Forex Trading Explained

Bird Watching in Lion Country

A MILLION here ... A MILLION there
... and soon we're TALKING real money

Let me explain to you once and for all
how to lose your money in the forex market.

It still amazes me every time I search "forex trading" or "forex training" to see all the new forex trading "experts" out there. Another day, another expert, all vying to reach the top of the heap. And each one has got ANOTHER easy money-making forex trading system.

Doesn't it irritate you that once you probe a little deeper the "experts", "trainers" and "course providers" are mostly failed traders turned "mentors", or Internet marketers? Aren't you frustrated by the fact that you only find copies of web pages you have seen many times before? Rehashed in a new form, but with the same old stories.

Ring a bell?: "only ten pips a trade, 4 times a day and you are financially free"; "commission free trading"; "the banks are making billions in forex, why not you?"; "I'll show you how to make 200% in the time it takes a Ferrari to go from 0 -100"; "rake in the profits with leverage of 200:1"; "make money no matter which way the market goes"; "start with $250 in a mini account and turn it into millions " Lies, every one of them.

"If you tell lies about a product you will be found out – either by the government, which will prosecute you, or by the consumer, who will punish you by not buying your product a second time " is great advice given by the advertising guru David Ogilvy.

I have summarised only a few of the great forex lies above, but I have not yet told you the #1 lie that causes so many potentially successful forex traders to get lost in lion country even before they push the button to do the first trade. (By the way, if you didn't already know it let me be the first to tell you: nothing worth your time is easy or free. There are no free lunches. Let me repeat that: NOTHING IN LIFE THAT IS WORTHY OF YOUR ATTENTION, TIME AND ENERGY is free or easy!)

One of the problems that many people have in the forex (and other) markets is their wanting to buy, ready-made and off the shelf, a turnkey solution. That is, they want to buy someone else's system and just implement it and make money without thinking too hard. This attitude is all wrong. If it were that easy no one would work and everyone would trade. But these nicely packaged solutions, usually in the form of e-books, are real money spinners. That is why they will be pumped out, year after year. Different, format, different cover, same message. "It's easy, just buy me, I'll show you the way."

Successful traders develop their own system!

The best marketing wizards in the forex trading industry however are the market makers themselves, the forex brokers. With all the cash they make from the losers who fall victim to their advertising of tight spreads (as opposed to futures), no commissions (most losers in the stock market believes the commissions are killing them) and low margins (flip side of high leverage) and recently free training, free news, free analysis, they can afford to appear on every imaginable website with their banners, Google adwords, pop-ups and other advertisements.

Recently I had a discussion with a VP of one of the more prominent forex brokers about marketing and how they have to compete with the rest. Very casually he mentioned that really, this business was all about marketing (and that it was a very good business to be in!)

If you really want a surefire way to
lose your money in the forex market, allow
yourself to fall prey to a forex marketing wizard!

A PERSPECTIVE here ... a PERSPECTIVE there ... and soon YOU will be making REAL money!

Let me explain to you
once and for all how to make
real money with online forex trading.

Since it is lion country out there the first perspective that you must have regarding trading is where you slot into the food chain - where do you fit into the money chain as a retail trader? You have to understand your business (turning a profit) in the context of the business of the others in this money chain. They all feed off the forex market and its spin offs and so the outsider, you, often unwittinly find yourself last in the queue. There is an excellent book "Where are the Customers' Yachts - Or a Good hard look at Wall Street which takes a look at this phenomenon. You are amongst professionals: professional marketers, professional businessmen, professional market makers, professional dealers, professional analysts and advisors...

If you want to make money in the business of online forex trading you better have a well thought out business strategy and approach. Don't make that most common mistake and think this is all about finding a system to enter and exit trades. You will lose your shirt.

Forex trading is about being a professional at what you do.

To make it easy for you let me assure you that you don't need a financial degree or a doctoral dissertation in applied mathematics to be a successful trader. What you do need is a finely tuned and constantly developing common sense.

In a weird sort of way, many of the "follow-my-1-2-3-secret-system" systems all share some of the core ingredients of how to make money. Unfortunately it is what they don't have that makes the difference.

