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THE FOREX ODYSSEY
GUIDE TO
FINANCIAL INDEPENDENCE
By Alan Vertue
Edition 2011
Copyright © 2011
Web: www.VertueTrading.com.au – Ph: 1300 221 797
Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
Realize Your potential.
Everyone starts trading to make money, right? Sure you want a rewarding career. One at which you can choose
your working hours and location. A career where you are totally responsible for your own success. A career
capable of giving you the lifestyle others only dream about. You deserve it! After all those hard years of slavery
in your prior existence! But, in the end, it’s really the money that promises all of the above, and it promises
much, much more.
So you develop a plan and write down your goals! You read the books and you trawl through the trading forums
searching for the secret of success. Your families start to wonder who the stranger is at the dinner table (that is, if
you actually make it to dinner).
You open a demo account and try out a plethora of strategies. You stare at charts until they blur. You become
indicator obsessed. You practice your entries and exits - all in simulation of course, but feeling the pain of
rejection as much as if it was the real deal. It may only be in ‘sim’, but deep down you realize a losing trade is an
assault on your ego.
But eventually you start to see some winners amongst the losers. Your simulated equity curve starts to rise, and
you’ve got some monopoly money in the bank. You’re confident you now understand the signals, and you’re
finally up to speed with your platform and data feed. Today’s the day. You’re going LIVE! “Watch out for the
money, Honey. There’s rivers of gold a comin’ our way!”
But after time, the winners evaporate like summer rain on hot concrete. The days turn into weeks, the weeks into
months. By now, you’ve stopped keeping accurate records of every trade and decision. You don’t need your
computer to tell you your account is in serious and steady decline, perhaps even haemorrhaging! Like most new
traders, past, present and future, you find consistency frustratingly out of reach. Many of you keep the news from
your partner. “Going great guns, Honey! Really getting on top of the learning curve now!”
If it sounds like ‘This Is Your Life’ is knocking at your door right now, congratulations! You’re finally in the
right place at the right time. If the above doesn’t sound like you, but you’re a ‘newbie’, chances are you just
haven’t let enough time flow by!
But here’s some great news... failure is not a natural part of trading. There are fabulously successful traders. The
vast majority started their careers just as you. Their accounts bled – perhaps even haemorrhaged. They felt the
pain, the attack on their ego. But with perseverance and dedication (yes, occasionally even dumb luck) they
discovered the critical elements that all successful traders understand. You too have the potential to be
fabulously successful. The explicit aim of this article is to help you to realise that potential. Game on!
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
Forex: The long and short of it.
My name is Alan Vertue, and I’m a professional Forex trader and trading educator. Apart from private trading,
I’ve moderated trading rooms, overseen education programs for large companies, and witnessed most of the
mistakes that new traders make trying to make a ‘fast buck’. I’m sure that most of you who have already
announced to family and friends that you were considering becoming a Forex trader have probably experienced
some cynicism and negativity. “Oh, THAT’S a bit risky, isn’t it?” is the usual response as they stare at you in
feigned horror. Obviously equating the endeavour to attempting a bungy jump using hat elastic, most people
believe that investing in property or company stock is “safe”, and that trading Forex is only suitable for the
mega-rich or criminally insane. But let’s look at the facts;
a). Trading Forex allows for easy entry on short or long positions. Those holding shares in a bear market are in a
much more precarious position due to the difficulty in shorting their position.
b.) The electronically traded Forex market is the largest and most liquid financial market in the world. The time
taken to enter and exit positions can be measured in seconds, if not milliseconds!
c.) Forex contracts allow for highly leveraged positions. Of course, if traded without a planned exit strategy,
leveraging can quickly contribute to a trader’s demise, however with sensible money management using a strict
stop loss strategy, leveraging enables a winning trader to make greater profits with a much smaller risk.
d.) Commissions, in the traditional sense, are virtually non-existent in the Spot Forex market (brokers subtract
the bid/ask spread at the time of exit). All results at the end of the day are nett, i.e. there are no additional
brokerage or exchange fees to subtract from your balance sheet.
e.) The world’s electronically traded Forex markets are available to trade 24 hours a day, five days a week, all
from the comfort of your own home, or from anywhere in the world that has access to broadband internet.
So what’s the downside? There has to be a catch, right? Well, yes, there is a catch. When trading shares or
property you can only lose your initial investment in the event you make a wrong trading decision, and price
moves against you. Trading Forex on the other hand carries with it the risk of LOSING MORE THAN YOUR
ORIGINAL INVESTMENT. Of course there is a simple solution to this problem. By setting a suitable stop loss
exit at the time of entry, and using an efficient trade management strategy, such as those used by the Forex
Odyssey Trading System©, any trader, new or experienced, is able to participate in highly liquid and volatile
markets with minimal outlay and at no greater risk than trading stocks or property.
