
The story goes that each year, Warren Buffett, Chairman and CEO
of Berkshire Hathaway, sends out only one letter to the CEOs of all
the companies under the umbrella of Berkshire Hathaway. The letter
always has the same two rules:
Rule #1 - Don’t lose any of your shareholders’ money

Rule #2 - Please see rule number one
If this is a mantra echoed by one of the world’s richest men, then

we certainly need to examine the topic of money management a lot
more closely. Here’s an example to drive home the importance of
money management:
220
the law of money management
Let’s say you started trading with an account size of USD10,000.

You hit a bad patch and lost 50 percent of your account. How
much would you have left? The answer is USD5,000. The
bigger question is this: how much would you have to make in
order to bring your account back to the break-even level of
USD10,000? The answer, of course, is 100 percent.
In fact, the statistics are not pretty. Let’s have a look at the
table below:
% required to get back

Loss of Capital
to breakeven
10% 11%
20% 25%
30% 43%
40% 67%
50% 100%
60% 150%
70% 233%
80% 400%
90% 900%
Figure 8.1 Comparison of Percentage Loss and Percentage Break Even
From the table, you can see that if you lost 80 percent of your
initial capital, you would have to earn a whopping 400 percent to
bring your account just to the break even level!
In a nutshell, it’s easy to lose money, but it is a lot more difficult
to earn it back. This is the reason why traders need a much longer
time to build back an account when they make one wrong move,
even after they have experienced a good run of profitable trades at
the start.
There is wisdom in the saying: “Amateurs are concerned with how
much they can make. Professionals are concerned with how much they
will lose.” Much can be said about the topic of money management,
221
but I’d like to focus on just one aspect for now: Risk.
What exactly is risk? In simple terms, risk is defined as the amount
of equity you would lose when your trade hits a stop loss. It hurts to
see that in the world of Forex trading, many up and coming traders
are still oblivious to one of the biggest pitfalls of trading: the tendency
to take on too much risk. Sometimes, the mistake is innocent because
traders just do not understand how much risk is too much.
How many times have you heard friends say that Forex trading
is ‘risky’? If I earned a dollar each time I heard that, I’d probably
have enough to buy myself a private jet by now! This origin of this
assumption comes from the fact that traders simply do not know how
to calculate risk. There are basically three groups of traders:
i. Those who don’t calculate risk. This is the group who takes
random swings at the market by trading 5 lots one time and 12
lots the next.
ii. Those who calculate risk, but calculate it wrongly. This is the
group who uses a wrong formula to calculate how many lots they
should be trading each time.
iii. Those who calculate risk correctly. This is the group who uses
the golden rule each and every time a trade needs to be entered.
Let’s not even consider the first group, i.e. those who don’t calculate
risk, because that’s exactly where I wouldn’t want you to be. I would
like to share how most people calculate risk wrongly first. Only then
can we see the disastrous results a seemingly innocent formula can
bring, and decide to avoid it at all costs.
How do most traders calculate risk wrongly? Consider the following
example:
Jack starts his trading account with USD5,000 and selects the
normal leverage of 100:1. Jack knows that a standard lot in the
Forex market is USD100,000. Using a “simple” (but deadly)
formula, he calculates his lot size like this:
222
Capital x Leverage
Lot Size =
Standard Lot
5,000 x 100
=
100,000
= 5 lots
Jack sees the first opportunity to go long on EUR/USD and decides

to take a 30 pip profit with a 30 pip stop loss. Let’s consider both
scenarios. If the trade hits his profit target, Jack would have made 30
pips. Specifically, his trading profit would have been USD1,500.
Profit = Number of lots x number of pips x pip value

= 5 x 30 x 10
= USD1,500
In terms of Return on Investment (ROI), Jack would have made

a whopping 30 percent return! It is at this point that Jack would be
jumping up and down in hysterical euphoria as he compares his 30
percent return in two hours with the meagre 2 percent interest his
bank pays him in one year.
Jack rubs his hands in glee, praises the Forex market as the best
thing that has ever been invented since sliced bread and starts to
plan for his early retirement. All this is fine as long as Jack hits his
profit target.
Let’s consider the next scenario. What if the trade hit a stop
loss?
By the same calculation, Jack would have lost USD1,500 or more
specifically, wiped out 30 percent of his equity in one trade. The same
Jack who would have been jumping up and down in total excitement
would now be cursing the Forex market as something totally risky.
What changed? Well, effectively, nothing. The trade was the same.
The result was different.
From the above example, we can see that the people who praise
223
the Forex market one day and condemn it as risky the next are often
those who allow their emotions to be ruled by the result of a trade.
If the trade was profitable, the Forex market is awesome! If the trade
was a loss, the Forex market is risky!
The root problem here is not the Forex market – it is the ignorance
of risk.
Let’s take it a step further. It is common for traders to lose four
consecutive trades in a row, especially when the markets get volatile.
However, if Jack had wiped out 30 percent of his equity in one trade,
the million dollar question is, would Jack still be in the game if he
lost four trades in a row? No.
Therein lies the biggest mistake of most traders worldwide – the
tendency (whether consciously or unconsciously) to risk too much
of their capital per trade. So what is the golden rule of great traders
worldwide? It is this:
Great traders never risk more than 2 percent of their capital per
trade.
Here’s the formula to calculate risk:
Lot Size x Stop Loss x Pip Value

Risk =
Capital
The key is to calculate the lot size by controlling risk at 2

percent.
When we re-arrange the formula to calculate lot size, the formula
becomes:
Risk x Capital
Lot Size =
Stop Loss x Pip Value
Since most currency pairs have the US dollar as the counter currency,
the pip value is always 10. All variables are known except the Stop
Loss. This value is the number of pips from the Entry Price to the
Stop Loss Level. It is not a fixed value but a figure that is determined
224
THE LAW OF MONEY MANAGEMENT
Since most currency pairs have the US dollar as the counter currency, the pip value is always 10. All
variables are known except the Stop Loss. This value is the number of pips from the Entry Price to the Stop
bynot
Loss Level. It is thea strategy
fixed valuethat
butyou use.that
a figure This is always measured
is determined fromthat
by the strategy theyou
chart.
use. This is always
If you use the example from the Short Breakout Trade on EUR/USD
measured from the chart. If you use the example from the Short Breakout Trade on EUR/USD in Chapter
inisChapter
7, the Stop Loss 62 pips. 7, the Stop Loss is 62 pips.
Figure
Figure8.2
8.2Trade
Trade with
with 62
62 Pip-Stop Loss
Pip-Stop Loss
Let’s put allLet’s

the pieces
put alltogether and use
the pieces the chart
together andabove, where
use the the above,
chart Stop Loss is 62 pips. If your
where
account size was
theUSD10,000
Stop Lossthe is formula is: If your account size was USD10,000 the
62 pips.
formula is:
Risk x Capital
Lot Size =
0.02 x 10,000
=
62 x 10
= 0.32 lots
We can make two deductions from the above example. Firstly, we are only allowed to trade with 0.32
lots when we risk 2 percent on a USD10,000 account
225
with a stop loss of 62 pips. Secondly, if the trade hit a
stop loss, the account will be down USD200 since the risk was 2 percent of USD10,000. The next trade
We can make two deductions from the above example. Firstly,

we are only allowed to trade with 0.32 lots when we risk 2 percent
on a USD10,000 account with a stop loss of 62 pips. Secondly, if
the trade hit a stop loss, the account will be down USD200 since the
risk was 2 percent of USD10,000. The next trade would start with a
balance of USD9,800. It is hard to imagine anyone blowing up their
account with such tight rules, since each losing trade only chips 2
percent off the account.
In summary, to put us in the domain of the great traders, we need
to emulate the same approach to Forex trading. That approach is
to determine risk first, then calculate lot size accordingly. The fatal
mistake is to use an inaccurate formula to calculate lot size, only to
realise that the ‘formula’ causes a huge loss to the account on just
one trade.
Most amateur traders have a ‘the more the merrier’ mentality
and take huge positions in their lot size without understanding the
consequences. This is when Forex trading borders on gambling, and
leads the trader down the proverbial rabbit hole. The best way to avoid
such a fate is to never suffer a large loss. That is why the 2 percent rule
is so important in trading. Losing no more than 2 percent per trade
means that you would have to sustain 10 consecutive losing trades
in a row to lose 20 percent of your account. Even if that happened,
you would have 80 percent of your capital intact.
A 20 percent drawdown would only require making 25 percent to
bring the account back up to break even. Without the golden rule of
risking 2 percent per trade, you might easily find yourself down about
80 percent after 2-3 trades. As shown in Figure 8.1 at the beginning
of this chapter, if you find your account down 80 percent, you would
require a colossal 400 percent return to bring your account back to
break even – an almost impossible Herculean task.
The art of trading is as much about winning as it is about not
losing. By controlling your losses, much like a business that contains
its costs, you can withstand the tough market environment and will
be ready and able to take advantage of profitable opportunities
once they appear. That’s why the 2 percent rule is one of the most
226
important rules of trading.

Remember, the trick is not to start with lot size. Start with risk,
then determine lot size accordingly. This is the only way to protect
your account. I can’t emphasise this enough.
Now that you know the 2 percent rule, is Forex risky? Or were
you risky?
Exercise #1
Your capital is USD3,000. To trade at 2 percent risk with 30 pips
stop loss, what should your lot size be?
Exercise #2
Your capital is USD8,729. To trade at 2 percent risk with 59 pips
stop loss, what should your lot size be?
Advance Money Management

This segment will focus on some practical aspects of managing your
trade when you are in a less than ideal position. This mostly occurs
when you are not in front of the trading screen at the exact time
when the trade setup for long or short has occurred.
We’ve all been there before – life happens. We are caught in a
business meeting, we are tending to the kids or we’re just asleep.
There’s a myriad of reasons why we can’t be watching the markets
24/5.
Let’s explore two specific scenarios that can occur when we’re not
watching the market at the exact time when the price hits our entry
point. What happens next is that the price could be in two regions.
The first region is between the entry price and the profit target. The
second region is between the entry price and the stop loss.
Current Price is Between Entry Price and Profit Target

You flip open your iPad and realise that, according to your strategy,
the entry price was triggered a couple of hours ago. The price is
now between the region of the original entry price and the intended
profit target.
227
Current Price is Between Entry Price and Profit Target
Current
You flip Price your
UNLOCKING
open is Between
THEand
iPad Entry Pricethat,
WORLD’S
realise and Profit Target
LARGEST
accordingFINANCIal secret
to your strategy, the entry price was triggered a couple of
You flip
hours open
ago. Theyour
priceiPad andbetween
is now realise that, according
the region to your
of the strategy,
original entry the entry
price andprice was triggered
the intended profitatarget.
couple of
hours This
ago. The
is price is now
represented by between
the the region
diagram below. of the original entry price and the intended profit target.
This is represented by the diagram below.
This is represented by the diagram below.
Figure 8.3 Price Position is between Entry Price and Profit Target
What should you do? A key principle in Forex trading is to
What should you do? A key principle in Forex trading is to never chase the price. An act of chasing
never
What
the price chase
should
would the
be toyou do?price.
enter An act
A key principle
immediately. Most oftraders
in chasing
Forex wouldthe
trading price
is tothis,
do never would
chase the
especially be toAn
price.
since the enter
actlooks
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to be
the price would be
on itsimmediately. to enter immediately.
Mostchasing
way to profit. However, traders Most
thewould traders would
do case
price in this do
this,is notthis, especially
especially since
ideal. Let’ssince the
have athe price
lookprice looks to be
at the diagram
on its way to profit. However, chasing the price in this case is not
below:looks to be on its way to profit. However, chasing the price in thisideal. Let’s have a look at the diagram
below:
case is not ideal. Let’s have a look at the diagram below:
Figure 8.4 8.4

Figure Risk is Greater
Risk is Greater Than Reward
Than Reward
Figure 8.4 Risk is Greater Than Reward
If you choose to enter now, you are getting into the market at a ‘worse price’ compared to a trade
If you
If the
you choosechoose
to enter to
now,enter
you now,
are getting you intoarethegetting
market atinto the market
a ‘worse at ato a trade
taken at original entry price. This is because a trade taken at the original entryprice’
pricecompared
would already be in
taken‘worse
at the
positive price’
original
territory. compared
entry price. This
Additionally, enteringisto a trade
because
the a trade
trade taken at
takenit at
when the
is the original
original
near entry
entry target
the profit price.
price would
would already be ina
not give
positive territory. Additionally, entering the trade when
This is because a trade taken at the original entry price would already
favourable risk-to-reward ratio. In fact, even if the trade it
hits is
a near
profit,the profit
there’s a target
high would
probability not give
that youa
favourable
would only risk-to-reward
bank in 1 ratio.
percent or In fact,
less if theeven
risk ifis 2the trade hits a profit, there’s a high probability that you
percent.
be in positive territory. Additionally, entering the trade when it is near
wouldThat’s
only bank in 1case
the best percent or less– ifrisking
scenario the risk is 2 percent.
2 percent for 1 percent or less. In trading, it is normally not a
the
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profit target
thetobest
havecase
would– not
scenario
a risk-to-reward riskinggivepercent
ratio 2less
athan
favourable
for 1Inpercent
1:1.
risk-to-reward
or less. In trading,
a 1:1 risk-to-reward
ratio.
it isyou
scenario,
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normally
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good fact,
approach even if the
to have trade hits ratio
a risk-to-reward a profit,
less than there’s
1:1. Inaa 1:1high probability
risk-to-reward thatyou
scenario, youwould earn
would only bank in 1 percent or less if the risk is 2 percent.
That’s the best case scenario – risking 2 percent for 1 percent or
less. In trading, it is normally not a good approach to have a risk-
228
to-reward ratio less than 1:1. In a 1:1 risk-to-reward scenario, you

would earn a profit of 2 percent for every 2 percent risk. If you chase
the price and happen to profit, you would end up with 1 percent or
less, giving an unfavourable risk-to-reward of 2:1 or lower. This is
not ideal because it means that you have to make two winning trades
for every losing one just to break even.
The worst case scenario would be for the trade to make a turnaround
and hit the stop loss, something which is entirely possible. In this
case, you would lose 2 percent.
Considering the above scenarios, a better approach would be to
place a pending order at the original entry price. The purpose of the
pending order is to anticipate that the price would retrace back to
the entry price, trigger the trade and hopefully make its way back
to the profit target. This is a much better approach than chasing the
price because
a profit of 2 percentthe risk-to-reward
for every 2 percent risk. If youratio would
chase the behappen
price and more favourable.
to profit, you would end Inup
with 1 percent or less, giving an unfavourable risk-to-reward of 2:1 or lower. This is not ideal because it
essence, it is taking the trade at the original price. So what do we do
means that you have to make 2 winning trades for every losing one just to break even.
if the Thepriceworstdoes not would
case scenario retracebe forback
the tradeto the aentry
to make price?
turnaround and hitWhat if itsomething
the stop loss, goes
allwhich
theiswayentirely possible. In this case, you would lose 2 percent.
to touch the profit target without retracing? The answer
Considering the above scenarios, a better approach would be to place a pending order at the original
is entry
thatprice.
weThe miss
purposeone trade.
of the pendingThat’s
order is toit.
anticipate that the price would retrace back to the entry
price, trigger the trade and hopefully make its way back to the profit target. This is a much better approach
than chasing the price because the risk-to-reward ratio would be more favourable. In essence, it is taking the
Current
trade at thePrice
original is Between
price. Entry
So what do we Price
do if the and
price does not Stop Loss
retrace back to the entry price? What if it
goes all the way to touch the profit target without retracing? The answer is that we miss one trade. That’s it.
Let’s consider the opposite side now. You flip open your iPad and
realise
Current that, according
Price is Between toand
Entry Price your strategy, the entry price was triggered
Stop Loss
a Let’s
coupleconsider the opposite side now. You flip open your iPad and realise that, according to your strategy,
of hours ago. The price is now between the region of the
the entry price was triggered a couple of hours ago. The price is now between the region of the original
original
entry priceentry price and
and the intended the
stop loss intended
as represented stop
by the loss
diagram as represented by the
below:
diagram below:
Figure 8.5 Price Position is between Entry Price and Stop Loss
FIGURE 8.5 Price Position is between Entry Price and Stop Loss
What should you do? Instead of placing a 229

pending order in the previous case, a better choice would
be to enter the trade immediately. Why?
When you enter the trade immediately, you are getting in at a ‘better price’ compared to the original
What should you do? Instead of placing a pending order in the

previous case, a better choice would be to enter the trade immediately.
Why?
When you enter the trade immediately, you are getting in at a ‘better
price’ compared to the original entry price. As you can see from the
diagram below, once the price moves back to the original entry price,
you would already be in positive territory. Additionally, the risk-to-
reward ratio is more favourable. It could be 1:2 or higher.
Figure FIGURE 8.6 Reward

8.6 Reward is Greater Than
is Greater ThanRiskRisk
Is there a higher risk of the price hitting the stop loss since the current price is nearer to the stop loss?
Sure. However, if you use the same lot size, you would end up with a much lower risk. Let’s use an example
Is there a higher risk of the price hitting the stop loss since the
to illustrate what I mean. Here’s the formula to calculate lot size again:
current price is nearer to the stop loss? Sure. However, if you use the
same lot size, you would end up with a much lower risk. Let’s use an
example to illustrate what I mean. Here’s the formula to calculate
lot size Using
again:a USD5,000 account with a 35 pip stop loss at 2 percent risk, the lot size is:
Lot Size = 0.02 x 5,000

35 x 10
Risk x Capital
Lot Size = = 0.29 lots
When the current price is nearer to the stop loss, the number of pips between them is smaller than 35
pips. Let’s assume it’s 20 pips. If we use the same lot size of 0.29 lots, here’s what we get for risk:
Using a USD5,000 account with a 35 pip stop loss at 2 percent
risk, the lot size is:
0.02 x 5,000
Lot Size =
35 x 10
= 0.29 lots
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When the current price is nearer to the stop loss, the number of
pips between them is smaller than 35 pips. Let’s assume it’s 20 pips.
If we use the same lot size of 0.29 lots, here’s what we get for risk:
Lot Size x Stop Loss x Pip Value

Risk =
Capital
0.29 x 20 x 10
=
5,000
= 0.0116 or 1.16%
This is what I mean when I say we will end up risking smaller than
2 percent of our account when we take such a trade immediately.
Yes, there is always a potential risk of the trade hitting a stop loss.
However, with a favourable risk-to-reward ratio, the risk is worth
taking. In the case above, we are risking 1.16 percent for a potential
2.32 percent reward.
In summary, when the current price is between entry price and
profit target, the trader should put a pending order at the original
entry price in anticipation of a retracement to hit the entry price
again. When the current price is between entry price and stop loss,
take the trade immediately with the same lot size as you would have
taken in the original trade. This risk would be lower than 2 percent,
and the potential reward would be higher.
Risk-to-Reward vs Winning Probability

Many traders are fixated on winning as many trades as possible. This
is often called the winning probability.
In my seminars, I frequently ask: “Out of 10 trades, how many
would you like to win?” More often than not, the most common
answer is “at least 9”. I then proceed to share an example of a
strategy that has a winning probability of at least 98 percent. Each
time you enter a trade, set the profit target as 2 pips and the stop loss
as 200 pips. Isn’t that a good strategy? You would end up winning
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many trades that would meet your requirement of a high probability

strategy. However, you would need just one loss out of 100 trades
to negate all the previous 99 wins.
How is that a good strategy?
The real question is this: Is a high risk-to-reward ratio more
important or a high winning probability? After the above example,
you might be quick to say that a high risk-to-reward ratio is more
important. Let’s look at two examples:
Example A: Good risk-to-reward ratio and low winning

probability
Using an example of a 1:3 risk-to-reward ratio and a winning
probability of 10 percent. If the risk per trade is 30 pips, then:
Total Profit = Number of Pips x Winning Trades

= (3 x 30) x 1 = 90 pips
Total Loss = Number of Pips x Losing Trades
= 30 x 9 = 270 pips
We would experience a net loss of 180 pips.
Example B: Poor risk-to-reward ratio and high winning

probability
Using an example of a 3:1 risk-to-reward ratio and a winning
probability of 70 percent. If the risk per trade is 30 pips, then:

= 30 x 7 = 210 pips
= (3 x 30) x 3 = 270 pips
We would experience a net loss of 60 pips.