Not so long ago the forex market was the sole domain of institutions, banks, investment companies and very rich people. Then it came to our neighbourhood, and the little man could play. Obviously, if we want to trade and win in this market we must do some analysis of what's going on in the market, what makes the prices fluctuate and so forth.

A typical institution which specializes in forex trading / forex investment has an army of analysts and economists and traders who do fundamental analysis, technical analysis, quantitative analysis and flow analysis - all contributing to their efforts and their profits. They also have risk analysts, risk managers, portfolio supervisors and a host of assistants to all the big shots. And they don't only trade spot forex, but other instruments like options, forwards and swaps as well as interest rate instruments.

The two sectors that have most heavily invested in the collation of timely information are the military and the markets (financial institutions). You are probably aware of the common view amongst technical analysts that the current price contains all the necessary information in the market. In the forex market information is money. There is one little problem, most information in the forex market is quite fuzzy.

If you want to make money with online forex trading you better have a clear understanding of what information is contained in the current price as well as a few other things which I explain in Bird Watching in Lion Country. Here are some of those other things readers told me changed their fortunes in the forex market:

• Leverage, timing and randomness

• Technical, Fundamental and Relational Analysis

• Cost averaging and multiple entries

Leverage, timing and randomness

Most people I come across don't have the faintest clue what the phrase 100:1 or 200:1 leverage means. I give you the right perspective which will change your fixation with timing the market and seeing value in so-called signals which are, quite literally (you can do the tests yourself), as random as a coin-toss. The moment you understand how much time is wasted on such systems, you will be on track to start developing your own trading system that will work for you and not against you.

Technical, Fundamental and Relational Analysis

Another whopper of a lie is that the forex market is ideal for technical analysis. It is the least suitable of all the major markets for technical analysis. Don't fall for this marketing wizardry. It is very easy to concoct 1-2-3-you're-rich technical trading systems with fancy names. The people that know, the people who made real money in forex long before you and I joined the queue, simply used the most basic technical analysis in conjunction with fundamental and other types of analysis. I call this relational analysis. This is one of the main keys to success in the forex market.

Cost averaging and multiple entries

You know the market dictum "buy low, sell high". You subscribe to it. But do you execute this principle within the context of the recent price action? I very clearly explain to you what is low and what is high in the currency market - not always as simple as it seems - and how to build a trading system that is serious about this extremely important aspect of profitable trading.

A PROFIT here ... a PROFIT there ... and very soon YOU can be a REAL market wizard

The forex market is lion country. Bird watching in lion country can be a very rewarding, yet dangerous experience...

In Bird Watching in Lion Country I explain my take on the forex market. I do it based on my experience as a trader and mentor. My approach is "out-of-the-box". I subscribe to most market wisdom - with a twist. For instance "cut your losses and run your profits" is one of the most bandied about trading principles. From my outside-the-box approach I certainly do not differ from the principle that your first loss is your best loss. But if your "cut my losses" is in effect "stop-your-profits", well then you are going to have a hard time making money.

Frequently Asked Questions

Q: Is 'Bird Watching' a trading system or just another introduction to forex?
A: 'Bird Watching' is more than the sum of its parts. It is certainly the most practical introduction to the foreign exchange market you are likely to find. In addition to this it describes in great detail and in a simple style a practical trading system. The trading system provides a framework from which the absolute novice can be assured he does not start running in the wrong direction and the not-so-novice trader will have a completely new set of tools to assess what he has been doing wrong and what he should be doing.

Q: I am a complete novice to the excitement of forex, however I have stock and futures trading experience. Is 'Bird Watching' for me?
A: Absolutely. I wrote the book considering who the typical reader would be. Odds are very high that it would be someone with experience of trading now looking to see if the forex market is all it is cracked up to be.

Q: I am new to trading, and have investigated different markets and hundreds of sites. I find the forex market with its demo accounts, free graphs and tools very appealing. Will reading 'Bird Watching' be a proper guide to get started?
A: Judging by my readers response, the answer is yes. You will however have to understand that reading even the best books won't make you a successful trader. But I stand behind the content of Bird Watching and offer a proper mentor programme building on the basics described in Bird Watching.