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
Question: “What’s the most important skill a new trader absolutely must learn? Is it signal recognition?
Platform fundamentals? How about chart patterns?”
No! No! No! Wrong! Wrong! Wrong! Get a pen and write this down… backwards, on your forehead, and stare
at yourself in the mirror: The single most important skill a new trader must master, if they are to eventually
become successful, is how to minimise losses!
Oh yeah. Right! As if you needed to be told that. Well, in my experience the ability to manage losses is the one
‘skill’ that is most sorely neglected. The majority of new traders focus their attention on making money and not
protecting what they already have.
Being a trader means you WILL lose some of the time. Get used to it! It’s not the loss itself that matters, but the
SIZE of the loss! In this game, preservation of capital is absolutely paramount if you want to make it to the
Super League.
Being able to manage small losses allows you to build on your gains, rather than keep returning hard-won profits
to the market. It sounds so simple, yet most aspiring traders continue to take big hits until either their capital, or
their will is destroyed. Learning to minimise your losses will maximise your chances of staying long enough on
the playing field to learn and practice the other skills necessary to become a long-term winner.
I’m sure you’ve heard it quoted many times before; “trading is a business”. It’s true, and as such, your business
requires a business plan – one that makes allowances for profit and loss. In fact, the words ‘profit’ and ‘loss’
should really be replaced by ‘income’ and ‘expense’. If you manage your trading as you would a true business
venture, ‘profit’ is what you extract at the end of year if your income is greater than your expenses. ‘A loss on
the other hand is what you’re left with if you haven’t managed your expenses well.
So how do we learn and develop this skill? Well, the same way we learn any other skill – PRACTICE,
DISCIPLINE and PERSEVERANCE! Write down a trading plan and trade it. Firstly in ‘sim’, and then ‘live’,
but with minimum position size. I don’t care how many shekels you have stowed away under the bed, you need
to begin at the beginning. By doing so you will learn to be a good loser, and you need to become a good loser in
order to become a good winner.
By learning to take a small hit and roll with the punches, you’ll be better able to see the openings to make a
knockout of your own. Trust me on this. One small lot combined with a reasonable stop loss, and you’ll become
immune to the emotional burden that the majority of retail traders bear. Fear of failure!
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
10 pips a day to financial freedom.
One of the main reasons most players fail in the trading game is because they fall victim to the emotion of fear.
Fear of losing, and fear of missing out! Emotional trading can rapidly bleed an undisciplined trader’s account.
Hard-earned gains can be converted quickly and efficiently into confidence-sapping losses. Most new market
players trade too frequently, and with too large a position. This is a sure fire way earn a spell on the bench, often
permanently. Pulling trades too early, second guessing signals or declining legitimate trades because of recent
losses can all reduce a trader’s confidence – and to be successful, you must be confident in both your system and
your own ability.
It’s a documented fact that you only require 10 pips per lot traded, per day to build your stake into a substantial
investment account. And this for a maximum risk of only 2% per trade!
Now I know what you’re probably thinking. If something sounds too good to be true, then it probably is! But if
you’ll just bear with me for a moment, I can prove that ordinary people can make extraordinary profits using a
little known money management strategy. Virtually every professional trader in the world utilises this strategy as
a safe and efficient way of minimising risk and maximising profits. On the following pages I’ve included an
example of such a plan, showing how it’s possible to grow an account simply by increasing position size. By
taking tiny bites out of the market on a regular basis, using a maximum risk of just 2% per trade, your account
has the potential to experience exponential growth, as does your confidence as a trader.
Before we analyse this money management strategy, it’s important to understand the main unit of transaction in
the Forex market is a Standard Lot, which is approximately equivalent (depending on the currency pair traded) to
US $10 per pip. Forex brokers allow traders to open positions using fractional lots, i.e. Mini Lots and Micro
Lots. When trading with a Mini Lot, each pip is equal to US $1, and if trading with a Micro Lot, that same pip is
only worth 10 cents. This enables traders with modest account sizes to play in the same game, on a level playing
field, as the large market professionals.
In the following example, we are going to start with an account balance of $10,000, but it could just as easily be
$1,000 or $100,000 – the principles are still the same. We will trade with Mini Lots at $1 per pip, per lot, and
we’ll risk only 2% of our account on any individual trade. To calculate this, we’ll assume a Stop Loss of 20 pips,
meaning that for each Mini Lot with which we enter, our risk potential is $20.
It should be noted that this is a hypothetical plan and shows a potential progression. Your results may vary from
those shown, however these targets are very conservative, and although a more aggressive approach may bring
with it greater risk, it may also create the opportunity for substantial reward. But be prepared to discipline
yourself and knuckle down to master the necessary skills.