The above examples show that having a high risk-to-reward
ratio in itself is not enough. So what’s the balance? Take a look at
the table below.
232
Break-even
Risk-to-Reward
Profit Percentage
2:1 66.7%
1:1 50%
1:2 33.3%
Figure 8.7 Risk-to-Reward and Break-even Profit Percentage Comparison
The table shows us the break-even point for risk-to-reward and

winning probability. For example, you would need a 50 percent
winning probability to achieve break-even when the risk-to-reward
ratio is 1:1. If you decide on a risk-to-reward ratio of 1:2, you would
need 33.3 percent of your trades to be profitable to achieve break
even. In other words, if you have a 40 percent winning probability
at a risk-to-reward ratio of 1:2, you would be in positive territory.
Let’s test this example using a risk of 50 pips.

= (2 x 50) x 4 = 400 pips
= 50 x 6 = 300 pips
We would have a net gain of 100 pips.

In summary, if you adhere to a 1:2 risk-to-reward ratio, you would
only need to win 4 out of every 10 trades to be profitable. Isn’t this
a better option compared to an unrealistic expectation of needing to
win 9 out of every 10 trades?
Be careful not to be solely fixated on your winning probability. A
trader who defines success as having an 80 percent winning probability
is in danger of hanging on to a losing trade even though he has won
the previous seven trades because of his unrealistic expectations.
Remember to always balance both risk-to-reward ratio and winning
probability. They go hand in hand.
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Goal-setting
A discussion on money management is not considered complete
without a segment on goal-setting. Is setting goals important?
On 24 July 1963, a young boy named Bill Clinton visited the White
House to meet President John F. Kennedy. Clinton was one of the
first in line to shake President Kennedy’s hand in the Rose Garden.
That event was so memorable and so important to Clinton that he
knew he wanted to make a difference in the lives of the people of
America by becoming President. He had a goal.
Figure 8.8 Young Bill Clinton shakes hands with

Figure 8.8 Young Bill Clinton shakes
President hands
John with President John F. Kennedy1
F. Kennedy 1
On 20 January 1993, Clinton was inaugurated as the 42nd President

On 20 January 1993, Clinton was inaugurated as the 42nd President of the United States.
of the United States.
Michael Phelps began setting goals when he was just seven years old. At 15, he set a goal to beco
Michael Phelps began setting goals when he was just seven years
ungest swimmer to set a world record. On 30 March 2001, Phelps achieved his goal at the W
old. At 15, he set a goal to become the youngest swimmer to set a
pionship Trials for the World Aquatics Championships. After winning six gold medals in the 2
world record. On 30 March 2001, Phelps achieved his goal at the
s Olympics, Phelps set another goal to break Mark Spitz’s record of seven gold medals. On 17 Aug
Phelps became the first swimmer in history to win eight gold medals in a single Olympics.
1
http://www.history.com/photos/bill-clinton/photo3
234
THE LAW OF MONEY MANAGEMENT
World Championship Trials for the World Aquatics Championships.

After winning six gold medals in the 2004 Athens Olympics, Phelps
set another goal to break Mark Spitz’s record of seven gold medals.
On 17 August 2008, Phelps became the first swimmer in history to
win eight gold medals in a single Olympics.
Figure 8.9 Michael Phelps with 8 Gold Medals achieved

in a single Olympics2
There is no question that setting goals is important. In fact, here

are three reasons why goal-setting is so important:
1. Clarity and Focus

Setting goals gives you clarity on what you ultimately want. It makes
you articulate the desires floating in your mind and ensures that you
are channeling your time, energy and efforts into things that really
matter to you. It makes you live more consciously.
2
http://www.ioffer.com/i/michael-phelps-8-gold-medals-2008-beijing-olympics-dvd-
67824396
235
Everything that you see around you is created twice. The table,
the TV, the telephone. These things were first created in a person’s
mind before they were created in reality. Without mental creation,
there can be no physical creation. The late Napoleon Hill once said:
“Whatever the mind can conceive and believe, it can achieve.”
When you set a goal, you already accomplish the first creation.
The next step is to manifest it in physical reality. When you don’t
have goals, your energy is engaged in unproductive activities. You
might be participating in such activities simply because you can’t
think of a better way to spend your time. Do you find yourself surfing
the Internet excessively? Are you always on Facebook or just lazing
the time away?
To be fair, you may have a broad idea of what you want to do.
But until you clearly articulate it in terms of specific goals, you will
not be able to develop laser-beam focus. You will often find yourself
getting sidetracked because you don’t have goals to rein you in. In
today’s fast-paced environment, the standard mantra is that we have
‘no time’ because we get pulled in so many different directions on a
daily basis. When you don’t have goals, you lose focus.
2. Accountability
Having goals makes you accountable. Rather than just talking about
what you want and not doing anything concrete to achieve these
goals, you are now obligated to take action. This accountability
is accountability to yourself, not anyone else. When you stay
accountable to your goals, you develop a sense of inner congruency.
Of course, it doesn’t hurt to share your goals with the people closest
to you. Studies have shown that when people shared their goals with
those closest to them, they were more likely to succeed.
3. Raises Your Bar

Goals help you achieve your highest potential. Without goals, you
subject yourself to the natural, default set of actions that you are
comfortable with. However, this familiarity is the nemesis of growth.
It prevents you from growing. It does not enable you to become
236
the best person you can be. It denies you from tapping into your
unlimited potential.
Goals make you raise your bar and help you to stretch your
potential. Remember, when a rubber band is stretched, it does not
go back to its original length. Trading Forex is no different. You
must have a financial goal. Ask most people why they trade Forex
and you almost always get the answer: “To make a lot of money!”
Unfortunately, that is too vague. Vague goals give vague results. Let’s
use the time-tested SMART way to set our Forex goal:
• S – Specific
• M – Measurable
• A – Achievable
• R – Realistic
• T – Time-specific
Specific
An example of a specific goal is:
• I want to make a million dollars OR

• I want to make 6 percent a month
By being specific, you know exactly what you want to accomplish.
Measurable
This simply means you have a way of assessing your progress. Goals
which cannot be measured cannot be managed. The simplest test is
whether, at the end of your deadline, someone can tell whether you
have achieved your goal. The best way to measure your financial goal
in Forex is through your trading account. Take note of your starting
balance and ending balance at the end of every month.
Achievable
Your goal must be within reach. Goals that stretch you are OK, but
realistic goals are better. Unattainable goals don’t motivate. Easy
237
goals aren’t challenging and do not contribute to growth. If you want

to make a million dollars in the Forex market, look for a mentor
who has achieved the goal before. Similarly, if you want to generate
a consistent return of 6 percent per month, look for someone who
has the result that you seek. This would tell you that your goal is
achievable. All you need to do is to emulate the steps that your
mentor has taken before and you are well on your way to achieving
the same results.
How achievable is a goal of attainting a consistent return of 6
percent a month?
Let’s take reference from the earlier section when we adhere to a
1:2 risk reward ratio and win 4 out of 10 trades. If we risk 2 percent
per trade, our score would look something like this:
Percentage of losses = 2 percent x 6 = 12 percent

Percentage of wins = 4 percent x 4 = 16 percent
Net gains per month = 16 percent - 12 percent = 4 percent
If we win 5 out of 10 trades, the calculation would look like this:
Percentage of losses = 2 percent x 5 = 10 percent

Percentage of wins = 4 percent x 5 = 20 percent
Net gains per month = 20 percent – 10 percent = 10 percent
If we take the average of the two figures, we would arrive at 7

percent per month. Simply put, if we hit an average of 4-5 winning
trades out of every 10 with a risk-to-reward ratio of 1:2, we would
make about 7 percent profit every month. Highly achievable don’t
you think?
Reasonable
A reasonable goal means that you are both willing and able to take
the necessary steps to move towards your goal. These steps could
involve giving up some of your TV time, watching the market late
at night or putting in 2 hours of study a day. Be careful not to set
238
unrealistic demands on yourself from the get-go. If you are holding

down a job and are just starting your trading journey, it would be
unrealistic to either quit your job immediately or decide to spend 10
hours watching the markets.
One of the best ways to help determine the next step you should
take is, again, to get a mentor. The purpose of a mentor is to guide
you towards your goal and help you to cut short your learning
curve. A mentor should ideally have achieved the goal you have set
for yourself so that he/she can properly guide you on your journey.
There are three key steps in selecting a mentor.
i. Credibility. Look for someone who has credibility in the

market.
• Is the mentor a well-known figure in the industry?

• Is he/she profiled frequently in the media?
• What has he/she achieved in the Forex industry so far?
• Is the mentor dedicated to help others achieve success in the
Forex Market?
These are all pertinent questions you should be asking yourself

when selecting a mentor who has credibility.
ii. System. Your mentor may be a great trader, but if he/she does not
have a system to help you achieve your trading goals, you might
be better off looking for someone else. Ask questions about the
system that your mentor is planning to use to build you (and
your account) up. Will the mentor’s guidance and knowledge be
imparted to you through:
• Scheduled homework
• Weekly webinars
• Face-to-face sessions
• Email correspondence
239
The important thing to remember is that once a system has been

agreed upon, you need to commit to it.
iii. Results. Check what results your mentor has created for him/
herself and for others around him/her. In Forex, the results can
be in the form of a trading account or real-life testimonials. This
gives you confidence that the mentor does indeed ‘walk the talk’
and is committed to help the people around him/her achieve
similar goals. Take your time to find a mentor that suits you.
When you find such a person, use these guidelines to develop a
positive mentoring relationship:
• Prepare questions. Before any mentoring session, it is always

helpful to prepare a list of questions pertinent to the subject
of the lesson. This tells your mentor that you are committed
to learning, and also helps him/her to zero in on the areas of
growth which you need the most help on.
• Put aside your ego. Don’t let your ego get in the way of your
learning. If you disagree on something, politely bring it up and
seek clarity so that you understand the subject matter from
your mentor’s point of view.
• Don’t idolise. It is common for mentees to have a healthy

admiration for their mentors. However, be careful that you
don’t put him/her on a pedestal. Idolising your mentor removes
your critical faculty for adapting a mentor’s knowledge and
experience to yourself. You may also tend to lose focus on
the most important task at hand – growing to be a profitable
Forex trader.
After every mentoring session, always review the learning points

and put the points to work immediately. It could be a way of looking
at the market, a topic to study or actual trades on your account.
Ensure that you follow through so that you can build upon your
240
competence and be ready to receive more on the subsequent session

with your mentor.
Timeline
All goals need to have deadlines. A goal free from a time element is
always susceptible to procrastination. Setting a deadline reinforces
the seriousness of the goal in your mind. It motivates you to take
action. When you don’t set a timeline, there is no internal pressure
to accomplish the goal and it gets pushed in the back burner. Within
your established timeframe, ask yourself:
• What can I do today to reach my goal?

• What can I do 3 weeks from now to reach my goal?
• What can I do 3 months from now to reach my goal?
Here’s an example of a SMART trading goal:
“I will make 5 percent return a month starting with an account

of USD10,000. My account will be USD22,000 two years from
today and I will dedicate one hour each day to study the Forex
market to improve my knowledge.”
State your trading goal here and commit to achieving it:
_______________________________________________________
_______________________________________________________
_______________________________________________________
The Magic of Compound Interest

Albert Einstein said that compound interest is the eighth wonder of
the world. Compound interest is the simplest, surest way to grow
your account. Let me explain the term compound interest as simply
as I can:
Compound interest pays you interest on your principal. Then,
when it’s time to pay interest again, you’re paid interest on your
241
principal AND the previous interest that you earned. In other words,
the interest that you’re paid adds to and becomes part of the principal
that accrues interest during the next period. This means that you
have a continuously growing principal amount without having to
make another deposit.
For example, if you made a 5 percent return on your initial deposit
of USD5,000 at the end of the first month, you would have a balance of
USD5,250. If you did the same thing for the second month, you would
make 5 percent of USD5,250 which is USD5,512.50 and so on.
Compound interest makes your money work for you, continually
feeding upon itself to grow at a substantially faster rate than with
simple interest. It’s no wonder that Albert Einstein called it the eighth
wonder of the world.
One of the secrets of the wealthy is long-term investments that
pay compounded interest. Every savvy investor, when given a choice
between an average investment with compound interest and a great
investment with simple interest, will pick the average investment every
time. They know that, over time, the investment that compounds
will outperform the other.
Now, this leads us to another interesting point. Firstly, what is
defined as an investment? An investment is defined as an instrument
that has a two-fold purpose:
i. It generates income
ii. It increases in value over time
Hence, if you invest a lump sum (known as capital), you should

get regular small payments of some kind and the actual value of the
capital itself increases, i.e. the lump sum gets bigger.
Let’s take a look at an investment that compounds over time. Say
you start off with a capital of USD10,000. The capital then generates
a return of 5 percent every month. Over one year, the investment
would look like this:
242
Start: USD10,000
1st month: USD10,500
2nd month: USD11,025
3rd month: USD11,576
4th month: USD12,155
Here’s where the significant effect of compound interest can be

seen more tangibly. In the first month, the monthly return of 5 percent
yielded a profit of USD500 (from USD10,000 to USD10,500). In
the last month of the year, the monthly return of 5 percent yielded a
profit of USD856 (from USD17,103 to USD17,959).
On retrospect, the investment didn’t have to work any harder to
generate the extra return. It still was 5 percent every month. This is
the magic of compound interest. With simple interest, this investment
would only generate a total return of 60 percent a year. However,
with compound interest, the investment would generate a handsome
return of 79.59 percent a year – almost 20 percent more than if simple
interest was used! Over time, the magic of compound interest can be
truly mind-boggling. Your investment would look like this:
Start: USD10,000
1st year: USD17,959
2nd year: USD32,251
3rd year: USD57,920
4th year: USD104,018
243

8th year: USD1,082,022
Here’s the good news: If you start investing early, you would only
need to start with an amount of USD10,000 to see a significant return
of USD1 million in eight years.
Here’s the bad news: If you start much later, you would have to
start with a higher initial capital to reach the same goal.
As an example, if you start five years later, and want to achieve
the same financial results, you would have to play ‘catch-up’ and
start-off with an invested amount of USD186,805.
I can almost see you thumping your chest with excitement with
the question: “So which investment can give me a compounded
return of 5 percent a month?” Lean a little closer and I’ll tell you:
Forex trading.
Summary
Many Forex traders fail simply because they take on too much risk
per trade. The golden rule is never to risk more than 2 percent of your
capital per trade. If you start trading with USD10,000, you should not
lose more than USD200 if your trade hits a stop loss. In other words,
if you hit a stop loss, your account should reflect USD9,800.
A key principle discussed in this chapter is the risk-reward ratio. If
we stick to a 1:2 risk-to-reward ratio, we would only need to ‘win’ 4
out of every 10 trades to be profitable. This means that we can still be
profitable even though the winning probability is only 40 percent.
Use the ‘SMART’ formula to craft your trading goal. Setting goals
is important because it keeps you focused and disciplined. If you don’t
know where you’re going, any road will take you there.
The beauty of Forex trading is seen when you employ compound
interest to your trading account. This ‘eighth wonder of the world’
will ensure that your account grows much faster, without changing
any rules to the way you trade.
244
C hapter 9
Key #9:
The Law of State
“Until you can manage your mind, do

not expect to manage money.”
Warren Buffett
Jesse Livermore was an American stock trader who later became

known as the Boy Plunger and the ‘Great Bear of Wall Street’. Born
on 26 July 1877, Jesse started his working life at the age of 14, as a
quotation board boy in a stockbroker’s office. In those days, stock
prices came into the stockbroker’s offices on a ticker tape, a continuous
strip of paper with stock prices from Wall Street. It was Jesse’s job
to take the prices from the tape and write them on the board for the
stockbroker’s customers to see.
At the age of 15, a friend convinced Jesse to put down real money
on a trade for the very first time. Jesse proceeded to invest all he had
in a bucket shop, shelling out his life savings of a few dollars on a
company called Burlington. Within two days, he made $3.12 on the
trade. In the months that followed, Jesse went on to make his first
$1,000 – all at the tender age of 15. At the age of 20, Jesse made
his first $20,000.
245
Jesse had two rules in his trading system: First, he never listened
to anybody, preferring to rely on his own analysis; and second, he
always added to a winning position, never to a losing one. These
rules enabled him to make over $3 million after the 1907 stock
market crash.
A year later, Jesse would break his own cardinal rules. At the
time, Jesse was short on cotton and long on wheat. On paper, he was
in profit on both positions. However, a meeting with commodities
expert Percy Thomas would quickly change his fortune. Percy Thomas
had a fine reputation in commodities and he persuaded Jesse that
his short trade on cotton was all wrong. Thomas said cotton was
going to go up.
After being convinced by Percy, Jesse sold his profitable position
in wheat – a position that would have made him 8 million dollars
had he held on to it – so that he could buy cotton. Every day, he
bought more cotton. In fact, he bought so much cotton that he was
soon supporting an entire market into which the smart money was
selling.
Unfortunately, the price of cotton fell and Jesse lost millions.
Recalling that defining moment, Jesse would later say, “To learn
that a man can make foolish plays for no reason whatever was a
valuable lesson. It cost me millions to learn that another dangerous
enemy to a trader is his susceptibility to the urgings of a magnetic
personality when plausibly expressed by a brilliant mind.”
When we dissect Jesse’s mistake, his decision to break his trading
rules isn’t a about a lapse in strategy or money management. Rather,
it was a problem with his state of mind. Thankfully, Jesse recovered
brilliantly from that experience and went on to build massive wealth
20 years later. Most notably, he was worth over $100 million after
the stock market crash of 1929. To find out just how much $100
million in those days is worth today, here’s an interesting take:
• $1.27 billion using the Consumer Price Index

• $1.02 billion using the GDP deflator
• $2.27 billion using the value of consumer bundle
246
the law of state
• $3.89 billion using the unskilled wage

• $5.51 billion using the nominal GDP per capita
Suffice to say, Jesse was a billionaire. Here’s another quote by