Q: Dirk, I have finished 'Bird Watching' and discovered how silly I have been until now. But I have been burned badly. Can you help me to implement your 4 X 1 strategy?
A: Certainly. I have a proper mentoring programme which allow you a lot of freedom but will also keep you on track to continue doing the right things until everything falls in place.

Q: Everyone says 90% of traders fail. Is this true? How will reading 'Bird Watching' change this for me?
A: The statistic is from the futures markets, and I assume it is broadly true. It is however important that you clearly define success or failure. Losing money when you start to trade live even after months of demo trading is not necessarily failure. Having said that I describe in 'Bird Watching' what I believe are the main reasons why many do end up losing instead of making money early on and struggle to turn it around. There are basic mistakes that you don't associate with highly intelligent, rational, informed success-orientated people. If you know what these basic mistakes are and if you adapt your system to exclude them you must be in an excellent position to be a part of the successful traders, however small the percentage.

Q: Can one really make a living out fo forex trading? What is needed?
A: Yes. You must have enough capital in order not to have to be the best trader ever born and out-perform all other successful traders month after month. What is needed? Let me tell you what is not needed: P-R-E-S-S-U-R-E. You can't force the market to do anything at any specific time. You can only benefit from the choices you made at certain times when the market rewarded those choices. You need gritty determination. You need realism - bucket-loads of realism. You need an approach you instinctively trust even under adverse conditions. 'Bird Watching' describes such an approach. It is fundamentally sound and can be implemented in diverse ways by traders with exact opposite views of the market direction and both can be successful over time.

The goal: Automated Forex Trading

Q: Dirk, you make the point that successful traders start as discretionary traders and eventually when they trust themselves move on to be more mechanical and automate their successful systems. You also say in 'Bird Watching' that you are currently busy automating the 4 X 1 median trading strategy? How are things going?
A: Sure, I stand by that. Successful traders have a few things in common. Simplicity of the system is one. A broad understanding of the markets is another. They understand the deep-down basic simplicity of what gives them profits. They have / had a specific mentor (worthy of the name) and they first trade in a very discretionary manner before moving towards a more mechanical system (only after it paid profits over a long period of time) and some then move on to full automation. These days with the prolific pace of IT development it is even easier to move towards full automation, but you can't skip the basics.

Here are some encouraging results of what I am busy with:

This graph is the result of a back-tested system using my 4 X 1 strategy and the methodology described in Part 4 of Bird Watching in Lion Country: Low leverage, multiple entry, cut your profits and make sure a loss is a loss before you cut it. The return over a 22 month period is very encouraging.

• $100,000 investment
• Back tested over 22 months.
• Based on position size of 1:1 leverage
• Turned a net profit of $254,060
• The average per month return is 11.7%
• Success rate is 83%. (83 out of 100 trades close with a profit)

My approach to trading is discretionary and like most successful traders I have started to implement it more mechanically. You cannot change this order of things around. You first have to trust a system you understand the basics of. You will only trust the system after it turned real profits over an extended period of time. Then you can mechanize such a system. Your mechanization must not change the fundamentals of the system.

Bird Watching in Lion Country will put you on the right track to reap the rewards of your own efforts. I also stand behind what I describe in Bird Watching with an extended mentoring programme to assist you through the process to make money and a living from the forex market.

Q: Is the book available in hard copy?
A: No. It is only available as an instantly downloadable e-book in PDF format.

Click here to download your copy of Forex Trading Explained

A few more testimonials by satisfied readers

PS. You decide: Either yap from the porch, or run with the ‘big boys’.

Consider this: Only 25% of forex professionals use technical analysis as their primary tool in their ‘decision-making package’. The rest use it in a supporting role only. Were you told otherwise by a marketing wizard? Are you finding that your charts are not telling the full story? Timing off - again and again? Stop too close - again and again? Dollar fell on 'good' news - how could it - again?

This book helps you to think and trade like the market movers, the big banks, the institutions that affect price. If you go up against them, you will be lion food. The big boys learn to ‘listen’ to every word the market is telling them. You need to too. Bird Watching will teach you how.