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
STOP LOSS (PIPS) 20 MAX RISK PER TRADE 2.00%
WEEK MINI
LOTS
AVG DAILY
PIPS/LOT
WEEKLY
PIPS/LOT
TOTAL
POINTS
GROSS
WEEKLY
PROFIT $
WEEKLY
PROFIT % BALANCE $ RISK%
0 $10,000.00
1 10 10 50 500 $500.00 5.00% $10,500.00 2.00%
2 10 10 50 500 $500.00 4.76% $11,000.00 1.90%
3 11 10 50 550 $550.00 5.00% $11,550.00 2.00%
4 11 10 50 550 $550.00 4.76% $12,100.00 1.90%
5 12 10 50 600 $600.00 4.96% $12,700.00 1.98%
6 12 10 50 600 $600.00 4.72% $13,300.00 1.89%
7 13 10 50 650 $650.00 4.89% $13,950.00 1.95%
8 13 10 50 650 $650.00 4.66% $14,600.00 1.86%
9 14 10 50 700 $700.00 4.79% $15,300.00 1.92%
10 15 10 50 750 $750.00 4.90% $16,050.00 1.96%
11 16 10 50 800 $800.00 4.98% $16,850.00 1.99%
12 16 10 50 800 $800.00 4.75% $17,650.00 1.90%
13 17 10 50 850 $850.00 4.82% $18,500.00 1.93%
14 18 10 50 900 $900.00 4.86% $19,400.00 1.95%
15 19 10 50 950 $950.00 4.90% $20,350.00 1.96%
16 20 10 50 1000 $1,000.00 4.91% $21,350.00 1.97%
17 21 10 50 1050 $1,050.00 4.92% $22,400.00 1.97%
18 22 10 50 1100 $1,100.00 4.91% $23,500.00 1.96%
19 23 10 50 1150 $1,150.00 4.89% $24,650.00 1.96%
20 24 10 50 1200 $1,200.00 4.87% $25,850.00 1.95%
21 25 10 50 1250 $1,250.00 4.84% $27,100.00 1.93%
22 27 10 50 1350 $1,350.00 4.98% $28,450.00 1.99%
23 28 10 50 1400 $1,400.00 4.92% $29,850.00 1.97%
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
24 29 10 50 1450 $1,450.00 4.86% $31,300.00 1.94%
25 31 10 50 1550 $1,550.00 4.95% $32,850.00 1.98%
26 32 10 50 1600 $1,600.00 4.87% $34,450.00 1.95%
27 34 10 50 1700 $1,700.00 4.93% $36,150.00 1.97%
28 36 10 50 1800 $1,800.00 4.98% $37,950.00 1.99%
29 37 10 50 1850 $1,850.00 4.87% $39,800.00 1.95%
30 39 10 50 1950 $1,950.00 4.90% $41,750.00 1.96%
31 41 10 50 2050 $2,050.00 4.91% $43,800.00 1.96%
32 43 10 50 2150 $2,150.00 4.91% $45,950.00 1.96%
33 45 10 50 2250 $2,250.00 4.90% $48,200.00 1.96%
34 48 10 50 2400 $2,400.00 4.98% $50,600.00 1.99%
35 50 10 50 2500 $2,500.00 4.94% $53,100.00 1.98%
36 53 10 50 2650 $2,650.00 4.99% $55,750.00 2.00%
37 55 10 50 2750 $2,750.00 4.93% $58,500.00 1.97%
38 58 10 50 2900 $2,900.00 4.96% $61,400.00 1.98%
39 61 10 50 3050 $3,050.00 4.97% $64,450.00 1.99%
40 64 10 50 3200 $3,200.00 4.97% $67,650.00 1.99%
41 67 10 50 3350 $3,350.00 4.95% $71,000.00 1.98%
42 71 10 50 3550 $3,550.00 5.00% $74,550.00 2.00%
43 74 10 50 3700 $3,700.00 4.96% $78,250.00 1.99%
44 78 10 50 3900 $3,900.00 4.98% $82,150.00 1.99%
45 82 10 50 4100 $4,100.00 4.99% $86,250.00 2.00%
46 86 10 50 4300 $4,300.00 4.99% $90,550.00 1.99%
47 90 10 50 4500 $4,500.00 4.97% $95,050.00 1.99%
48 95 10 50 4750 $4,750.00 5.00% $99,800.00 2.00%
49 99 10 50 4950 $4,950.00 4.96% $104,750.00 1.98%
50 104 10 50 5200 $5,200.00 4.96% $109,950.00 1.99%
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
Targeting an average of just 10 pips a day, or 50 pips per week, a disciplined trader could potentially build a
return on their original investment of over 1,000% in less than a year... and at no stage would they have risked
more than 2% on any single trade!