Jesse which is on my list of favourite trading quotes:
“All through time, people have basically acted and reacted the
same way in the market as a result of greed, fear, ignorance
and hope. That is why the numerical formations and patterns
recur on a constant basis.”
State of Mind
The four characteristics that Jesse speaks of – fear, hope, greed and
ignorance – all have their roots in a trader’s state of mind. State deals
with a trader’s thoughts and emotions. It is by far, the component
which will present itself as the biggest stumbling block to a trader’s
success.
State of Mind
Thoughts Emotions
Figure 9.1 A Trader’s State of Mind
Thoughts
The cornerstone of our thoughts is our belief system. A belief is an

acceptance that something exists or is true, especially one without
proof. More often that not, your beliefs become your truths.
Here’s some examples of what I mean:
Do you believe that the earth is round or flat? If you answered
round, I’ve got some news for you.
The Flat Earth Society (also known as the International Flat
247
Earth Society or the International Flat Earth Research Society) is

an organisation that aims to further the idea that the Earth is flat.
Founded by Englishman Samuel Shenton in 1956 and later led by
Charles Johnson, the Society propagates that humanity lives on a
disc with the North Pole at its centre and a 45 metre high wall of
ice at the outer edge. The resulting map resembles the symbol of the
United Nations, which Johnson used as evidence for his position.
In this model, the sun and moon are each 32 miles (52 kilometres)
in diameter.
Here’s my question. You know in ‘truth’ that the earth is round.
However, try explaining that to the President of the Flat Earth Society.
If your conviction about the Earth being round is not strong, the
President of the Flat Earth Society might just convince you that the
Earth is flat! Instead of a debate based on logic, the debate would
ultimately be a clash of beliefs.
Here’s another example: Roger Bannister was a professional
runner. In the 1952 Helsinki Olympics, Roger made it to the finals
of the 1500 metre event, but came in fourth although he set a British
record. After the Olympics, Roger decided he wanted to become the
first man in history to run a mile in under four minutes. He believed
with all his heart he could do it, although that feat had never before
been achieved.
On 6 May 1954 at the Iffley Road Track in Oxford, Roger broke
the record for running a mile. When the announcer declared “The
time was three...”, the cheers of the crowd drowned-out the details
of the result, which was 3 min 59.4 sec. Amazingly, just six weeks
after Roger Bannister’s record breaking feat, his time was lowered
on 21 June 1954 by a man called John Landy. To date, 50 years after
Roger Bannister became the first man to run the mile in under four
minutes, breaking the longstanding belief that it couldn’t be done.
Since then, over a thousand others have done the same.
248
the result, which was 3 min 59.4 sec. Amazingly, just six weeks after Roger Bannister’s record breaking feat,
his time was lowered on 21 June 1954 by a man called John Landy. To date, 50 years after Roger Bannister
became the first man to run the mile in under four minutes, breaking the longstanding belief that it
couldn’t be done. Since then, over a thousand others have done the same. THE LAW OF STATE
Figure 9.2 A Plaque

Figure 9.2 A Plaque Commemorating Commemorating
the First-ever the First-ever
Sub-Four-Minute Mile Run by Roger Bannister1
Sub-Four-Minute Mile Run by Roger Bannister 1
Roger Bannister believed that he could run the mile in under four minutes. That belief became his
truth. Roger Bannister believed that he could run the mile in under four
minutes.
Remember Thatgood
one thing: belief became
or bad, hisortruth.
limiting empowering, your belief becomes your truth. That’s
how deadly or otherwise,
Remember our beliefs
one can be. They
thing: goodliterally
or shape
bad, our thinkingor
limiting andempowering,
how we view the world.
your belief becomes your truth. That’s how deadly or otherwise,
our beliefs can be. They literally shape our thinking and how we
view the world.
1 http://en.wikipedia.org/wiki/Four-minute_mile
Early on in my trading career, I realised that I was holding on to

some limiting beliefs. I realised only later that these beliefs didn’t do
me any good. Some of these beliefs were “making money is hard”,
“Forex trading is too difficult” and “I’m not good enough”. Little did
I realise that these beliefs were hindering my progress as a trader on a
subconscious level. I just couldn’t have a breakthrough in generating
and keeping profits in my account.
It was only when my mentor sat me down and made me examine
my beliefs that I realised I had to ‘spring clean’ the limiting beliefs in
my head that were holding me down. I had to replace those limiting
1
http://en.wikipedia.org/wiki/Four-minute_mile
249
beliefs with empowering beliefs such as “I’m the best”, “I’m a great
Forex trader” and “making money is simple”. I drilled myself with
such statements everyday. In fact, my mentor made me do two
activities:
• Write down sentences like “I’m the best”, “I’m a great Forex
trader” and “making money is simple” 200 times a day
• Repeat those same sentences each time I wake up in the morning
and each time I go to bed at night
Was the process easy? No.

It wasn’t easy because as I did those activities, my subconscious
mind was opposing the new messages in my head. That just shows
how ‘stuck’ I was in my old beliefs. However, as I pushed on and fed
my mind with the new messages – and new beliefs – the old patterns
slowly faded away and the new me emerged.
It was during this process that I discovered a powerful truth: The
subconscious mind cannot differentiate right from wrong or good
from bad. It just receives and believes what you tell it.
In the words of Henry Ford: “Whether you think you can, or
think you can’t, you are usually right.”
Emotions
Emotions affect a trader’s state of mind. If you allow your emotions

to get the better of you, your live account can be severely damaged.
Some of these emotions include fear, hope and greed. Needless to
say, I found this out the hard way. I remember a time when all these
dreaded emotions came crashing down on me with the speed of
a bullet train. I had just finished a trading lesson with my mentor
and had learnt all the strategies. It was time for me to execute those
strategies onto my live account.
When the time came for me to go long, I froze. All I had to do
was to repeat the same process, just as I had done numerous times in
my demo account. However, because I was trading with real money,
250
the law of state
fear gripped me and caused me to hesitate. I ended up missing the

trade.
As Murphy’s Law would have it, the trade hit its profit target.
Filled with frustration, I doubled my lot size for the next trade
because I wanted to ‘win back’ the previous trade that I had missed.
All knowledge about the 2 percent rule went out the window because
I was bent on earning back the profit which had eluded me the first
time.
After I triggered the trade, I couldn’t believe my eyes when I saw the
trade moving towards the stop loss. I had ‘lost’ the first trade because
I hadn’t taken it, but I was now in real danger of losing double on the
second trade because I had doubled my lot size. As the trade came
within a few pips of the stop loss, I did the unthinkable – I removed
the stop loss to give the trade some breathing space.
What happened next was a classic play from the ‘101 things to
avoid in trading’ playbook. As the trade surpassed the original stop
loss level by 20 pips, I was staring at a much bigger loss than I had
expected. It didn’t help to feel sorry for myself, and I certainly wasn’t
going to close the trade at this point. It had become “too painful” for
me to even consider closing it and booking the losses. So I did what
any ‘logical’ trader would do at that time – I triggered another long
trade, effectively adding to a losing position. I also started praying,
asking for divine help to reverse the trade.
The trade didn’t go my way, and I learnt a painful lesson that
day. Let’s dissect the range of emotions that took hold of me as I
was trading.
I failed to execute the first trade because of fear. On the second
trade, I decided to throw common sense out of the window and
doubled the lot size because I needed to ‘make back’ the profit that
I didn’t bank in. This was pure greed.
As the trade floated towards the stop loss, I removed the stop
loss because I had convinced myself that the trade would reverse its
course if I gave it some breathing room. This was hope.
Finally, when the trade fell through the stop loss level, all bets were
off. I was literally gambling at that stage. I triggered another long
251
trade out of pure ignorance and utter disrespect for the markets.
Can you see how emotions always cause a trading downfall?
To paraphrase the great Jesse Livermore’s quote, the financial
markets will remain the same yesterday, today and tomorrow simply
because of the four basic human characteristics of fear, greed, hope
and ignorance. I hope (no pun intended) you now see that misguided
emotions can blow up your live account; whether you like it or
not.
Hope almost always enters the game after a trader clicks buy or
sell. After all, if you didn’t think the trade was going to be profitable,
you wouldn’t have clicked the mouse would you? Greed creeps into
a trader’s mind in many ways. It can urge the trader to take another
trade even when the trading plan says the profit target has been hit. It
can also cause a trader to double down or add to a losing position to
try and recover from a bad patch. Ignorance rears its ugly head when
a trader randomly clicks buy or sell based purely on emotions.
In all my years of trading and coaching in the Forex Market,
I’ve seen how one trait causes more damage than the rest. Contrary
to what most traders would think, greed is not the killer. The more
dangerous trait is fear.
Fear
Fear is a very real emotion in trading. In fact, the two specific fears
are:
• Fear of being wrong

• Fear of losing money
No one likes to be wrong. Think about this: When was the last
time you made a decision that you knew was wrong?
You probably answered: “Never!” That’s because our mind is
wired to make decisions which we think/feel are correct. Based on this
fact, it is difficult for us to accept that we will be wrong sometimes.
Nowhere is this more evident than when we trade the Forex Market.
Each time we buy or sell, the act of clicking the mouse reinforces the
252
the law of state
fact that our decision to go long or short was correct in the first place.
However, the surest way for the market to tell us that our decision
was wrong is when we hit our stop loss. Hitting a stop loss or even
a string of losses is normal in the Forex Market. The problem comes
when you take the losses personally and lose all rational thought.
Do you like to lose money? I sure don’t. No one does. We can’t
do anything when our trades hit a loss from time to time. No one
wins every trade, all of the time. It is just not realistic. The key is to
manage our emotions effectively when we hit a dry patch. I’ve seen
some traders give up trading altogether because they are afraid to
lose any more money. In other cases, some of them take their losses
personally and allow their emotions to get the better of them by
doubling up on their trades after several losses.
So how can we best manage our thoughts and emotions – and
by extension – our state of mind effectively? The answer is to have
a trading plan.
A trading plan is a structure or a set of guidelines that can be
used to define your trading activity. It can be an extremely useful
tool to help you focus on planning and executing your entire trading
strategy.
There is no absolute blueprint for the perfect trading plan; every
trader is unique, and different styles suit different people. But there
are certain universally accepted elements to consider when building
your own plan.
Writing a trading plan is an integral part of being a successful Forex
trader. The purpose of a trading plan is to help you stick to the rules so
that you won’t be swayed by your emotions. Without a trading plan
in place, you will be more susceptible to making trading mistakes,
overtrading or making impulsive decisions in volatile markets. Here
are 10 steps to follow when writing a trading plan:
1. Decide which currency pairs to focus on

2. Check for major news releases (red or orange flags on Forex
Factory)
3. Select your trading timeframe (M30, H1, D1, etc.)
253
4. Check whether the market is in a trend or a range

5. Identify areas of support, resistance and conversion
6. Check for short or long setups based on the strategy
7. If strategy rules don’t fit, stay out
8. If strategy rules fit, execute
9. Determine entry and exit prices based on the strategy
10. Calculate lot size based on 2 percent risk
This is what the steps look like in a flowchart:
Decide on
currencies & check
for major news
releases
Know your trading

time-frame,
H1, D1, etc.
Identify the current

Trend Range
market structure
Identify major
Identify Areas of
Support and
Conversion
Resistance
Apply a Trend Is there a trade Apply a Range

Strategy setup? Strategy
YES NO
Determine
the Entry and Stay Out!
Exit Prices
Calculate the lot

size based on 2% Execute the Trade!
risk or less
Figure 9.3 Trading Plan Flow
254
the law of state
The critical factor to success is to follow your trading plan day in

and day out. No exceptions. When a trade doesn’t fit all the trading
criteria, don’t take it. When it does, take it. Follow the rules, not your
instinct. You are not allowed to “pass” a trade based on your feelings.
The only time you can pass is when you have met your monthly goal.
This is an important step towards building consistency in your Forex
trading journey and eliminating emotional trading.
Trading Journal
While a trading plan helps you to plan your trade and follow it with
strict rules, a trading journal helps you to track your performance
and thoughts over time. Many aspiring traders get caught up in the
results of each individual trade. However, in the world of professional
trading, your performance is measured over a long series of trades.
This is important because it helps you to focus on the long term and
remove any emotion you might attach to any one trade. A trading
journal should have the following elements:
• A space to capture your chart

• The date of the trade
• The strategy employed
• The type of trade (long/short)
• The entry price, profit target and stop loss
• The result of the trade
• The reason for entering (be honest!)
• Post-trade comments and/or thoughts
A trading journal doesn’t have to be complicated. It can be created

using a simple Excel sheet. Here’s an example of what your trading
journal should look like:
255
Paste your chart here
Date:
1 Strategy
2 Type of trade (Long/Short)
3 EP (Entry Price)
4 SL (Stop Loss)
5 PT (Profit Target)
6 Result
7 Reason to enter trade
8 After trade comments
Figure 9.4 Example of Trading Journal Template
Your state of mind as a trader is made up of your thoughts and

your emotions. Emotions influence our thoughts and thoughts
influence our emotions. Most traders fail not because of a lack of a
good strategy or poor money management skills. Rather, they fail
because their thoughts and emotions get the better of them when they
trade. Whether you are a beginner or an advanced trader, I cannot
emphasise enough the importance of diligently following both the
trading plan and the trading journal. This is the best way to keep
emotional trading at bay. Commit to doing both for three months,
and I guarantee that you will be pleasantly surprised at your trading
results at the end of it.
256
THE LAW OF STATE
THE mSS TRADER
So let’s put things in perspective. We now know that the laws of

Strategies, Money Management and State of Mind must come into
play for us to achieve any degree of success in trading. If these
three laws are important to help a trader become consistently
profitable, what proportion should we attribute each law to? Here’s
the breakdown:
1. Strategies: 15 percent
2. Money Management: 30 percent
3. State of Mind: 55 percent
Money Management
30%
S S
15% 55%
Strategies State of Mind
Figure 9.5 MSS Diagram
Strategies (15 percent)

“What? Mario, are you trying to tell me that my strategies only
account for 15 percent of my success in Forex? But I’ve travelled the
world twice over to look for that one special strategy which is going
to net me a million bucks!”
257
I’m sorry to burst your bubble my friend, but even if you have a
sound strategy – and we have discussed three in this book – it is only
going to account for 15 percent of your success in trading. I know
I’m raising a few eyebrows here, but that is a fact.
Don’t get me wrong – this doesn’t mean that strategies are not
important. They are.
If you think about it, without a strategy to start the trade, the laws
of Money Management or State of Mind will not even come into
play. However, many traders make the fatal mistake of thinking that
a strategy is the only aspect of trading necessary to bank consistent
profits in the Forex Market.
Nothing could be further from the truth. You can have the best
strategy. Couple that with risky money management rules and misguided
emotions and you have a sure recipe for a trading disaster.
Money Management (30 percent)

Why is money management twice as important as strategy? This is
because if you take on more risk than what you are supposed to, you
put yourself in a position where your account can be badly damaged
when the trade goes against you.
Remember, you can’t win every trade.
If you don’t have tight rules in place to control your losses, one
losing trade with slack money management can put your trading
account on life support. Your account would be in a position where it
takes more “effort” to recover after it suffers a significant drawdown.
In some cases, the account never recovers. Stick to the 2 percent risk
per trade – it will repay you with huge dividends many times over if
you follow it religiously.
State of Mind (55 percent)

Why is state of mind twice as important as money management?
This is because everything rises and falls based on the way you, the
trader, execute your plan. Much can be said about strategies and
money management, but on all accounts, they are inanimate concepts
which can be taught.
258
the law of state
The same cannot be said about a trader’s state of mind. In my

trading career, I’ve seen many traders take or pass on trades based
on their feelings or a ‘sixth sense’. This can be very hazardous.
When a trade doesn’t fit all your trading criteria, don’t take it.
When it does, take it. As a trader, your job is to follow the rules,
not your instinct. Your state of mind can either make or break you
as a trader.
Summary
State of mind deals with a trader’s thoughts and emotions. It is by far,

the component that will present itself as the biggest stumbling block
to a trader’s success. A trader’s state of mind is twice as important as
money management, and can be as much as four times as important
as strategies.
The best way for you to ensure that you don’t get caught up with
your emotions while trading is to craft out a trading plan.
A trading plan helps you to keep things in perspective, especially
when you are tempted to trigger a trade based on your emotions.
Follow the 10 steps discussed in this chapter and you will be able to
keep your emotions in check while trading.
259
C hapter 1 0
Key #10:
Habits
“We are what we repeatedly do.

Excellence, then, is not an act, but a habit.”
Aristotle
Two young newlyweds were preparing to enjoy their first baked

ham dinner in their new apartment. After unwrapping the meat
and setting it on the cutting board, the wife chopped off both ends
of the ham with a butcher’s knife, tossing the two small ends in the
garbage can.
“Wait a minute,” said the mystified husband. “Why did you do
that? Why did you just cut off the ends of the ham like that?”
“Hmm… I don’t know. My mother always did that,” answered
the wife. “Maybe it helps bring out the flavour.”
Unsatisfied with this answer, the husband called his mother-in-law.
“Why do you cut the two ends off of a ham before you cook it?”
“Well,” said the mother, “I’m not really sure why. That’s just the
way my mother did her ham, and it was always delicious.”
As soon as the husband hung up, he called his wife’s grandmother,
determined to solve the three-generation mystery. “Grandma, we have
260
habits
an important question for you. Can you tell us why you cut the ends
off of a ham before you cook it?”
“Oh my, yes, dear,” answered Grandma. “I cut the ends of the
ham off so it would fit in my pan.”
The above story illustrates a point – a habit, whether good or bad,

is an acquired pattern of behaviour. The same is true when it comes
to creating wealth. Wealth creation or the lack thereof is also largely
due to habits.
Michael Carroll worked as a garbage man until, at the tender age
of 19, he won £9.7 million on the National Lottery in November
2002. That was the equivalent of USD15.4 million at the time. He
enjoyed celebrity status in the British media and was known for his
lavish lifestyle. He proclaimed himself as the King of Chavs and even
put that phrase on his black Mercedes van. He immediately bought
four houses, a holiday villa in Spain, two convertible BMWs, two
Mercedes Benz and several bikes. He also participated in a celebrity
boxing match and even filmed a documentary about his life.
He spent ‘untold thousands’ on drugs and prostitutes. He was also
reckless with his possessions. For example, a mansion he bought for
£340,000 and spent £400,000 extra on was sold for only £142,000
because of the state of damage that he had left it in. In 2010, it was
revealed that Carroll had declared bankruptcy and gone back on
Jobseeker’s allowance, making £42 a week. He even applied for his
old job as a bin man.
How is it possible that someone can ‘blow up’ USD15.4 million
within a few short years? The answer is habits.
In 2009, a whopping 332 people were wiped off the Forbes
Billionaires List, largely due to the financial crisis that began in 2008.
Among the casualties was former Stanford professor, Jim Clark,
who had made his name when he founded two companies, Silicon
Graphics and Netscape Communications.
With dogged determination, Clark slowly but surely clawed his
way back, thanks to hugely successful investments on some of Silicon
Valley’s biggest companies including Apple, Facebook and Twitter.
261
answer is habits.
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companies, Silicon Graphics and Netscape Communications.
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How is it possible that someone can be crowned a ‘comeback
three years in exile in the realm of nine-figure fortunes, Clark was back on th
billionaire’ just three short years after losing almost everything? The
ne can be crowned
2012. a ‘comeback billionaire’ just three short years after
answer, again, is habits.
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Figure 10.1 Michael Carroll (left) and Jim Clark1
Figure 10.1 Michael Carroll (left) and Jim Clark1

0.1 Michael Carroll (left) and Jim Clark1
1
In the trading world, habits can make or break a trader. A trader with bad
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262
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act.over the world come up
challenges they have faced while trading. Here are the top nine:
HABITS
In the trading world, habits can make or break a trader. A trader

with bad habits will inevitably blow up his trading account simply
because he doesn’t know any other way. Similarly, a trader with good
habits will inevitably grow his trading account simply because he
doesn’t know any other way.
In my Forex trading seminars, people from all over the world
come up to me to share some of the challenges they have faced while
trading. Here are the top nine:
1. The strategies don’t work

2. I am not making as much money in my live account
3. I don’t put a stop loss
4. I have no time to trade
5. I can’t keep my emotions in check
6. The charts don’t make sense
7. I can’t figure out the Forex news
8. I don’t calculate my lot size
9. I can’t stop trading
Do any of the above statements sound familiar to you?

On closer inspection, I have come to realise that all of the above
problems are essentially symptoms of a much larger trading problem
– bad habits. Let’s take a deeper look at the list so that we can tackle
the problem at the root.
1. The Strategies Don’t Work

A common reason for this complaint is that the trader either
experienced a string of losses or the trader exited too early, thereby
not enabling the trade to run it course. It is common to experience
a string of losses when trading Forex because of market volatility. I
remember hitting stop losses 8 times in a row, setting a new record
for myself. The key thing to remember is to trust the system. As long
as you keep to the golden rule of not risking more than 2 percent per
trade, you will emerge from the dry patch stronger.
263
Another common habit that traders have is the tendency to meddle

with their trades and exit the market with a small profit before allowing
the trade to run its full course. The primary reason is fear – fear that
the trade will reverse into negative territory. If you find yourself doing
this, it is likely that you will also meddle with the stop loss levels in
time to come. At that stage, you are trading purely on intuition, not
on a system. That is a sure recipe for disaster.
Bad habit to overcome: Impatience.
2. I Am Not Making as Much Money in My Live Account

I have often observed that traders tend to make more money in their
demo account than their live account. For new traders, the difference
is even more startling. Could it be just a case of beginner’s luck or is
something more at play?
When using a demo account, the individual is trading on live prices
with fake money. The main challenge for traders trading on demo is
that they don’t take the experience seriously. After all, the account
can always be ‘re-loaded’ with more cash each and every time the
account blows up. This is when complacency sets in. Additionally,
some traders tend to open large demo accounts to give the illusion that
the amount earned in a demo would be similar in a live account.
I would suggest opening up a demo account with the same amount
that you intend to fund your live account with. For example, if you
intend to start trading live with USD10,000, then you should start
on a USD10,000 demo account. This is the best way to replicate the
size of your wins/losses accurately when you start trading live.
I remember my mentor telling me early in my trading career,
“Mario, you’d better play like you practise and practise like you
play.” I consider that one of the best tips I ever got.
Bad habit to overcome: Complacency.
3. I Don’t Put a Stop Loss

Why do so many traders adopt the bad habit of not putting a stop loss
in every trade? The short answer is that no one likes to lose money.
In the previous chapter, I mentioned that no individual will make a
264
habits
trade thinking it will go wrong. We would only click buy or sell if

we think the market will go up or down respectively.
Traders don’t put a stop loss because they are under the impression
that the stop loss is there to hurt and not help them. Besides not
putting a stop loss altogether, variations include loosening a stop
and doubling down. Loosening a stop is a bad habit of dragging a
stop loss higher in a short trade or dragging it lower in a long trade.
This normally happens when a trader sees the market price floating
dangerously close to the original stop loss.
Doubling down is the bad habit of adding to a losing position.
This is the habit of shorting in an uptrend and adding more shorts
as the market goes higher and higher. It also includes going long in
a downtrend and adding more longs as the market goes lower and
lower. Traders do this for three reasons. Firstly, they have a feeling
that prices have either gone too low or too high and rationalise that
it’s time for the markets to reverse course. Secondly, traders want
to catch the turn of the uptrend or the downtrend in the hope of
catching a big reversal trade and banking in a larger profit. Finally,
it is that nagging feeling of not wanting to lose a trade that’s so
forcefully ingrained into our DNA. These are the bad habits which
many traders surprisingly practise.
Let me share something even worse: The acts of not placing a stop
loss, loosening or doubling down become more dangerous if your
trade books a profit. This is because the end result can lure you into
a false sense of security, giving you the impression that your ‘bad
habit’ was the correct thing to do. You see, many people conclude
that a profit is the only thing that matters in a trade. Hence, the end
justifies the means.
The only logical step you would take after seeing your trade
register a profit is to continue the avoidance of a stop loss, loosening
or doubling down each and every time. However, the market has a
strange sense of humour. After you form this new habit, you will
eventually experience a scenario where you add to a losing position
that never recovers.
In trading, you can trade wrongly and win. You can also trade
265
correctly and lose. Let’s focus on trading correctly.

Bad habit to overcome: Ego.
4. I Have No Time to Trade

The anthem I hear almost everywhere I go is “I have no time.”
Admittedly, life is busy. We have work to do, kids to attend to, meetings
to attend, projects to complete, appointments to attend, etc. The list
is endless. Trying to squeeze in half an hour a day to pick up a new
skill and generate a very real second source of income seems almost
impossible to any normal human being. Many people complain of
a lack of time, but the real problem is a lack of direction. In such
cases, it might be helpful to step back and take stock of your current
schedule. What can be changed? What can be dropped? How would
you carve out extra time to dedicate yourself to learning about and
participating in trading?
Bad habit to overcome: Justification.
5. I Can’t Keep My Emotions in Check

Human beings are emotional creatures, and money is an emotional
topic. Emotions almost always play out in the financial market because
real money is at stake. Fear, hope, greed and ignorance are present each
time we do battle in the Forex market. Those who complain about
trading emotionally are most likely the same people who don’t have
a trading plan. Successful trading is counter-intuitive. We know we
should go long in an uptrend and go short in a downtrend. However,
in the absence of a trading plan, we tend to succumb to the emotional
pull of fear and greed. The best way to weed out emotional trading
is to craft out a trading plan, and stick to it.
Bad habit to overcome: No trading plan.
6. The Charts Don’t Make Sense

The markets will do what the markets want to do. In fact, English
economist John Maynard Keynes said it beautifully with this sentence:
“The market can stay irrational longer than you can stay solvent.”
If you find that the charts are not making sense, a possible reason
266
habits
is that you may have a pre-conceived method of looking at the charts.

In such cases, it would help to keep an open mind to receive new
knowledge, especially if your own way of trading the Forex market
is not working. This is when a mentor is most helpful – to give you
new insights on market movements and to answer any questions that
may arise from the new teachings.
Bad habit to overcome: Inflexibility.
7. I Can’t Figure Out the Forex News

Understanding fundamental analysis is the Achilles’ heel of most
traders. More than ever before, financial news and data are being
reported and released at break neck speed on a daily basis. How
would anyone be able to keep up? It is important to understand that
Rome wasn’t built in a day. I didn’t build up my understanding of
the Forex Market in a day. It took years of reading and questioning
before I reached a stage where the dots connected for the first time.
If you find it difficult to interpret the news, here’s a tip: Learn to
separate facts from opinions.
Consider this sentence: “Australia’s unemployment figures fell to 5.8
percent in March. The Aussie should strengthen because unemployment
fell.” Can you tell the fact from the opinion in the statement above?
Australia’s unemployment figures fell to 5.8 percent in March – this
is fact. The Aussie should strengthen because unemployment fell –
this is an opinion.
As traders, we need to be careful not to base our trades purely
on the opinions of others. In the financial markets, if you want an
opinion, you will get it. Have a look at any news site and you will be
puzzled at the different opinions of journalists and economists alike,
although all have access to the same data. The best way to navigate
through the financial jungle would be to pay attention to the facts, i.e.
the data reported. Then, move on to the charts and make a decision
on your trade based on the strategy you formulated. Incidentally,
before I had the opportunity to sit on CNBC and Bloomberg to give
my views on the financial markets, I was flabbergasted by the torrent
of data which came out daily. It certainly didn’t help that the analysts
267
were giving conflicting opinions.

In summary, here is a two-pronged approach in dissecting the
news: Pay attention to facts, not opinions; set realistic expectations
on the time you need to understand fundamental news and data.
Bad habit to overcome: Trading on opinions.
8. I Don’t Calculate My Lot Size

The Forex market pays USD10 per pip on average. The experience
can be absolutely exhilarating and addictive if you happen to catch a
trade which gives you 50 pips over 7 lots, especially if the trade exited
in a couple of hours. Making a few thousand dollars in a couple of
hours can have an explosive effect on your psyche, especially if you
experience this early in your trading career. The combined effect of
miserly returns from bank deposits coupled with holding down a
monotonous job can cause you to feel invincible after experiencing
just one ‘good’ trade in the Forex Market. If your account size was
USD10,000 or less, the above trade would have represented at least
35 percent equity of your entire account. The bad news is that the
trade could have easily hit a stop loss and caused a drawdown of 35
percent in your account. Spending just 2 minutes to calculate the lot
size based on the 2 percent rule can save your account.
Bad habit to overcome: Laziness.
9. I Can’t Stop Trading

In today’s fast-paced society, we are conditioned to want things ‘fast
and now’. Nowhere is this conditioning more rampant than when
it comes to creating wealth for ourselves. Ask any new trader what
would be a realistic timeframe to create a million dollars and the
answer will most likely be ‘Next Friday’.
This unrealistic expectation feeds the need to overtrade, especially
with the mentality that more trading brings more profits. Nothing
could be further from the truth. The Forex Market is not an ATM.
You don’t trigger a buy or sell simply because you are short of cash.
If you overtrade and lose, your live account would suffer more than
if you didn’t trade at all. Jesse Livermore said, “After spending many
268
habits
years in Wall Street and after making and losing millions of dollars, I
want to tell you this: It never was my thinking that made the big money
for me. It was always my sitting. Got that? My sitting tight!”
Overtrading is the bane of the intelligent trader.
Sometimes, overtrading occurs because traders invariably select
a high leverage for their account. An acceptable leverage for retail
traders is usually 100:1 or 200:1. In Forex, 1 standard lot equals
100,000 units of the base currency. If you select a leverage of 100:1,
you would only require $1,000 or a margin of 1 percent to trade 1
lot. If you select a leverage of 200:1, you would only require $500
or a margin of 0.5 percent to trade 1 lot. It follows that you would
require a lower margin for every trade if your account has a higher
leverage. Such a situation can easily lead a trader to conclude that he
can open up more positions on a trading account that has a higher
leverage. Let’s use an example to illustrate this:
Trader A: USD10,000 Account 100:1 Leverage

Trader B: USD10,000 Account 500:1 Leverage
Trader A would need a USD1,000 margin for 1a lot. Trader B

would need just USD200 for one lot. Let’s assume that both understand
the golden rule of not risking more than 2 percent per trade. If
Trader A triggers one trade and loses, he loses just 2 percent of his
equity. The risk for Trader B is the justification that he can open up
5 different positions to match Trader A’s one lot because one lot for
his account ‘only’ requires USD200. Although Trader B may risk a
2 percent per trade, the danger lies in losing all 5 trades if all the
positions hit their stop loss. His total drawdown in this case would
be 10 percent, although his total margin was still the same as trader
A – USD1,000.
Bad habit to overcome: Overtrading.
How should we overcome these seemingly bad habits? The answer,

of course, is to replace them with good ones.
269
Ten habits of great Forex traders
This is how habits, good or otherwise, form. Actions, when repeated

over a period of time, eventually develop into habits. We can go
further by saying that ‘positive actions’ repeated over a period of
time will develop into good habits, while ‘negative actions’ repeated
over a period of time will develop into bad habits. Good or bad, the
chains of habit are too weak to be felt until they are too strong to
be broken.
Actions
Good Habits
Time
Bad Habits
Figure 10.2 How Habits Form
How would anyone know whether a habit is good or bad in

the first place? The answer lies in the end result. In Lewis Perdue’s
book The French Paradox, he explains how the French live longer
because they drink a glass of red wine a day. We could classify this
as a good habit.
270
HABITS
Stretching the example a little, drinking a bottle of red wine in

one day could be passed off as an after-dinner celebration. Taken out
of context however, drinking a bottle of red wine a day everyday,
for an extended
Stretching period
the example a little,of time,a would
drinking border
bottle of red wine inon
onealcoholism – a bad
day could be passed off as an
habit. You get the picture!
after-dinner celebration. Taken out of 2 however, drinking a bottle of red wine a day everyday, for an
context
extended period of time, would border on alcoholism – a bad habit. You get the picture!3
Habits,
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Over the years,inI have
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Over thatthe
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habits, above all else, keep a trader grounded and more importantly, consistently
I have found that the following 10 habits, above all else, keep a trader profitable.
grounded
Habit #1: Follow theand more importantly, consistently profitable.
Trend
All too often, many traders take a swing at the markets because they ‘feel’ it is a good price. The most
common
Habit scenario
#1:where
Followthis occurs is when a trader goes ‘long’ after the price drops a considerable amount.
the Trend
The train of thought is “The price has fallen so much! It’s bound to reverse!”
All too
Take often,
a look at thismany
example.traders take a swing
From 1 December 2009 to 1atJune
the2010,
markets because
the EUR/USD they
plunged from a
high‘feel’
of 1.51ittois a good
a low of 1.19,price. The
a stunning most
move common
of 3,200 scenario
pips in just six months.where this occurs
is when a trader goes ‘long’ after the price drops a considerable
amount. The train of thought is “The price has fallen so much! It’s
bound to reverse!”
Take a look at this example. From 1 December 2009 to 1 June
2010, the EUR/USD plunged from a high of 1.51 to a low of 1.19,
a stunning move of 3,200 pips in just six months.
Figure 10.3 EUR/USD Plunges 3,200 Pips in 6 Months

2
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a-shoe/ Source: Created with FX Primus Ltd. All rights reserved
3 kevinspraggettonchess.wordpress.com/2014/01/17/how-to-open-a-bottle-of-wine-with-a-shoe/
271
of thought is “The price has fallen so much! It’s bound to reverse!”
e a look at this example. From 1 December 2009 to 1 June 2010, the EUR/USD plunged
51 to a low ofUNLOCKING
1.19, a stunning move
THE WORLD’S of 3,200
LARGEST pips in
FINANCIAL just six months.
SECRET
FigureFigure EUR/USD
10.310.3 Plunges3,200
EUR/USD Plunges 3,200 PipsPips
in 6 in 6 Months
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All rights reservedreserved
What if you went ‘long’ after EUR/USD dropped a ‘considerable

ettonchess.wordpress.com/2014/01/17/how-to-open-a-bottle-of-wine-with-a-shoe/
amount’ of 500 pips? Or 700 pips? Or even a mammoth 1,000 pips?
Your account would have been ravaged.
Here’s the key: Follow the trend. Always go ‘long’ in an uptrend and
go ‘short’ in a downtrend. Never enter a trade based on ‘gut feel’.
Habit #2: Never Chase a Trade

In the course of my trading career, I have come across traders who
always appear to be on tenterhooks. They get anxious and frustrated
because they have ‘missed a trade’, and rue the day they ‘should have
been’ at their laptop to execute the all important trade. As humans,
we are motivated by the ‘fear of loss’ and the ‘hope of gain’. We see
this playing out in trading when traders try to chase the price.
The Forex Market trades over USD5.3 trillion a day, making it the
largest financial market in the world. There’s always the next trade.
It’s no use beating yourself up for missing a trade. Some traders take
this more personally and either enter at a worse price or double up
in the next trade, wanting to ‘make back’ the profits they left on
272
HABITS
the table for missing the trade. If it’s any consolation – there is no
guarantee that the missed trade would have registered a profit. If it
had been a loss, your account would be worse off than if you had
not taken it in the first place.
Habit #3: Always Put a Stop Loss

This habit is becoming my mantra as I coach traders from all over
the world. I sometimes joke with my community of traders by saying
that if I ever catch wind that any of my students have failed to put
a stop loss immediately after entering a trade, I will pay him/her a
personal visit and smack their heads!
Take my word on this – the biggest reason why traders blow up
their account is because they fail to put a stop loss. Don’t fall into
that trap. Remember, when the markets catch a trend, momentum
starts to build quickly and the trend gets stronger over time. If you
are on the wrong side of a trade and fail to put a stop loss, you are
risking your entire account. This is when the dreaded ‘margin call’
from the Forex broker can occur. Always put a stop loss. This is
non-negotiable. Make it a habit today.
Habit #4: Plan Your Trade and Trade Your Plan

You have just completed your ‘apprenticeship’ in trading the demo
account and are now ready to trade live. The first opportunity opens
up; it’s time to make the big bucks. You take a trade and it hits your
stop loss; you take the second trade and it hits your stop loss too; you
get angry. This is not how it’s supposed to be. At your third trade,
you decide to triple your lot size because you want to ‘win back’ the
money that the Forex Market has so cruelly taken away from you.
Don’t fall into the ‘revenge’ trap. The Forex Market will make you
pay heavily for it. Never pit your trading account against a multi-trillion
dollar market. The key here is not to take things personally.
No one wins every trade.
What you should do is to step away from the computer and re-
analyse your trading plan. If everything is going according to plan,
then great! If not, accept the fact that losses are part of the game.
273
Our job is to be consistently profitable. We will lose trades every now

and then. In Chapter 8, I show how we can have a win/loss ratio of
40 percent (effectively losing 6 trades out of 10) and still come out
profitable when we have a risk-to-reward ratio of 1:2.
If you give in to your emotions, the most probable result would
be a severely damaged trading account. Recovering from vengeful
and impulsive trading would require a much bigger equity gain, not
to mention a longer time. When you have a trading plan, you reduce
the risk of irrational thinking and overtrading.
Habit #5: Maintain a Trading Journal

This is a tough one simply because it sounds like a lot of work. Not
many traders keep up this habit, but speak to those who do and you
will discover its immeasurable effectiveness. A trading journal should
document your decisions before you take a trade and help you to
note down your thoughts and emotions after the result is achieved.
Here’s a re-cap of the eight elements needed in a trading journal:
i. A space to capture your chart

ii. The date of the trade
iii. The strategy employed
iv. The type of trade (long/short)
v. The entry price, profit target and stop loss
vi. The result of the trade
vii. The reason for entering (be honest!)
viii. After-trade comments and/or thoughts
A trading journal is like a road-map. It helps you stay on track.