____________________________________________________________________
Risk:Reward: The essence of success.
Drawdown, and risk to reward ratios are two essential factors to consider when trading Forex. These two factors
very clearly indicate the overall risk exposure for all open positions.
Even if you’re using strategies that have winning strike rates over 50%, i.e. having a strategic winning edge,
Murphy’s Law dictates that sooner or later you’ll incur a losing streak. It’s therefore imperative to maintain risk
at minimum levels by using an optimized risk to reward ratio. Strict adherence to this principle will prevent you
from over-leveraging, and subsequently, emotion-based trading.
Let’s assume that you trade with 1:1 Risk:Reward, i.e. for every dollar you’re prepared to risk, you expect to
gain a dollar. Under normal conditions your strategy has a winning strike rate of 60%. The following table
illustrates your result after 30 trades, starting with a balance of $10,000 and risking 2% on each trade. As you
can see, a 60% strike rate combined with a 1:1 Risk/Reward guarantees a profit of $1,207, or a return on the
original balance of 12.07%.
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The Forex Odyssey Guide to
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But what if the strategy experienced an extended drawdown, and the winning strike rate over the
was reduced to just one in three?
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ssey Guide to
Financial Independence
But what if the strategy experienced an extended drawdown, and the winning strike rate over the
Ph: 1300 221 797
But what if the strategy experienced an extended drawdown, and the winning strike rate over the next 30 trades
8
Copyright © 2011 – Web:
The Forex Odyssey Guide to
Financial Independence
Not only has this drawdown caused a loss over the 30
profit. By ensuring that you implement a healthy Risk/Reward into your trading plan,
extended drawdowns, and maximize profits during the good times.
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ssey Guide to
Financial Independence
Not only has this drawdown caused a loss over the 30-trade period, but it has also wiped out all of your original
profit. By ensuring that you implement a healthy Risk/Reward into your trading plan, you will be able to weather
extended drawdowns, and maximize profits during the good times.
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trade period, but it has also wiped out all of your original
you will be able to weather
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Copyright © 2011 – Web:
The Forex Odyssey Guide to
Financial IndependenceThe following tables illustrate this point.
following example at 1:3 has still made a healthy profit of more than $1,955, and 19.5% ROI, despite losing
approximately 67% of trades.
Web: http://www.VertueTrading.com.au – Ph:
ssey Guide to
Financial Independence
The following tables illustrate this point. Whereas the previous example at 1:1 lost
xample at 1:3 has still made a healthy profit of more than $1,955, and 19.5% ROI, despite losing
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lost more than $1,861, the
xample at 1:3 has still made a healthy profit of more than $1,955, and 19.5% ROI, despite losing
10
Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
So, what if you trade with 1:3 Risk/Reward and achieve an average 50% winning strike rate? The following
table shows just how much better off you will be, batting for a higher return on each trade, rather than
concentrating solely on the strike rate.
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Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797
The Forex Odyssey Guide to
Financial Independence
A $7,700 profit and 77% better off over the same period, with only half of all trades being winners!
It is very difficult to consistently achieve a winning strike rate greater than 50%. Therefore, most professional
traders aim for a Risk/Reward of 1:2 as an absolute minimum, while 1:3 or even 1:4 is highly recommended.
The Forex Odyssey Trading System©
relies on a healthy Risk/Reward to maximize profits and minimize risk.
Because our trades mostly rely upon exiting on a trailing stop, it’s impossible to predict the actual Risk/Reward
prior to entry, however experience shows most FXO strategies average approximately 1:3 or greater.
Be under no illusions, the mechanics of trading are essentially very simple, but their application is somewhat
more difficult, unless you have a guide or mentor to follow. Markets change, and to be successful a trader must
be agile and adaptable, ready to face new challenges. That is why trading is such an enriching experience. It’s
not because we’re riding a winner to every post, but because it keeps us living. It keeps us thinking, learning,
participating.
The road to success is not a multi-lane freeway - it has an abundance of twists and turns, cracks and potholes.
But it also promises a rare destination. It’s up to you to navigate the obstacles.
Trading is a business like no other. What business requires such a small initial outlay, yet offers virtually
unlimited potential to increase income and wealth. Trading is a simple task, but human beings, and our inherent
psychological imperfections, conspire to make it difficult. The Forex Odyssey Trading System©
bridges this
anomaly by introducing new traders to the financial markets in a gentle fashion, eliminating much of the stress
via the use of cutting edge automatic trade management technology. Ultimately though, success or failure rests
in your hands. Commit, connect, and create your dream. Thousands of people around the world are already doing
it, so why not you?
I wish you the very best of luck, a happy life, and a rewarding trading career.
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