Without it, you wouldn’t know whether you’re heading in the right or
wrong direction. When you start documenting your trading progress
and review it frequently, you would be able to tell if certain ‘bad
habits’ unintentionally creep up on you. That’s the power of having
a trading journal. Start one today!
274
habits
Habit #6: Maintain a Clear Mind

Would it be wise to analyse or enter a trade just after a heated
verbal exchange with a friend or family member? What about just
after you’ve endured a long, 14-hour work day where your boss
berated you for the things you failed to accomplish? Certainly not!
You should always maintain a clear mind when you trade. If you
feel tired, stressed or frustrated, it is best not to look at the market.
Staying out of a trade in such circumstances can be helpful. You do
not want any emotional distress to cause you to see patterns on the
screen that aren’t actually there!
Habit #7: Trade with Consistency and Discipline

Great traders never risk more than 2 percent of their capital per
trade. As traders before us have said, “Amateurs are concerned with
how much they can make; professionals are concerned with how
much they will lose.” Inconsistency creeps in when a trader takes on
different levels of risk for different trades without understanding the
consequences. This mostly occurs after a trader experiences a string
of losses and packs on the risk to ‘make up’ for past losses.
Undisciplined trading usually occurs when we deviate from our
original plan of entries and exits. Many traders take or pass on trades
based on ‘feeling’ or ‘intuition’. This can be very hazardous. When a
trade doesn’t fit all your trading criteria, don’t take it. When it does,
take it. I have come to find that the latter is tends to be more difficult
to follow. Sometimes even when all the criteria fits for us to take a
trade, we pass it up because we ‘have a bad feeling’.
Your success as a trader should never be determined by a small
number of trades. When you trade consistently and respect all the
rules, the odds of winning will always tilt in your favour in the long
term. This rule becomes all the more important for aspiring traders
who decide to ‘abandon’ a trading plan and conclude that trading is
‘risky’ after a couple of negative results. Trust the system and trade
with consistency and discipline.
275
Habit #8: Never Add to a Losing Position

Successful trading is counter-intuitive. Instead of adding to a winning
position, we tend to add to a losing position. Instead of going long
in an uptrend, we go short trying to catch the reversal.
Traders stay in losing positions for only two reasons. Either they don’t
want to be wrong about the market or they don’t want to lose money
on the trade. Sometimes, it is a combination of the two. Regardless
of the reason, it causes traders to stay in positions that are going
against them. As traders are losing money, they figure that if they
add to the losing position, they will be able to bring the average cost
of the position down. For example, if Jack is short on EUR/USD at
1.3550 and decides to go short again when the price reaches 1.3600,
the average short position will now be at 1.3575. This means that
the EUR/USD only needs to drop 25 pips from the price of 1.3600
before the entire position is at break-even.
What the trader doesn’t consider is that if prices continue to edge
higher, his available capital would be swallowed up at double the
rate. To make matters worse, when the Forex Market catches a trend,
it tends to trend for awhile.
In Forex, the price at any given time is the collective consensus
of all the thoughts and feelings of all the market participants’ at that
particular time. Hence, when a trader is in a losing position, the
market is telling him he is wrong. These include institutional money,
sovereign wealth funds, hedge funds, retail traders and every other
participant, large and small.
If a trader continues to hold on to a losing position after the
market says he is wrong, the trader is basically saying he is right,
and the collective sum or the rest of the market is wrong. In other
words, the global consensus is telling the trader the world is round
while the trader insists the world is flat. This almost always leads
to larger losses.
The market punished Jesse Livermore for adding to a losing
position. Let’s all learn from his mistakes and choose to add to a
winning position instead.
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habits
Habit #9: Set It and Forget It

Forex trading is simple but not easy. It’s not easy because we tend to
over-complicate it. The Forex Market does not care what you have
done in your life before; it has no emotions and is not a living entity.
It is an arena where human beings act out their beliefs about the
exchange rate of a certain currency pair. These beliefs are a result of
emotions, and human emotions are very predictable when it comes
to money.
The point is that it is impossible to know every single detail that
affects the Forex Market all the time. We would not be privy to the
news if JP Morgan decides to sell USD1 billion to Barclays Bank. The
good news is that we don’t need to know every single detail. Diving
too much into the market in search of all the information can cause
‘analysis paralysis’.
This is a state of over-analysing a situation or a currency pair and
becoming so overwhelmed that a decision or action is never taken.
Go back to the trading plan discussed in the previous chapter. Those
are the only 10 steps you need to execute your trade.
After you set it, forget it. Don’t go back to or meddle with the stop
loss levels and the profit levels. After you execute your trade, only
two things can happen: the trade either hits your profit target, or it
hits your stop loss. If it hits your stop loss, you lose 2 percent of your
account, which hardly qualifies as a trading disaster. So if you know
the two outcomes, there really isn’t a point in watching the market
and analysing it from then on. Shut the laptop and go do something
else. Play with the kids. Take a walk along the beach. Such simple
activities help keep trading in perspective and act as reminders that
there’s more to life. After all, didn’t you pick up trading to have a
better quality of life in the first place?
Habit #10: Pay Yourself Consistently

Is this habit important? Of course!
What is the purpose of trading? To generate consistent and profitable
returns. However, what good is that if you are not enjoying the fruits
of the game? There are many ways to pay yourself in this business.
277
Let me list a couple:
i. Have a goal to earn 100 percent of your capital. If you start

trading with USD10,000, make it a goal to double the account to
USD20,000. Then withdraw your initial capital, and continue to
trade on the profits generated. This is now essentially a ‘risk-free’
business venture.
ii. After your trading account has grown sizeably, withdraw 20
percent as profits and leave the rest to be compounded. Ensure
that the withdrawn amount far exceeds the amount you might
have to pay for wiring fees charged by brokers.
So there you have it. The top 10 habits of great Forex traders.
When you adhere to these habits, you give yourself a very real chance
of becoming consistently profitable.
INSTILLING THE 10 GOOD HABITS
How do you instil these good habits into your system? Simple.
Maintain these actions for an extended period of time until they
become conditioned into your system. Don’t put unnecessary pressure
on yourself by thinking you have to religiously adhere to each and
every habit from the start. You can start with just one or two at first.
They key thing is to get the ball rolling.
In the The Power of Less, author Leo Babauta suggests that we
focus on just one habit at a time. By doing this, we can focus all our
energy on creating that one habit.
Let’s say you want to start with the all-important one, putting a
stop loss. The next step would be to write down your intentions on
a prominent place. If you trade on your laptop, paste ‘always put
a stop loss’ post-it notes on the side of your laptop. If you trade on
your mobile or your tablet, set frequent alarms and reminders with
the reminder ‘always put a stop loss’.
A sure way to keep yourself accountable to your new habits would
be to involve others. Either get someone to hold you accountable, or
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habits
find a trading buddy and encourage each other. Post your intentions
on Facebook or Twitter, or email it to your friends and family. Tell
as many people as you can about your new habit. The more people
who know about your new habit, the less likely you are to fail at
developing it permanently.
The 30-day Rule

Keep up your new habit for 30 days in a row. How do you eat an
entire elephant? One bite at a time. After 30 days, you will have a new
habit of always putting a stop loss in every trade! Congratulations!
That is worth celebrating! Repeat the entire cycle for other habits
you want to put into practice. What could be the end result when
you have successfully ingrained all 10 habits into your system?
The result would be this: You will be consistently profitable in the
Forex Market simply because you do not know any other way.
Summary
Habits are defined as actions repeated over a period of time. It is

important to recognise bad habits that may creep in and derail
your trading success. Some of these bad habits include impatience,
complacency, laziness and inflexibility.
The 10 positive habits discussed here can help you replace the
bad ones which may accidentally creep in unnoticed. The trick is to
instil one new habit at a time. Choose one habit, repeat it consistently
for 30 days and chances are high that it will be ingrained into your
system permanently.
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C hapter 1 1
Key #11:
PURSUE MASTERY
“To become a master at any skill, it takes the total effort of

your: heart, mind, and soul working together in tandem.”
Maurice Young
What is Mastery?
Let me ask a more specific question. What does it take to attain
mastery in any subject?
Legend has it that Pablo Picasso was sketching in the park when
a bold woman approached him: “It’s you — Picasso, the great artist!
Oh, you must sketch my portrait! I insist.”
Picasso agreed and, after studying her for a moment, he used a
single pencil stroke to create her portrait. He handed the women his
work of art.
“It’s perfect!” she gushed. “You managed to capture my essence
with one stroke, in a single moment. Thank you! How much do I
owe you?”
“Five thousand dollars,” the artist replied.
“B-b-but, what?” the woman sputtered. “How could you ask for
so much when it only took you a minute to draw!”
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To which Picasso responded, “Madame, it didn’t take me a minute.

It took me a lifetime.”
In his book Mastery, author George Leonard says: “Mastery is
not about perfection. It’s about a process, a journey. The master is
the one who stays on the path day after day, year after year. The
master is the one who is willing to try, and fail, and try again, for as
long as he or she lives.”
What fine words. Mastery is indeed about a process.
MASTERY FLOW
Here is a model I have developed to describe mastery, modelled upon

the three evolutionary phases of Learning, Earning and Creating.
g
Le
tin
arn
ea
in g
Cr
MASTERY
Earning
Figure 11.1 Mastery Flow
Learning Phase
During the Learning phase, we start to grasp the rules of the subject.
This is a phase where we get our hands on everything we possibly
can that is related to the subject. Questions start to pop into our
mind at a frantic pace: How does it work? Why does it work? When
does it work?
Tons of questions fill our minds and we are focused on acquiring
knowledge to answer these burning questions. Our thirst to get to
the bottom of the new subject knows no bounds. At this stage, the
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dominant trait is knowledge. Knowledge is the key that moves us

from a state of ‘unconscious incompetence’ to a state of ‘conscious
incompetence’. From a state of being blissfully unaware, we now
understand that ignorance is not bliss and start to acquire knowledge
to improve ourselves.
Unconscious Incompetence
Knowledge
Conscious Incompetence
Figure 11.2 Learning Phase
Earning Phase
Once a certain level of knowledge is attained, the next stage is action.
This is where meaningful progress happens. By only consuming
information, we get stuck in the theory without fully understanding
how something works. We need to practice and apply what is being
learnt. This is called the Earning phase.
This phase carries a lot of practice and action. In this phase,
mistakes are made, reviewed and corrected. We earn the right to delve
deeper into our subject because we not only understand it, but are
now acting on it, and small results start to appear. At this stage, the
dominant trait is action. Action is the key that moves us from a state
of ‘conscious incompetence’ to a state of ‘conscious competence’. We
now know what we know, and are confident in our abilities to apply
the knowledge of our subject to a reasonable extent.
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pursue mastery
Action
Conscious Competence
Figure 11.3 Earning Phase
Creating Phase
During the Creating phase, we start to see consistent results. Knowledge
from the Learning phase and action from the Earning phase combine
symbiotically. We are now generating solid results over and over again.
The process starts to become effortless. At this stage, the dominant
trait is habits. The only way to solidify good habits is to repeat the
actions over and over until they become part of your DNA.
Habits move us from a state of ‘conscious competence’ to a state
of ‘unconscious competence’. Now, not only do we understand it,
not only are we acting on it, but we have become it.
Habits
Unconscious Competence
Figure 11.4 Creating Phase
In summary, our pursuit of mastery is a process of learning, earning

and creating. In the Learning phase, knowledge is the dominant trait.
In the Earning phase, action is the dominant trait. In the Creating
phase, habits are the dominant trait.
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Unconscious Incompetence
Knowledge
Action
Habits
Unconscious Competence
Figure 11.5 Phases toward Mastery
Regardless of the phase you are in, I’ve come to appreciate that
one trait is inherently present in all three phases: Desire.
In short – how badly do you want it?
In the film Men of Honour, Carl Brashear (played by Cuba Gooding
Jr) was asked why he wanted to become a naval diver so badly. His
answer?
“Because they said I couldn’t have it!”
That’s how badly he wanted to become a naval diver. Desire is
the critical key that pushes us through each phase.
Sebastian Loeb’s STORY
Sebastian Loeb is the winner of nine consecutive World Rally

Championship (WRC) drivers’ titles from 2004 to 2012, and is
considered the most successful driver in WRC history. Born in France
in 1974, Sebastian’s early interest was gymnastics. As a young boy,
he was good enough to win titles such as the Alsatian Championship
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pursue mastery
(four times), champion of the French Grand East, and fifth in the
French Championship. At the age of 21, Loeb switched to rallying.
Just six years after picking up the sport, he won the Junior World
Rally Championship in 2001. In 2003, in his first full season as a
professional, Sebastian finished as the runner-up to Petter Solberg
and lost the World Championship by a single point. Loeb’s reputation
grew as he defeated his more illustrious team mates – Carlos Sainz
and Colin McRae – over the course of the season.
In 2004, Sebastian dominated the field by winning six events and
taking six runner-up spots to securely give him his first drivers’ title,
36 points clear of Solberg, who was now in second place. In 2005,
Sebastian became the first man to win every stage of a WRC rally
en route to securing his second World Championship title. In 2006,
he missed the last four races of the season due to a mountain-biking
accident but was so far ahead in the rankings that he still won the
overall title!
In 2007, Sebastian surpassed Carlos Sainz as the most successful
driver in history by securing his 35th individual win en route to
collecting his 4th consecutive championship title. Over the course
of the following five years, Sebastian picked up his 5th, 6th, 7th, 8th
and 9th championship title.
At the end of the season in 2012, Sebastian announced his retirement
from full-time rallying.
For all his record-breaking achievements, Sebastian has won many
accolades. German magazine Auto Bild dubbed him the “best rally
driver of all time and a shining light in motorsport”. He was named
French Sportsman of the Year in 2007 and 2009, and made knight of
the Legion of Honour (Légion d’honneur) in 2009. He holds several
other WRC records, including most wins, most podium finishes and
most points.
Former world champion Ari Vatanen has said that Sebastian’s
records are unlikely to be broken.
By any yardstick, we would consider Sebastian a mega-success in
the world of car rallying. He is a perfect example of someone who
has achieved mastery in his field.
285
By any yardstick, we would consider Sebastian a mega-success in the world of car rallying. He is a
perfect example of someone who has achieved mastery in his field.
FIGURE SebastianLoeb,
11.6Sebastian
Figure 11.6 Loeb,World
WorldRally
RallyChampionship
Championship(WRC)
(WRC) Champion
Champion1 1
Sebastian’s Learning Phase

As an accomplished gymnast in his early years, Sebastian had to go
through much pain to learn the art of car rallying when he switched
1 Author Mario Singh’s own photo.
interests. His thirst for knowledge was unrivalled. He learnt everything
he could about handling the Citroen car – how it moved, how the
brakes worked, how different road surfaces would affect the speed
of the car. He also learnt different driving techniques such as the
handbrake turn, the heel-and-toe, hill jumping and the Scandinavian
flick.
Sebastian’s Earning Phase

After learning all he could about the car, and familiarising himself
with it, Sebastian put all his knowledge into action. Practice after
practice enabled him to refine his driving and learn the tools of the
trade. He reviewed his mistakes and perfected his craft. He also
became a tarmac specialist, winning many races on that surface. In
the Earning phase, he had grasped the keys to what would make
1
Author Mario Singh’s own photo.
286
astian’s Earning Phase
er learning all he could about the car, and familiarising himself withPURSUE
it, Sebastian
MASTERY
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were in perfect sync each time he got into the car. Conditioned habits
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gave him consistent results over and over again, as evidenced by his
mmary, Sebastian went through the three phases of Learning, Earning and Creating to attain mas
numerous world championship titles. In summary, Sebastian went
rallying.
through the three phases of Learning, Earning and Creating to attain
mastery in car rallying.
Figure 11.7 Me (left) with Sebastian Loeb at the 2013 Macau Grand Prix
Figure 11.7 Me (left) with Sebastian Loeb at the 2013 Macau Grand Prix
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Mastery in Forex Trading
Should the path of a Forex trader be any different? The three phases
required to achieve mastery – learning, earning and creating – are
present in all disciplines, including Forex trading.
In the Learning phase, knowledge characterises the budding
trader. He is hungry for new information and starts to get a grasp of
certain principles like pip value, currency pairs and candlesticks. He
begins to understand the key terms like trend and range, support and
resistance, factors which affect the market and how money is made
or lost in an account. Additionally, he starts to figure out the tools
which will help him to trade – the trading platform. He familiarises
himself with the software, its key features and trading buttons. He
recognises the importance of strategies – which strategy to use in a
trend and which strategy to use in a range. He realises the importance
of money management and is fully aware that he must never risk
more than 2 percent of his capital on each trade. He learns about
the significance of a trader’s state of mind – how his thoughts and
emotions can derail sound decision making in his trading business.
In the Earning phase, the trader begins to execute his plan. He
starts to apply all the knowledge he has learnt. He trades on a live
account with real money. Admittedly, mistakes are made, but he
reviews them, corrects them and acts on it again. His skills get sharper
and he starts to gain confidence in his trading when he finally sees
profits in his account. After a period of intense focus and continuous
trading, he finally knows when exactly to buy, when to sell and when
to stay out. The trader realises the importance of the trading plan to
help keep him on track so that he won’t get sucked in by emotional
trading. He maintains a trading journal to keep him accountable to
himself. This is how he identifies bad habits that may creep in. Putting
a plan in place, he takes positive actions to install new habits which
can permanently replace the bad ones.
In the Creating phase, the trader has reached a point where his
actions have now been ingrained as conditioned habits. He knows
what to do each time he looks at the chart. He is clear that he can
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only make one decision at a time – whether it’s to buy, or sell or to

stay out. He takes less than three minutes to glance at the chart and
arrive at a decision. He is in flow. The trader now has a structured
game plan to deliver consistent returns in his account. He is clear of
his short- and long-term goals, and executes his plan faithfully so
that he generates consistent returns.
He fully understands that the golden key to be hugely profitable
in the Forex Market is to allow the power of compound interest to
work its magic in his live account. At this stage, neither a string of
losses nor wins fazes him. He is committed to the process. He has
reached a stage of mastery and is well on his way to growing his
account significantly. Our trader has embodied the essence of what
it takes to be a world-class trader and appreciates the time and effort
he has invested in himself to be successful in this endeavour.
This is the exact process of how a new Forex trader becomes a
world-class one.
My Story
I had a painful start to forex trading because I broke a cardinal rule.

Allow me to share my story with you. I’ll be the first to admit that
I’m not a smart guy. I don’t have a degree in finance or economics.
I studied chemical engineering at university but graduated with
third-class honours, dashing my mother’s hopes of my becoming a
top chief executive for a Fortune 500 company. After graduation,
I proceeded to apply for a job at petroleum giant Shell, but did not
hear back. I didn’t have much materially then, but what I had was a
burning desire to achieve success in life. It was this desire to succeed
that led me to my first experience with Forex trading. Six years ago,
I was with a friend in a local coffee shop when he flipped open his
laptop to reveal a screen full of charts. Looking at the charts and
jumping numbers on the screen, I asked him, “What’s this?”
He coolly replied, “Forex trading.”
Thinking it was some hobby he had recently picked up, I asked
again, “Real cash?”
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“Yes,” he nodded smugly. “Real cash.”

Looking back, I now know that it wasn’t the fact that Forex was
the biggest financial market in the world that drew me in. What drew
me in was the fact that all you needed was an Internet connection and
a laptop to make money from anywhere in the world. Fascinated,
I started to ask my trader friend some questions. When he shared
with me the story of how George Soros broke the Bank of England
and made USD1 billion in a day, I was hooked. Excited about the
new discovery I had stumbled upon, I started to do some research on
Forex trading. Soon, I started my first account with USD3,000.
My first trade was on the GBP/USD. It was on an uptrend, and
the price had reached a new high. This is it, I thought, rubbing my
hands gleefully. I’m going to be a millionaire by next Friday. Seeing
that the price had reached a new high, I was convinced that gravity
would pull it right down.
I clicked ‘sell’.
That was the start of my painful lesson. After I clicked ‘sell’, the
price continued to creep up. That’s not supposed to happen, I thought.
As prices continued climbing, I decided to hit the sell button again,
only this time with double the lot size (and double the intensity) as
my first trade. I reasoned that if I clicked twice the number of lots,
all that needed to happen was for prices to fall a little before I could
see some nice profits.
After the second click, I couldn’t believe my eyes. The price went
up further. My hands started to get sweaty. In desperation, I actually
grabbed the laptop and turned it upside down to paint me a picture
of falling prices. My ego was badly bruised. “It’s got to come down,”
I muttered to myself. At that point, I clicked ‘sell’ for a third time,
with double the lot size of the second trade.
The numbers on my laptop screen at the time weren’t very far from
the numbers my friend had shown me. The only difference was that
mine were preceded by a stubborn negative sign that just wouldn’t
go away. A couple of days after my third dreaded click, the broker
closed off all my positions. I was hit with the dreaded margin call.
After a grand total of just six days, I had lost my entire account.
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Whenever I share my story in my Forex seminars, I replicate the

scenario and draw an uptrend on the whiteboard. “Would you click
‘buy’ or ‘sell’ over here?” I always ask, as I circle the highest point
reached by the price. At every single seminar, most people choose
to sell, confident that high prices will fall. It’s almost a consolation
to know that we human beings are wired in much the same way.
Needless to say, after I blew up my account, I was devastated.
Losing USD3,000 of my hard-earned money in a week was heart-
wrenching. Self-defeating thoughts appeared in my mind incessantly:
“Forex is risky”; “Forex is gambling”; “Forex is not for me.” I was
tempted to wash my hands off the Forex Market and walk away.
However, it was at this low point of my life that the words of a rich
and successful businessman who was my mentor came to mind: “There
are no successful businesses in this world, only successful people.”
At this point, I stopped the pity party and asked myself two
questions:
“Do I know people who are making money in the Forex
Market?”
“Do I want to be a part of that group?”
I picked myself up again after I answered ‘yes’ to both questions.
I started to get to work to turn things around. You see, it’s very easy
for you and me to get sucked into recognising that 80 percent of
people lose money in the Forex Market. But, why can’t we decide
to be in the group that makes money? Isn’t it just a simple switch
in our thinking? If 20 percent of the people are making money, let’s
decide first to have our names in that special group.
That marked the turning point in my Forex trading journey. I
made up my mind to master Forex trading. Picking myself up from
the setback, I began to equip myself with the right trading skills. I
started devouring books by successful traders. Emulating their beliefs,
knowledge and habits, I worked hard on honing my trading skills
every single day.
My quest for mastery also led me to seek out two of the biggest
names in the Forex industry as my mentors: Kathy Lien and Ed
Ponsi. I reasoned that a mentor could help me to drastically cut short
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my learning curve. And this they did. Knowing what I know now, I
recognise that the cardinal rule that I broke in my first live trading
experience was to trade against the trend. Three years and several
buckets of blood, sweat and tears later, I became an expert in trading
the Forex Market. Less than a year later, I was invited to appear on
CNBC to give my opinions on global finance.
Given my bubbly character, many people think that it’s easy being
on camera, that it’s no big deal having to speak live to a camera
that holds the attention of over 300 million viewers. The truth is,
it’s not.
“Mario, what do you think the CPI is going to be for
Singapore?”
“Mario, what’s your view on the US dollar this week?”
“Mario, do you think China will report a good number for trade
surplus this month?”
The TV anchor and reporters fire questions from every angle, and
you need to have the answers at your fingertips. They expect you to
know everything at any moment, or you have no business being on
the biggest stage in international finance. How ridiculous it would be
if I were to fake an answer like “I think inflation in Singapore is going
to hit 65 percent next year.” I would be laughed off the chair.
So I had to study. In fact, to be in that three-minute hot seat, I
had to study for three hours. That’s right – three full hours of study
for three minutes on CNBC.
Thankfully, I did well. In fact, I did so well that I was called back,
again and again. CNBC has three major shows that cover the financial
markets. The early morning segment is called Squawk Box, the early
afternoon session is called Capital Connection, and the evening slot
is called Worldwide Exchange.
Eventually I was invited to appear on all three major shows. In
fact, I was even invited to be a guest host on Worldwide Exchange.
As guest host, I sat with the news anchor and instead of being there
for three minutes, I appeared on the show for a full hour. My job
was to have a conversation with some of the most brilliant financial
minds on the planet.
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As I warmed up to my new role as guest host, I had an important

revelation. The job was getting easier. In fact, I didn’t have to study
when I was guest host.
Do you know why? Because this time, it was my turn to ask the
questions:
“Jack, what do you think the CPI is going to be for
Singapore?”
“Bill, what’s your view on the US dollar this week?”
“Sally, do you think China will report a good number for trade
surplus this month?”
This was my revelation: As you get better, it gets easier.
So, my friend, don’t wish that it were easier, wish that you were
better.
My steps to achieving mastery in the Forex Market followed
the exact three steps: learning, earning and creating. Kaizen is the
Japanese word for improvement. When we embrace Kaizen in any
endeavour, mastery is bound to be the result. My Kaizen approach to
Forex trading has enabled me to be a consistently profitable trader.
Today, I am living the dream of traveling and spreading the message
of profitable forex trading everywhere I go. I’ve even had the privilege
to coach Forex traders in some of the largest banks in the world.
Forex trading has given me a new life, and I know it can do the
same for you.
The Antithesis of Mastery
Do we all aspire to achieve mastery? I’m fairly certain the answer is

‘yes’. I’ve come to believe that unlimited potential is at the very core
of all human beings. I call this the triumph of the human spirit. We
were born for a purpose and built for productivity. However, why
is it that many of us fail to get there? Why don’t we get the results
we want? Admittedly, there are many pitfalls, but I’d like to point
out two that stand out:
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1. The “I W-I-N” Syndrome

2. Laziness
1. The “I W-I-N” Syndrome

This acronym stands for “I want it NOW!”
In today’s fast-paced society, the desire for quick, easy and
immediate results is the order of the day. We want results fast, and
we want it NOW. It’s the same with trading. Many people pick up
Forex trading with the notion of buying into a ‘get-rich-quick’ scheme.
After a few losses, the budding trader gives it up altogether because
it doesn’t yield the immediate results he’s after. The expectation was
unrealistic at the start, but the result was the same – quitting the
Forex Market instead of persevering. How do we then cure the ‘I
W-I-N’ syndrome?
The answer is to set realistic expectations. Rome wasn’t built in
a day. Your account won’t be as well. Forex is not a get-rich-quick
scheme. It is a get-rich-slow programme, but it is also the largest
financial market in the world. Taking time to understand it will pay
you dividends many times over.
2. Laziness
To put it plainly, many of us lack the ‘do it now’ attitude simply
because we don’t like the notion of having to do work – it just sounds
so hard! Change is hard!
In our ideal world, we get paid for doing nothing, we would have
two butlers (one to cook our meals and another to run our personal
errands) and a nanny who cleans the house and reads us bedtime
stories! We associate change with pain. This is the reason why we
don’t like to ‘pay the price’ of change. We prefer to remain as we
are. Would that work?
Picture yourself five years from now. Would you be a successful
Forex trader if you remain where you are now? Einstein puts it best:
“Insanity is doing the same thing over and over again but expecting
different results.”
Human beings are wired to pursue pleasure and avert pain. Most
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of us associate change with pain, which is why we don’t take steps

to change our current situations in the first place. The solution is
to practise reverse psychology. Instead of associating change with
pain, associate change with pleasure and associate not changing with
massive pain. Our subconscious mind does not know how to detect
right from wrong. It merely acts in accordance to what we attach
meaning to. This is a two-step process. The first step is to associate
change with pleasure.
We can tell ourselves that if we change now, if we get up and go
now, we will be that much closer to our goals. Our life will change
and the lives of our closest family will change – all for the better.
Start visualising your ideal life right now when you make consistent
returns in the Forex Market. You could:
• Buy a new car

• Buy a new home
• Pay off Dad’s medical bills
• Quit your job
• Enrol your kids in more enrichment classes
Now list down the positive steps you need to take to make it
happen. The key thing is to get started. Remember that motion
creates emotion. When we get into the motion of positive action,
our results start to change. Once you start seeing positive results,
you will be encouraged to step up the momentum. Massive action
equals massive results.
The second step is to associate not changing with massive pain.
The cycle of pain is normally represented by the following pattern:
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• Pain in the present is experienced as hurt

• Pain in the past is remembered as anger
• Pain in the future is perceived as anxiety or fear
This explains why most people don’t start the process of trading
the Forex Market – because that endeavour is associated with fear
of the unknown and fear of losing money. Fear cripples motion.
In the first step, we visualised the imagery of achieving our financial
goal through Forex. In this second step, I want you to visualise the
opposite: what would the future look like if you did not achieve your
goal? Instead of just saying “I can’t…”
• Buy a new car

• Buy a new home
• Pay off Dad’s medical bills
• Quit my job
• Enrol my kids in more enrichment classes
I want you to really visualise the fear and pain of total failure. To
take this a notch higher, create a ‘pain and fear association’. Start
thinking about all your greatest fears – be it death, physical pain, loss
of a loved one, public humiliation, failure in school, embarrassment,
public speaking etc. Whatever it is, think about it and let it build.
Magnify the feelings by making the images more vivid, the sensations
more real, and try to hear any associated sounds and experience any
related smells or odours too.
Next, transfer the imagery (complete with feelings and sensations)
and project it onto your failure to achieve your desired financial goal.
See yourself completely broke or heavily in debt with no way out.
The two steps outlined above are very effective in helping you get
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out of your comfort zone. Seriously, which would you rather do? Pay
the price now and enjoy the fruits of your labour later or enjoy the
present and pay the price later? You know the answer.
Nonetheless, sometimes the issues are more serious. Three cases
continue to be etched in my memory after all these years. I will
share these stories here for your learning, but real names have been
withheld.
Case 1: Vincent
Vince struck me as a driven young man whom I met in one
of my seminars. After the programme, he was excited to start
live trading. After a few months though, his account was not
showing positive results. When I caught up with Vince several
months later, we had a coaching session to see what had gone
wrong. I later discovered that Vince wasn’t following the
trading plan we had crafted in the programme. In fact, when
we went through his trades, I found that he had broken several
cardinal rules. Rules such as not going short in an uptrend and
not putting a stop loss.
The more we talked, the more the answers came. When we
touched on family, I realised that he had anger and resentment
bottled up inside of him. He was struggling with unresolved
control issues with his parents at the time, which caused him
to be rebellious. He shared about how he didn’t like to be
controlled by his parents, and how he frequently went against
their rules. Ultimately, this caused him to become a trader who
rebelled against the trading rules and his own trading plan,
undercutting his results and frustrating him in the process.
Case 2: Shirley
Shirley was a bubbly person who always had a smile on her
face. In the programme she attended, she came across as a bright
lady who was determined to get the right footing in the Forex
Market. After our follow-up session three months later, I was
surprised to learn that Shirley had given up trading altogether.
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This got me curious, so we had a personal coaching session.

I was shocked when she shared how she had lost her mother
literally a few months before coming to my programme. Both
of them had been close, and losing her mum to cancer had dealt
a big blow to her. Recalling how cheerful and upbeat she had
been during the programme, Shirley hadn’t let on that she had
been dealing with a traumatic loss in her personal life.
The more we talked, the more the answers came. Losing her
mum had spurred her to learn more about finance, which is why
she had attended my programme in the first place. However,
when she started trading on a live account with real money,
she could not handle the losses. Her strategy and trading plan
were fine, and although she executed the strategies perfectly, she
experienced a string of three consecutive losses. We realised that
she found it difficult to handle financial losses in her trading
account because she had not reconciled the physical loss of
her mum just a few months before. The trigger of three losses
in her account so overwhelmed her that it caused her to give
up Forex trading altogether.
Case 3: Adrian
Adrian was a man in his early 40s. He didn’t leave a particularly
deep impression on me when we met in one of my programmes.
All I remembered was that he has an unassuming man who
didn’t mix around much. He would ask me questions when
he caught me by myself, but never in a group.
During one of the monthly meet ups, I had a chat with
Adrian. As always, the conversation turned to trading and his
trading results. Adrian shared that he was making good money.
“Hallelujah,” I thought to myself, “Finally, a breath of fresh
air.” However, as he continued, he shared a peculiar pattern
with me – he just could not seem to break the USD20,000 profit
barrier. Each time he made a total of USD20,000 in profits,
he would subconsciously relax the rules and throw caution
to the wind. His lacklustre attitude caused him to lose all his
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profits, which meant that he had to build his account back

up again. Amazingly, he had gone through the same process
three times over.
The more we talked, the more the answers came. The defining
moment came when I asked about his father. Adrian shared
that his father was the authoritative figure in the house. He
was a man who seldom shared his thoughts and almost never
demonstrated love to the family. Growing up, Adrian felt that
whatever he did was never good enough for his father. He
cited specific examples of how he felt disappointed in himself
as he could not live up to his father’s expectations. He felt he
was never good enough. What I discovered was that Adrian
did not have a healthy self-esteem. Low self-esteem is like a
special dictionary in your mental translation book. When you
look up what certain things mean, you keep getting back the
same meaning:
Dad is angry at my grades

> There’s something wrong with me > I’m not good enough
Dad raised his voice at me

Dad put me down

Adrian also shared that his father made it a point to drive home
the message that he wouldn’t amount to much, and was definitely
not going to make it financially. This led Adrian to think that he
wasn’t good enough for his father, and he had been carrying the
same toxic message in him after all these years. He didn’t believe he
was a person of value.
In relationships, when you have low self-esteem, you won’t be
convinced that a valuable person and a valuable relationship would
want to have you in it. You’ll take refuge in a limited relationship
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and then focus on their problems. You’ll find every and any reason
to take a parachute and jump when things are going well.
As a trader, Adrian was fighting these emotions, causing him to
derail sound decision-making in the Forex Market. He felt he wasn’t
good enough to earn more money in his trading account, which
ultimately caused him to have a financial ceiling of USD20,000.
My friend, when you don’t have a healthy self-esteem it’s because
in having conditional love for yourself, you try to get people (and
sometimes things) to create feelings in you that you don’t feel yourself.
Adrian felt he wasn’t good enough and was constantly disappointed
with himself for not being able to meet his father’s expectations.
His lack of self-worth caused him to project those barriers onto his
trading account, causing him to self-destruct when his account grew
to a certain size.
To be a master in any field, you need a healthy self-esteem. There’s
no one more important than you. As my mum always said, “The
bottom line is yourself.” We may all have different circumstances.
Regardless of our past, I am certain of one universal truth: You are
God’s masterpiece; you were born to win; you are engineered for
success.
Though you can’t go back and make a brand new start, you
can start from now and make a brand new ending. I can’t think of
a better passage to inspire you on you than the one found in the
1992 classic by New York Times bestseller Marianne Williamson,
A Return to Love:
“Our deepest fear is not that we are inadequate. Our deepest

fear is that we are powerful beyond measure. It is our light, not
our darkness, that most frightens us. We ask ourselves, who am
I to be brilliant, gorgeous, talented, fabulous? Actually, who
are you not to be? You are a child of God. Your playing small
doesn’t serve the world. There’s nothing enlightened about
shrinking so that other people won’t feel insecure around you.
We are all meant to shine, as children do. We were born to
make manifest the glory of God that is within us. It’s not just
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pursue mastery
in some of us; it’s in everyone. And as we let our own light

shine, we unconsciously give other people permission to do
the same. As we’re liberated from our own fear, our presence
automatically liberates others.”
I’ve always been a student of mastery. I realise that regardless

of discipline, the principles are the same. Look at Lionel Messi in
soccer; Usain Bolt in athletics; Sebastian Loeb in car rallying; Russell
Peters in stand-up comedy. Jackie Evancho in singing; Li Ka-shing
in business. The list goes on.
Did these people become masters in their chosen fields overnight?
Of course not. While some had talent, that talent still needed to be
honed day after day. Everyone who pursues mastery will experience
failure. All will fall. The key is to get up, dust yourself off and push
on. When you fall again, pick yourself up again, and push on some
more. That’s how you achieve mastery.
So what happens after habits are successfully ingrained in the
Creating phase? Does the journey end there? Would you be a bona
fide master with nothing to learn anymore? The answer is ‘no’.
In his 1990 ground breaking book, The Fifth Discipline, author
Peter Senge says: “Personal mastery is the discipline of personal growth
and learning.” After ingraining habits in the Creating phase, we then
start the process of learning about our ‘new creation’, taking action
on them and creating bigger results based on our transformation.
Let’s go back to Sebastian’s story. Did he end his journey of personal
mastery after retiring from car rallying in 2012? No. He started the
process of learning again.
On 1 July 2013, Sebastian rewrote history in the Rocky mountains
of Colorado – this time in a new car. Driving a Peugeot instead of his
usual Citroen, Sebastian called the 875 horsepower beast “the most
radical car I have ever driven” en route to shattering the Pike Peak
International Hill Climb. He finished the race with a breath-taking
time of 8 min 13.878 sec, blitzing the previous best of 9 min 46.164
sec set by Rhys Millen.
Sebastian blasted his Peugeot 208 T16 Pikes Peak through the
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clouds in a time that was even quicker than Peugeot’s computer had
thought was possible. The ideal theoretical time – calculated using
data from Loeb’s practice runs up the Colorado mountain – was 8
min 15 sec. The nine-time world rally champion somehow managed
to shave two seconds off that.
The process is the same with any Forex trader who is pursuing
mastery. Once you find that you have mastered the essence of the
three strategies we discussed, coupling the strategies with sound risk
management and positive habits, you might want to improve further
by learning something more. This could include studying a new
currency pair to trade or a new technique like news trading. Once you
learn about the new skill, take action. Practice and review it over and
over again until you start earning. The next step would be to create
consistent results over your new-found skill again and again.
The process of learning, earning and creating never ends. If we
have any desire to live at our highest potential, we must pursue the
concept of Mastery.
I choose Mastery in Forex. I hope you do too.
Summary
The pursuit of mastery in any field is bound to give you long-lasting

success. It is no different with Forex. When you reach a stage of
mastery, you can’t help being successful.
There are three phases in achieving mastery: Learning, Earning
and Creating. In the Learning phase, the dominant trait is knowledge.
This is where you absorb as much knowledge about Forex as possible.
The list would include strategies, concepts, money management,
trading platform and candlestick patterns.
In the Earning phase, the dominant trait is action. This is where
actual trading on the MT4 platform is executed again and again. In
the Creating phase, the dominant trait is habits. Good trading habits
need to be conditioned in this phase so that you can start to see real
results in your live trading account.
Mastery is a never-ending, ongoing cycle of learning, earning and
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creating. After passing through the Creating phase, you will be in a

‘new’ Learning phase as you continue to expand on your skills and
experience as a Forex trader.
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C hapter 1 2
Key #12:
Your Best Broker
“Partnering should be wielded as a sword, not a shield.”

Curtis E. Sahakian
Phil Taylor is a professional English darts player. Widely regarded

as the best darts player of all time, Phil has won more than 200
professional tournaments, including 80 major titles and a record 16
World Championships.
304
hil Taylor is a professional English darts player. Widely regarded as the best darts player of all time
as won more than 200 professional tournaments, including 80 major titles and a record 16 W
Championships.
your best broker
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ou partner a world-class broker to execute your trades.
to execute all his trades. The broker is the ‘dart’ in the Forex trader’s
arsenal. This chapter will shed some light on the brokerage world,
and what you need to look out for when you partner a world-class
broker to execute your trades.
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305
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Figure 12.2 Types of Brokers
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loss, tyou would lose
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you lose the trade. The MM broker’s risk is when you win your trade. When you
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In an STP model, the broker passes your trade ‘straight through’ (hence the term straight through
the stop loss, you would lose USD500. Your risk is when you lose
processing) to the liquidity providers behind them. These liquidity providers then become the counter
the trade. The MM broker’s risk is when you win the trade. When
party to your trade. Examples of liquidity providers include banks and prime brokers. Suffice to say, it
you win, the MM broker has to pay out your profit because he took
makes more sense to trade with an STP broker than an MM broker. In a market making model, it is in the
on the risk of your trade.
broker’s interest for you to lose. This model can sometimes prompt the broker to ‘mess around’ with your
In A
trade ever so slightly. ancommon
STP model, the broker
complaint passes
from many youris trade
traders that the ‘straight through’
price tends to always hit the stop
(hence the term straight through
oss level whenever it is hovering around that region. processing) to the liquidity providers
In an STP model, it is in the broker’s interest for you to win. This is evidenced from the revenue
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model of the broker itself. STP brokers only make their money from the spread. Hence, for them to build
the business, traders either have to trade more frequently or trade with larger lots. The easiest way for this to
YOUR BEST BROKER
behind them. These liquidity providers then become the counter

party to your trade. Examples of liquidity providers include banks
and prime brokers. Suffice to say, it makes more sense to trade with
an STP broker than an MM broker. In a market making model, it
is in the broker’s interest for you to lose. This model can sometimes
prompt the broker to ‘mess around’ with your trade ever so slightly.
A common complaint from many traders is that the price tends to
always hit the stop loss level whenever it is hovering around that
region.
In an STP model, it is in the broker’s interest for you to win.
This is evidenced from the revenue model of the broker itself. STP
brokers only make their money from the spread. Hence, for them
to build the business, traders either have to trade more frequently
or trade with larger lots. The easiest way for this to happen occurs
when traders start making money. When you make money on your
account, you will naturally trade with bigger lots while still keeping
your risk constant.
Here’s an example. If you normally trade with 1 lot and your
account doubles from USD10,000 to USD20,000, your lot size
would now be 2 lots while still keeping your risk at 2 percent. The
big question is, how would you know whether a broker is running
an STP or MM model? Not many brokers would openly say that
they are running an MM model, although some of the bigger ones
do. Here are three tips which can help to shed some light:
Visit
Pay the broker a visit. Call them and ask where their headquarters is,
then arrange a time to visit or simply drop by unannounced. Ask to
tour the office and make mental notes on whether you see a trading/
dealing room. If you spot one, chances are high that the broker is
running an MM model.
Account Experience
Most brokers will allow you to choose between three account types:
Standard, Mini and Micro. In a standard account, the value of 1 pip
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is USD10. In a mini account, 1 pip is USD1 and in a micro account,

the value is 10 cents.
My eyebrows are raised when I encounter two specific experiences
regarding the account type. The first: The broker does not provide
mini and micro options. This could be a clue that the broker is running
an MM model. While it is true that you can make more (compared
to mini or micro) when the payout is USD10 per pip, the reverse is
also true: You lose more when your position hits a stop loss. The
second: The broker requires you to open up separate accounts for
standard, mini and micro. If you think about it, there’s no good
reason for this. A standard lot is equivalent to 10 mini lots, and a
mini lot is equivalent to 10 micro lots. It follows that if you want to
trade 1 mini lot in your account, all you need to do is to enter 0.1
standard lots. That itself would ensure that your payoff is reduced
to USD1 per pip.
In the trading world, it is fairly common for traders to vary lot
sizes, especially when they want to test a new strategy or when they
are using an Expert Advisor (EA). An EA is an auto-trading software.
If your broker requires you to open up separate accounts for standard,
mini and micro trades, the broker could be running an MM model.
The rationale of opening up separate accounts is because the accounts
are probably hosted on different servers. Brokers normally pay more
attention to standard account holders because they add more to their
bottom line.
Downtime for Withdrawals

This is one of the best tell-tale signs. If you find deposits a breeze
but withdrawals a drag, there’s a real possibility your broker is an
MM. Remember, the basic model of an MM broker is that they are
the counter-party to your trade. If you make a profit, they lose. If
you find it a challenge to withdraw your profits, it could mean that
the broker is finding it tough to manage the cash flow of their entire
business. This is when you have to be wary and consider withdrawing
your entire account (if you can).
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your best broker
Regulation
In today’s highly competitive brokerage environment, ensuring your
broker is regulated shouldn’t just be something on your research list,
it should be mandatory. Here’s a list of regulatory bodies for some
of the more popular countries where brokers are based:
USA
Regulatory body: National Futures Association (NFA) (www.nfa.
futures.org) and the Commodity Futures Trading Commission (CFTC)
(www.cftc.gov). If you are based in the US, ensure that your broker
is regulated by both the NFA and CFTC. There are pros and cons for
deciding to go with a US-regulated broker. The advantages are:
• Brokers need to maintain a net capital of at least USD20 million

to guarantee customers’ positions.
• Brokers are subjected to yearly audits.
• Brokers must have at least one licensed and trained staff to deal
with compliance issues.
While these are good from a regulatory standpoint, there are some
disadvantages to actual trading:
• Leverage: brokers cannot offer more than a 50:1 leverage. This

means traders need USD2,000 margin for every standard lot
opened. The margin required for non-US regulated brokers is
markedly lower. As an example, for a broker who provides 200:1
leverage, the margin required for each lot is only USD500.
• Hedging: Hedging is not allowed. As an example, traders will not

be allowed to have an open long EUR/USD and an open short
EUR/USD at the same time.
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• FIFO Rule: The FIFO (first in, first out) policy requires traders to
close their oldest trades first whenever they have more than one
position open on the same currency pair. Brokers who are not
registered in the USA are not obliged to obey the FIFO rule.

Europe/UK
Regulatory body: Financial Conduct Authority (FCA) (www.fca.org.
uk). The FCA supervises the conduct of over 50,000 firms, including
Forex brokers. Most traders prefer the regulatory environment of the
FCA because of their mandate to regulate, protect and enforce.
Switzerland
Regulatory body: Financial Market Supervisory Authority (FINMA)
(www.finma.ch). FINMA has statutory authority over banks, insurance
companies, stock exchanges, securities dealers, collective investment
schemes, distributors and insurance intermediaries. It authorises
the operation of companies in the supervised sectors. It ensures that
supervised institutions comply with the relevant laws, ordinances,
instructions and regulations and continue to meet their licensing
requirements. FINMA is responsible for combating money laundering.
It also provides administrative assistance, imposes sanctions and, where
necessary, conducts restructuring and bankruptcy proceedings.
Australia
Regulatory body: Australian Securities and Investment Commission
(ASIC) (www.asic.gov.au). ASIC is known as a very pro-active
regulatory body which won’t hesitate to shut down firms illegal firms.
In March 2014, ASIC joined a list of global regulators to investigate
the manipulation of Forex rates in the Australian markets.
New Zealand
Regulatory body: Financial Markets Authority (www.fma.govt.nz).
As an added safety, ensure that your broker is registered with the
following organisations:
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• Financial Service Providers Register (www.business.govt.nz)

• Financial Dispute Resolution (www.fdr.org.nz)
• Financial Services Complaints (FSCL) (www.fscl.org.nz)
The FSCL provides dispute resolution services to participating

financial service providers and their clients.
Mauritius
Regulatory body: Financial Services Commission (http://www.
fscmauritius.org). Mauritius is a new age International Banking and
Financial Centre that offers world class physical and ICT (Information
and Communication Technology) infrastructure, a business friendly
environment, a transparent legal structure, good governance and
regulatory framework, skilled manpower and a bilingual multi-ethnic
workforce as well as proper work-life balance and affordable lifestyle
for professionals, all of which have created a fast growing financial
ecosystem hub.
Fund Safety
The money in your trading account is your hard-earned cash. The least
you can do is to ensure that your funds are in safe hands. There are
four levels of fund safety in the brokerage world. Before discussing
them, here’s some background information. The broker has two
bank accounts – the corporate account and the client account. The
corporate account is the business account. This is where staff salaries,
overheads, vendors, licenses and other business costs are paid from.
The client account is where traders fund their cash to. This is where
your trading cash is. Let’s now go into the four levels, with level 4
being the least safe and level 1 being the safest.
Level 4: Non-segregated Accounts

The worst kind of brokers combine the corporate account with the
client account. This is dangerous, because not only will the broker
not know how much money they actually have, it also gives the
illusion that they can draw on the client’s cash at any time. Many
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brokers have failed simply because they did not maintain separate
bank accounts.
Level 3: Segregated Accounts

In this case, the corporate account and the client account are kept and
maintained separately. However, do ensure that you read the broker’s
terms and conditions, especially the fine print. Some brokers may
segregate client funds, but may still draw on it in times of liquidation
if their terms allow them to do so.
Level 2: Segregated Accounts with Third Party Fund Administration

Many clients have been victimised by brokerage companies shutting
down either due to compliance issues or to misappropriation of
funds. For the most part, clients are put in the precarious position
of being forced to ‘trust’ that their brokerage company is treating
funds ethically and responsibly. There are a handful of brokers who
up the fund safety level by engaging an independent third party
fund administrator to monitor the flow of client funds. More often
than not, the fund administrator also acts as signatories to all client
segregated accounts and any funds leaving or entering the client
segregated account must first be approved by them.
Level 1: Trustee Services

The new gold standard in customer fund security is the provision of
Trustee services. In such an arrangement, not only are client funds
segregated and administered by a fund administrator, the funds are
also completely segregated from the assets of the broker itself. This
ensures that client funds are off the balance sheet of the broker, giving
clients peace of mind that their funds are safe and secure.
Credibility
There are three practical ways to determine if your broker is a credible
one in the market:
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your best broker
• Social Media. We live in such an open world that when anything

goes wrong, social media is the first one to carry the story. Check
social media, blogs and review sites to see if there is any dirty
linen being aired about your chosen broker.
• Awards. Although several awards in the brokerage industry can

be bought, some are legitimate. Some of these include Euromoney,
Investment Trends, World Finance, International Finance Magazine
and Global Banking & Finance Review. Check to see if your broker
has won any awards that are recognised in the marketplace.
• Certification. The gold standard here would be the International

Organisation Standardisation (ISO) which develops and publishes
International Standards. Check whether your broker has some of the
relevant ISO certifications, like the ISO 9001 (quality management)
and the ISO 27001 (information security management).
Wide Product Range

In today’s trading environment, money flows into several asset classes
with lightning speed. It would not be feasible to trade with a broker
that provides you a platform with currencies only. Check that your
broker has a platform which provides an array of trading instruments
which include currencies, oil, gold/silver, indices, global equities and
contracts for difference (CFDs).
It is also important to ensure that the platform itself is stable. Try
out a small account to test that the platform does not crash or freeze,
especially during the release of economic news. It would be a bonus
if your broker provides user-friendly options like one-click trading.
Most traders prefer the Meta Trade 4 (MT4) platform so ensure your
broker has this platform if you are an MT4 fan.
Choice of Leverage
More often than not, the leverage which a broker provides is governed
by the regulatory framework of the country the broker is registered
in. If your choice broker is from the US, the broker cannot offer
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leverage higher than 50:1. Many traders have the misconception that
high leverage is a bad thing. It is not if you trade with sound risk
management. In fact, as a trader, I prefer the option of high leverage
so that I can put down lesser margin. Visit my blog www.mariosingh.
com and search for the entry ‘Get Leverage!’ if you want to know
more about the pros and cons of leverage. Today, it is not uncommon
to find a credible broker who provides leverage up to 500:1.
Trading Tools
The main purpose of a broker is to provide the best possible trading
environment for its clients. I give two thumbs up to brokers who
spare no expense in providing world-class trading tools for their
clients. These include:
• Weekly webinars
• Video tutorials
• Charting software
• News alerts
• Trading blogs
Account Details
There are three things to take note of under your trading account:
spread, account type and margin requirements.
• Spread. Ideally, the broker should have a variety of spreads. Some

of the biggest brokers offer at least three types of spreads: fixed,
variable and electronic communication network (ECN). A fixed
spread will generally remain constant in value, maintaining the
same number of pips between the bid and ask price during normal
market conditions. This is an ideal spread to choose for the trader
who wants to know that the spread he enters a trade at will be
the same when he exits.
Variable spreads are not constant in value. They expand and
contract based on market conditions and changes in liquidity.
Usually, as the market becomes more volatile, a variable spread
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your best broker
will become wider as liquidity reduces and banks are less willing
to grant executions at certain prices.
ECN spreads are preferred for advanced traders. These are
the tightest spreads available and rival institutional level price
feeds. Instead of a normal 2 pip spread on the EUR/USD, it is
possible to see razor-thin spreads going as low as 0.3 pips. This is
because the broker is quoting you the direct feed they get from the
liquidity providers. However, trading on ECN normally requires
a commission. Check with your broker what price they charge
for trading on ECN. A charge between half a pip to one pip per
standard lot round trip is considered normal. Even at one pip,
the cost for trading on ECN is lower compared to either fixed or
variable spread.
• Account type. The broker needs to give you the flexibility of

opening standard, mini or micro account depending on your
needs. If this is not available, ensure that you can vary your lot
size in the trading platform which would give you the same desired
outcome. For example, if you open a standard account and want
to trade a mini lot, ensure that you can execute 0.1 lot, which is
the same as one mini lot.
• Margin requirements. A broker’s margin requirement is sometimes

called a ‘good faith deposit’. Be sure to read the broker’s terms
and conditions on margin requirements. If you fail to respect the
broker’s margin requirements in your trading account, you may
face the dreaded ‘margin call’ and force the broker to close off all
your positions. Margin calls are executed when an account has less
equity available than required to maintain the open positions.
• Good brokers normally have a margin call level between 30-50

percent. Margin calls are activated in real-time on an automatic
basis. Let’s look at an example of a broker who has a margin
policy of 30 percent.
315
• If you open a USD1,000 trading account and trade 0.5 lots using
100:1 leverage, USD500 will be set aside as margin for the position.
If the direction of your trade goes against you and leaves you with
an equity of USD150, you will trigger a margin call.
Here’s the formula:
(Account Equity / Used Margin) x 100 = Margin Level percent

(USD150/USD500) x 100 = 30 percent
As a result, the position will be automatically closed in order to

protect you from losing any more of your remaining balance, and
possibly falling into negative territory.
Ease of Funding and Withdrawal

The broker should provide several funding options like wire transfer,
credit card, debit card and local deposits. Local deposits is a convenient
way to fund to a local bank in your country, which then ensures
that your funds reach the broker’s account. This option is normally
cheaper than a direct wire transfer. Withdrawal methods include
the standard bank transfer and the more convenient withdrawal to
a re-loadable prepaid card. You can then choose to withdraw your
cash from most ATMs worldwide. Funds should not take more than
three days to be withdrawn.
Customer Support
In a market that is open 24 hours a day, five days a week, customer
support is of paramount importance. Here’s a quick list of what to
look out for in customer support:
• Language options. Does the broker provide customer support in

your language of choice?
• Medium. The broker should preferably provide three modes of

contact: email, live chat and phone support.
316
your best broker
• Relationship Manager. Some brokers provide a dedicated concierge

service to their clients. This ensures each client has someone to
reach out to each time they need to speak to a representative from
the broker. I find this service very impressive and personal.
If you ever run into a problem, the last thing you want to do is
have an issue getting a hold of your broker in order to fix it. If the
broker only has limited hours of customer service, take it as a sign
that bad things are likely to come of the business relationship.
I have formulated the points into questions based on what we
discussed above. Do give your broker a call and clarify these points
before you decide to start a business relationship with them:
• Is your model straight through processing (STP) or a market

making (MM) one? Where’s your main office located?
• Are you regulated? If so, in which countries?
• How safe are my funds when I start a live trading account? I’ve
noticed that some brokers can tap on client deposits for their
business use as explained in their terms and conditions. Is this
true for your brokerage as well? What happens to my funds in
the worst case scenario that your firm goes belly up?
• Does your firm have any ISO certifications? What industry awards
have you won?
• What products can I trade on your platform besides Forex?
• What is the maximum leverage you provide?
• What trading tools do you provide? Can I get free access to
webinars, charting software and news alerts?
• Please run through the details of your spread type and margin
requirements. Do I need to open up different accounts if I decide
to trade standard, mini and micro lots?
• Please run through the process of withdrawals and deposits. What
are the different funding methods I can use to fund my account?
How long does it take before the funds hit my trading account?
How long is the withdrawal process?
317
• What types of customer service do you offer, and how can I

contact them? Are they available 24 hours a day or only at certain
times?
• What separates your firm from other brokers? What’s the one
thing you guys have that most firms don’t?
I know the questions are detailed and fairly lengthy. However, I do

suggest that you take the time to research the right broker for your
trading needs and go through the ‘interview process’ with them.
Remember, the power is in the hands of you, the trader. You
definitely want to partner with a credible broker who can fulfil your
trading needs and ultimately assist you in achieving your financial
goals.
I have found one particular broker who meets all the criteria I
outlined above. It is called FXPRIMUS. Considered one of Asia’s
biggest brokers, FXPRIMUS today serves traders in over 200 countries
across six continents. To thank you for picking up this book, I have
arranged an exclusive deal with FXPRIMUS for all my readers. When
you fund your live account, FXPRIMUS will match your funding
one for one with a 100 percent trading credit up to a maximum of
USD10,000. As an example:
• If you fund your account with USD500, FXPRIMUS matches you

with USD500 so you start trading with USD1,000.
• If you fund your account with USD3,000, FXPRIMUS matches
you with USD3,000 so you start trading with USD6,000.
• If you fund your account with USD10,000, FXPRIMUS matches
you with USD10,000 so you start trading with USD20,000.
The maximum funding amount to qualify for the 100 percent

trading credit is USD10,000. Please visit www.fxprimus.com/protrader
to find out more about this exclusive offer and the corresponding
terms and conditions.
318
your best broker
Summary
Partnering a world-class broker can make all the difference in your

trading journey. You will have to do a bit of homework to ensure
that you choose a broker which meets all your trading needs.
This chapter discusses a list of ten criteria that can help you to
select a good broker. Some of these criteria include regulation, fund
safety and customer support. At the end of the day, the trading account
belongs to you. You have to ensure that you are comfortable with the
broker’s terms and conditions because this partnership is important
for you to achieve your financial goals.
319
E pilogue
LET's MAKE MAGIC
“Begin with the end in mind.”

Stephen Covey
You now have in your hands the 12 keys to propel you to Forex
Mastery. The 12 keys discussed here are precise and will help you to
unlock different portions of the Forex Market, setting you on your
way to becoming consistently profitable. Whether you are a new
trader or an experienced one, my message is the same: You can’t
afford to ignore Forex anymore.
In 1983, Richard Dennis sealed his reputation as a legendary
trader, earning a couple of hundred million dollars from the financial
markets. He had made that fortune on his own terms in less than 15
years with no formal training or guidance from anyone. Interestingly,
Richard and his partner William Eckhardt made a bet to settle whether
traders are ‘born or made’. While Richard firmly believed that trading
abilities could be broken down into a quantifiable system of rules that
could be taught, William felt the ability was something innate.
That bet was made in Singapore when Richard took a tour to a
turtle-breeding farm. His famous line at the time was: “We are going
to grow traders just like they grow turtles.” His original group were
320
LET'S MAKE MAGIC
thus called the Turtles. The plan was to spend two weeks to train
novices in the science of trading and then give them each USD1
million to invest.
They placed a large ad in Barrons, the Wall Street Journal and the
New York Times stating that they were seeking trading apprentices, who
after a short training period would be given accounts to trade. Although
each of the 1,000 applicants went through a rigorous application
process designed to test their intelligence, ability to manage risk, and
mathematical skills, the makeup of the chosen Turtles differed greatly.
They included a Czechoslovakian-born blackjack master, a Dungeons
and Dragons game designer, an evangelical accountant, a graduate
from Harvard MBA, a US Air Force pilot, and a former pianist.
From the 1,000 applicants, 80 were interviewed and only 10
individuals were selected. They were invited to Chicago and trained
for two weeks in December 1983. The number of Turtles became 13
after Dennis added three people he knew to the list.
The Turtles were trained on a simple trend-following system,
trading a range of commodities, currencies, and bond markets. They
were taught to buy when prices increased above their recent range,
and sell when prices fell below their recent range. They were also
positions during losing periods and to add to winning positions.
Figure 13.1 Richard

Figure Dennis’
13.1 Richard Ad
Dennis’ Ad in in the Newspapers
the Newspapers2 1
The Turtles began trading live accounts shortly after completing their course. In just over 4 years, the
1
http://www.dukascopy.com/fxcomm/fx-article-contest/?What-Made-The-Turtle-
Turtles went on to gross over USD150 million in profit, thereby cementing the success of one of Wall
System&action=read&id=1568
Street’s greatest trading experiments in history.
Dennis won his bet, proving that in the simple experiment of nature versus nurture, nurture
triumphed. Some of the original Turtles went on to become billion-dollar fund managers.
321
I tell this story partly to inspire you, but mostly to drive home the simple point that you can start
where you are and become a mega trading success. If the above can happen to a group of trading novices, it
can certainly happen to you.
The Turtles began trading live accounts shortly after completing

their course. In just over 4 years, the Turtles went on to gross over
USD150 million in profit, thereby cementing the success of one of
Wall Street’s greatest trading experiments in history.
Dennis won his bet, proving that in the simple experiment of nature
versus nurture, nurture triumphed. Some of the original Turtles went
on to become billion-dollar fund managers.
I tell this story partly to inspire you, but mostly to drive home
the simple point that you can start where you are and become a
mega trading success. If the above can happen to a group of trading
novices, it can certainly happen to you.
I have been trading Forex for many years, and I have no doubt
that you can make money in the largest financial market in the world.
The real problem is in keeping what you’ve made.
The reasons why people lose money are varied and wide. However,
the 12 keys discussed in this book will not only help you to make
money, but will also enable you to keep it and, more importantly,
compound it.
So let’s get started.
Let’s play flat out.
Let’s make magic.
Sincerely,
Mario Singh
“The best time to trade Forex was three years ago.

The second best time is now.”
322
ADDITIONAL NOTES TO REFERENCES
PART I Introduction
1 Pew Foundation (2009). Retrieved at http://www.pewsocialtrends.org/2009/09/17/

take-this-job-and-love-it/
2 Binder, Martin & Coad, Alex. (2012). Life satisfaction and self-employment: a matching
approach (Abstract). Small Business Economics, 40(4),1009-1033. Retrieved at http://
link.springer.com/article/10.1007%2Fs11187-011-9413-9
3 Retrieved at http://www.bbc.com/news/uk-scotland-glasgow-west-26019586
4 Singh, Mario. (2013). How to Profit in the Forex Market: Retrieved at http://www.
mariosingh.com/download/17strategies/17strategies_freechapter.pdf
Lazar, Tara. (2013, Aug 3), Book Promotion Guru Patricia Fry: 78 Percent of Published
Books Fail. Tara Lazar. Retrieved at http://taralazar.com/2013/08/03/book-promotion-
guru-patricia-fry/
5 Wagner, Eric T. (2013, Dec 9). Five Reasons 8 Out Of 10 Businesses Fail. Forbes. Retrieved
at http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-
businesses-fail/
6 Tom Hess is touring guitarist, recording artist and a former member of the band
Rhapsody of Fire.
7 Lazar, Tara. (2013, Aug 3), Book Promotion Guru Patricia Fry: 78 Percent of Published
Books Fail. Tara Lazar. Retrieved at http://taralazar.com/2013/08/03/book-promotion-
guru-patricia-fry/
8 (July 4). Hollywood actors’ strike averted. ABC News.Retrieved at http://abcnews.

go.com/Entertainment/story?id=103850&page=1&singlePage=true
Chapter 1
1 Statistics Brain. (2014). Facebook Statistics (Data file). Retrieved at http://www.

statisticbrain.com/facebook-statistics/
Chapter 3
1 Panckhurst, Paul. (2014, Feb 20). Bloomberg. Retrieved at http://www.bloomberg.com/

news/2014-02-19/japan-trade-deficit-widens-to-record-as-import-costs-jump-on-yen.
html
2 (2014, Mar 6). Australia reports bigger-than-expected trade surplus. BBC. Retrieved
at http://www.bbc.com/news/business-26462307
3 (2014, Mar 9). China’s Exports Unexpectedly Drop Blow to Confidence. Bloomberg.
Retrieved at http://www.bloomberg.com/news/2014-03-08/china-feb-exports-
unexpectedly-fall-18-1-imports-rise-10-1-.html
4 Kirkegaard, Kasper. (2011, Aug 3). CHF: SNB addresses strong franc, but stops
short of intervention. FXStreet. Retrieved at http://www.fxstreet.com/analysis/fx-
strategy/2011/08/03/
5 Yousuf, Hibah. (2011, Aug 4). Yen slumps 2% on Japan intervention. CNN. Retrieved at
money.cnn.com/2011/08/04/markets/yen_intervention/
6 (2011, Sep 6). Swiss National Bank acts to weaken strong franc. BBC. Retrieved at http://
www.bbc.co.uk/news/business-14801324
7 Milmo, Dan. (2011, Mar 18). G7 rallies behind Japan in bid to curb soaring yen. The
Guardian. Retrieved at http://www.theguardian.com/business/2011/mar/18/g7-japan-
curb-soaring-yen-intervention
(2011, Mar 18). G7 intervention: the communique. The Telegraph. Retrieved at http://
www.telegraph.co.uk/finance/currency/8390032/G7-intervention-the-communique.
html
8 Zachariahs, Candice. (2011, Feb 23). N.Z. dollar slumps to 2-month low after Christchurch
quake; Aussie weakens. Bloomberg. Retrieved at http://www.bloomberg.com/news/2011-
02-22/new-zealand-s-currency-declines-after-christchurch-hit-by-6-3-earthquake.
html
9 Kim, Kyoungwha. (2011, Nov 18). Baht drops for third week as floods set to slow economic
growth. Bloomberg. Retrieved at http://www.bloomberg.com/news/2011-11-18/baht-
set-for-third-weekly-drop-as-floods-set-to-weaken-growth.html
10 Sayson, Ian. (2013, Nov 11). Philippine stocks drop with peso on Typhoon Haiyan
devastation. Bloomberg. Retrieved at http://www.bloomberg.com/news/2013-11-11/
philippine-peso-falls-with-stocks-on-typhoon-haiyan-devastation.html
11 Lash, Herbert. (2014, Mar 3). GLOBAL MARKETS - Gold, oil rise as Ukraine tensions spur
safe-haven bids. Reuters. Retrieved from http://www.reuters.com/article/2014/03/03/
markets-global-idUSL1N0M00V520140303

Lash, Herbert. (2014, Mar 3). Gold, oil rise as Ukraine tensions spur safety bids.
Reuters. Retrieved at http://www.reuters.com/article/2014/03/03/us-markets-global-
idUSBRE96S00E20140303
Morgan, Elysse. (2014, Mar 4). Safe haven assets rise, stocks fall on Ukraine tensions.
ABC. Retrieved at http://www.abc.net.au/news/2014-03-04/safe-haven-assets-rise-
stocks-fall-on-ukraine-tensions/5296618
12 Haviv, Julie. (2013, Aug 27). FOREX-Yen, Swiss franc rise as Syria fears spur demand
for safety. Reuters. Retrieved at http://www.reuters.com/article/2013/08/27/markets-
forex-idUSL2N0GS1RW20130827
Chapter 4
1 Office of the United States Trade Representative. Retrieved at http://www.ustr.gov/

countries-regions/americas/canada
2 US Energy Information Administration. Retrieved at http://www.eia.gov/countries/

index.cfm?topL=exp
3 Fosier, Gail. (2014, Feb 18). U.S. dollar forever? An interview with Catherine Schenk.
GailFosher Group. Retrieved at http://www.gailfosler.com/u-s-dollar-forever-interview-
catherine-schenk
4 Obe, Mitsuru & Narioka, Kosaku. (2013, May 28). WSJ. Retrieved at http://online.wsj.
com/news/articles/SB10001424127887323855804578510221802364326
5 Magnay, D., Mclaughlin, E., Naik, B., & Retiniotis, M. (2010, May 2). Greece accepts bailout
package. CNN. Retrieved at http://money.cnn.com/2010/05/02/news/international/
greece_bailout/
6 Webb, Tim & Wearden, Graeme. (2011, Jan 31). Egypt turmoil pushes crude oil price over
$100 a barrel. The Guardian. Retrieved at http://www.theguardian.com/business/2011/
jan/31/egypt-turmoil-pushes-oil-over-100-dollars

Kirkpatrick, David. (2011, Feb 11). Egypt erupts in jubilation as Mubarak steps down.
NYT. Retrieved at http://www.nytimes.com/2011/02/12/world/middleeast/12egypt.
html?pagewanted=all&_r=1&
7 (2012, Apr 25). UK economy in double-dip recession. BBC. Retrieved at http://www.
bbc.com/news/business-17836624
8 Black, Jeff & Randow, Jana. (2012, Jul 26). Draghi says ECB will do what’s needed
to preserve euro: Economy. Bloomberg. Retrieved at http://www.bloomberg.com/
news/2012-07-26/draghi-says-ecb-to-do-whatever-needed-as-yields-threaten-europe.
html
9 Isfield, Gordon. (2013, Dec 12). Threats to Canada’s economy persist but risks of
‘deflationary trap’ declining, Poloz says. Financial Post. Retrieved at http://business.
financialpost.com/2013/12/12/risks-remain-at-top-of-bank-of-canadas-radar-poloz-
says/
10 Withers, Tracy. (2014, Jan 3). RBNZ Plans to Start Raising Rates Soon as Hold Sends
Kiwi Lower. Bloomberg. Retrieved at http://www.bloomberg.com/news/2014-01-29/
rbnz-holds-key-rate-at-2-5-expects-to-start-increases-soon-.html
11 Hannah, Mike. (2014, Mar 13). Reserve Bank raises OCR to 2.75 percent. Reserve Bank
of New Zealand. Retrieved at http://www.rbnz.govt.nz/news/2014/5655497.html
Chapter 9
1 Four-minute mile. Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Four-minute_

mile
Chapter 10
1 Daily Mail Reporter. (2010, 30 May). Lotto lout Michael Carroll going back to being a
binman after blowing £9.7m win. Daily Mail. Retrieved at http://www.dailymail.co.uk/
news/article-1282618/Bin-chavs-Lotto-lout-Michael-Carroll-set-return-old-job-blowing-
9-7m-win.html
#1238 James Clark. Forbes. Profile retrieved at http://www.forbes.com/profile/james-

clark/
2 Spraggett, Kevin. (2014, Jan 17). How to open a bottle of wine with a shoe! (Web
blog). Spraggett On Chess. Retrieved from http://kevinspraggettonchess.wordpress.
com/2014/01/17/how-to-open-a-bottle-of-wine-with-a-shoe/
Chapter 11
1 Photo courtesy of Author Mario Singh.
Chapter 12
1 (2011, Feb 6). Phil Taylor – “Darts bei Olympia? Warum nicht!”. Die Welt. Retrieved at
http://www.welt.de/sport/article12380307/Phil-Taylor-Darts-bei-Olympia-Warum-nicht.
html
Epilogue
1 p3tr4, (2013). What Made the Turtle System Tick. Dukascopy. Retrieved at http://
www.dukascopy.com/fxcomm/fx-article-contest/?What-Made-The-Turtle-
System&action=read&id=1568
About F X 1 Acade m y
FX1 Academy is arguably Asia’s largest training institution

dedicated to Forex trading.
Founded by Mario Singh in 2006, FX1 has grown from
a tiny office running one seminar to a full-blown Academy
supporting thousands of traders worldwide. Today,
graduates include people from 21 countries including
Singapore, Malaysia, Cambodia, Indonesia, Philippines,
Vietnam, China, India, Australia, Switzerland, Venezuela and
the United States.
The programmes offered at FX1 Academy are tailored to
meet the needs of both retail and institutional traders. Some
of these include LIVE seminars, DVDs, corporate trainings
and an award winning coaching portal called FLEX.
In 2012, FX1 Academy became the first-ever Forex
education company in Asia to be awarded the Asia Pacific
Top Excellence Brand, the same international award given to
global Fortune 500 giants like McDonalds and Samsung.
In 2014, FX1 Academy bagged the prestigious “Best
Forex Education Provider in Asia” award given out by
International Finance Magazine in London.
To find out more about the programs offered by FX1
Academy, please visit:
Website: www.fx1academy.com
Email: info@fx1academy.com
Facebook: https://www.facebook.com/groups/fx1academy
Write Editions® is inspired to publish
good books that engage and enliven readers.
Besides publishing books under the Write Editions®
imprint, we also publish books commissioned by
organisations, groups and individuals.
write your story.

publisher@writeeditions.com
■
writeeditions.com
Regarded worldwide as a global financial
expert, MARIO SINGH has been featured
over 40 times on top financial media
CNBC and Bloomberg. Using the trading
methodologies which have brought him
massive success, Mario has coached over
20,000 people in the art and science
of successful Forex trading, including
institutional traders from ICBC, China’s
largest bank.
His first book, 17 Proven Currency Trading
Strategies: How to Profit in the Forex Market
is endorsed by world-famous billion-dollar
fund managers like Mark Mobius, Executive
Chairman of Templeton Emerging Markets
Group, and Ray Barros, private hedge fund
manager and professional trader.
Mario resides in Singapore with his
beautiful wife Shalyn and two wonderful
children, Chantelle and Elliot.
www.mariosingh.com
info@mariosingh.com
In UNLOCKING THE WORLD’S LARGEST FINANCIAL SECRET, author
Mario Singh, regarded worldwide as a global financial expert and
Asia’s favourite Forex Coach, shares his journey, insight and know-
how in unlocking real money from the Forex Market. Comprehensive,
incisive and highly readable, readers will be guided step-by-step
in understanding the Forex Market with 12 keys to Forex Freedom,
including:
• Why trade Forex

• Factors that move the Forex Market
• FX Waves
• The law of strategies
• The law of money management
• The law of state
• Habits
“Mario’s book is exactly what is “Artfully presented . . .

needed for newcomers to Forex.” A true masterpiece. Bravo!”
Barbara Rockefeller Song Seng Wun
Founder of Rockefeller Treasury Services Celebrity Economist
“Mario does a great job in laying out “A great combination of technical strategies
12 keys to Forex freedom in a clear and as well as psychology lessons that is
concise manner. Excellent work!” invaluable to any serious trader.”
Kathy Lien Adam Khoo
Managing Director of FX Strategy Executive Chairman
BK Asset Management Adam Khoo Learning Technologies Group
“An amazing book that unlocks the secrets “Mario Singh has a provocative
of successful currency trading.” assemblage in this book. Well done!”
Ed Ponsi David Kotok
Author Chief Investment Officer
Forex Patterns and Probabilities Cumberland Advisors
and The Ed Ponsi Forex Playbook
Foreign Exchange/Finance/Wealth Management

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LET’s BEGIN!

From the Book Introduction

Top success coach Anthony Robbins says,

UNLOCKING THE WORLD'S

“Mario’s book is exactly what is needed for newcomers to Forex, unlike

“Mario Singh has a provocative assemblage in this book. It is timely since

“Mario’s book provides an excellent grounding for the novice trader to develop

Howard Friend, CMT

Published by Mario Singh Pte Ltd

Mario Singh Pte Ltd

Produced by Write Editions®

Write Editions® is a registered trademark and an imprint of

All rights reserved.

Limit of Liability/Disclaimer of Warranty: While the author and the publishers

ISBN 978-981-09-1699-2 (paperback)

National Library Board, Singapore Cataloguing-in-Publication Data

Singh, Mario, author.

Your boundless love for the three of us helps me catch

I love you and cherish you with all my heart.

“And now abide faith, hope, love, these three;

About the Author xiii

PART I: WHAT IS FOREX? 1

1 KEY #1: THE GLOBAL FOREX OPPORTUNITY 13

2 KEY #2: WHY TRADE FOREX? 22

3 KEY #3: FACTORS THAT MOVE THE FOREX MARKET 44

4 KEY #4: FX WAVES 79

5 KEY #5: UNDERSTANDING YOUR TRADING PLATFORM 109

6 KEY #6: CANDLESTICK AND CHART PATTERNS 138

PART II: THE SIX LAWS OF SUCCESSFUL TRADING 181

7 KEY #7: THE LAW OF STRATEGIES 184

8 KEY #8: THE LAW OF MONEY MANAGEMENT 220

9 KEY #9: THE LAW OF STATE 245

10 KEY #10: HABITS 260

11 KEY #11: PURSUE MASTERY 280

12 KEY #12: YOUR BEST BROKER 304

The global financial landscape has changed much through the

My heartfelt thanks to the following people, without whom this

Regarded worldwide as a global financial expert, Mario Singh has been

For more information:

irrespective of its real worth. The introduction of the Euro across

When Cash is Not Acceptable

Being Emotional about Cash

The Love Triangle

Part of the attraction of money is that it changes how we feel, although

• “I can buy a new car.”

In actual fact, the audience is really answering the deeper question:

Figure 1.1 Money’s Love Triangle

Money can certainly buy many forms of freedom.

A major reason why people dwell so much on long-term financial

millionaires per capita anywhere in the world. As of 2012, 157,000

In January 2014, an article entitled “For the Love of Money” appeared

“In my last year on Wall Street, my bonus was $3.6 million —

i. A Closing hand – the need to hold on to things for fear of losing

On the surface, it may seem as though those who view money

it would always be reinvented in some way. This is because money

• Buy a new car

The Forex Market

The Forex Market is the Largest Financial Market in the World

an astounding USD5.3 trillion every single day. It is a place with

Human Beings are Emotional Creatures

Money is a Deeply Emotional Topic

• “I had to borrow money to pay off my Forex debts!”

It is probably true that a lot more people fail at Forex compared