Level 3 - RULES OF ENGAGEMENT, Forex Art of War (PDFDrive) PDF

Level 1: THE FIRST BATTLE, Forex Art of War

Disclaimer: Forex Art of War and Vance Williams believe
that customer should be aware of the risks associated with
over-the-counter, spot Forex. Forex trading is highly
speculative in nature which can mean currency prices may
become extremely volatile. Forex trading is highly
leveraged, since low margin deposits normally are
required, an extremely high degree of leverage is
obtainable in foreign exchange trading. A relatively small
market movement will have a proportionately larger impact
on the funds you have deposited. You may sustain a total
loss of your funds. Since the possibility of losing your
entire cash balance does exist, speculation in the Forex
market should only be conducted with risk capital you can
afford to lose which will not dramatically impact your
lifestyle.
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Copyright 2015, Vance Williams, Forex Art of War, All Rights Reserved www.forexartofwar.com Edition 10.13.15

Personal Note from Vance
This book represents the best of 11 years of my Forex trading and coaching. I created this
book prior to my retirement so that others would have a path to follow to reach success,
efficiently. Of course I’m not actually retiring, just shifting more of my time to my passion,
which is human potential and life coaching.
While I maintain the copyright on this book, you are welcome to share it with anyone you
like. The only thing I ask is that you share the entire book, and not in pieces. So as long
as you are sharing the entire book, you are welcome to pass it out as much as you
like.
Special note:
In this book, you will notice references to a community activity which is an important part of
skill development. To do this on your own, you will need a forum that enables you to create
your own topics and allows you to post pictures of your work. Create a forum which is your
name or moniker. Have each of your friends do the same. Then as you all post trades, give
each other feedback and follow what I show you in this book. I’ll provide a few more tips in
the back of this book. If you don’t have a team, you can check out the tools I created for
this purpose at www.forexartofwar.com
I wish you the very best on your journey!
Vance Williams
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An Introduction to Level 1
Most traders don't recognize their first battle. But since it is a battle of vision, it must be
won.
If you are going to win in trading, you have to understand how the game is really played.
The Forex culture fosters the belief that “if you have enough information, if you manage your
risk well, and if you are disciplined, you will win.”
That is absolutely TRUE. But it’s also like telling someone who is overweight “if you eat right
and exercise, you will lose weight.”
Is that a STRATEGY for losing weight? No. When an objective is truly important, you
will take the time to consider everything that can affect your success. Even when you
have a good plan, it is a “starting point.”
As you put your plan into practice, you discover critically important information about
yourself. Such as, you will find it’s better to not go to the store hungry. You might also
discover that you continue to eat after you are no longer hungry.
Personally, I discovered that even though I won’t jog, I won’t walk, I won’t stretch, I will get
beat up for an hour in Muay Thai Kick Boxing. Go figure. When I moved from my former
residence and could no longer practice the same discipline, I had to find something else that
I “would” do. “Eventually” I discovered that I’ll walk endlessly on the treadmill if the TV is on.
Bingo.
When I came to Forex trading in 2004, my advantage was my experience with self-
discipline. How do I get myself to make good choices? How do I consistently make good
choices? If our goal is to lose weight, our greatest difficulty is going to be dealing with “how
we feel.” We want something that is not good for us. The same is true with Forex trading.
You are going to find out sooner or later that your emotions will prevent you from making
money if you don’t have a strategy for making good decisions in spite of your emotions.
So this is your first and most important choice. “Do what you feel like doing.”
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Or…
“Learn to make good decisions regardless of the emotions you experience.”
I also like to think of this as operating proactively instead of reactively. Can I put off the
short term discomfort for the longer term rewards?
Those are your two choices.
One is easy and results in no profit and the loss of all of your money. The second requires
an effort and can enable you to reach your goal.
Make the right choice and you move forward. Make the wrong choice, and you end up
repeating the same activity over and over again for months or years. This was Einstein’s
definition of insanity, but people do it anyway. If you are ready to make the right choice, I
wrote this book for you.
The Forex "culture" encourages an ineffective vision of Forex trading. This is primarily due
to the fact that most information about Forex trading is provided by brokers in one way or
another. They are not in the training business. They make money when you trade a live
account. I’m not disparaging them. I’m grateful they make retail trading available for just
about anyone. But at the same time, the best place to buy a car is probably not from an oil
company. They want you to use oil, and have little incentive to make a great car. The
bottom line is that if you want to succeed in Forex trading, you absolutely, positively must
stop “following,” and think completely for yourself. Get in the habit of “going after the best
information possible for making decisions.” The best information is often hidden behind a
“symbol,” as you will soon see.

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Chapter 1: Getting Started
If you are a member of my community, be sure to access the sessions I recorded,

specifically going over the content in this book. I would encourage you NOT to jump ahead.
If you try to run before you learn to walk, you risk being disappointed.
Whether you are in my community or part of another, make it a habit to ask a

question in your forum anytime you have one.
The goal of this first section (level 1) is to provide you with the tools and basic knowledge,
so that you can build a solid foundation for high probability trading.
This guide is intended to show you the fastest and most efficient way to get started trading
the Forex market. I’m not going to explain trading in a traditional sequence. Instead, we
are going to get right into the charts, and you can learn as you go. The information is
presented in the order it will be used. If you need charts or a trading platform, we provide
those for free. We include videos that explain their use. You will find all of this in the
member area.
Forex Art of War is a holistic strategy for winning that strives to take into account everything
that affects your ability to make consistent profit. I consider this first section to be the first
level of knowledge, skill, and application. To illustrate: Before you can express an idea in a
sentence, you must be able to write the words. To write words you must first learn the
letters and basic rules for spelling.
For now, just practice the basics.
Here are the specific learning goals of Level 1:
 Tools such as charts and trading platform

 Vocabulary such as PIPs and Stop Loss
 Basic trading logic that teaches trends, barrier, entry and exit
 Implementing a simple trading plan, setting the trade on auto-pilot and leaving it
alone
I have been trading and training others for over ten years. I have worked with thousands of
aspiring traders, and had the privilege of working with some truly great traders. I love what I
do because it is challenging and because I can help people to improve. People who strive
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to reach further in their life inspire me. It’s why I am transitioning to life coach over the
next two years.
There are literally tens of thousands of pieces of information you “can” learn about the Forex
market. I’m only going to focus on the essential things that you "need" to learn. I believe
that you cannot make “more” profit until you learn to make “some” profit. So that is an
important principle applied in this book and the subsequent training.
Basic Logic
As traders, we are anticipating what will happen in the future. How do we do this?
There is a simple logic in trading. Logic can be viewed and defined in many ways. I like to
keep things simple. When I refer to logic, I’m referring to information from the past that can
be used to anticipate what is likely to happen in the future.
Human behavior is repetitive. When you look, you see it everywhere. We tend to shop at
the same places, and buy the same food. We know when traffic will be congested on our
roadways. While I have written extensively on this subject, suffice it to say that not only do
we repeat the same behaviors over and over again, we have difficulty changing a behavior
even when we make a conscious effort. Just remember your struggle the last time that you
set out on a new diet or exercise program.
There is a deeper reason for our human frailty. The same mathematical sequence we see
everywhere in nature is also in us.
That is why we can rely on historical information to anticipate what is “likely” to happen in
the future. Grocery stores even set prices based on your behavior.
When I talk about repetitive patterns, I’m not just talking about patterns you hear about like
trends, head and shoulders, candle patterns, double tops, etc., etc. I’m talking about
patterns throughout the entire decision process. We know traders like to trade trends.
Where do they like to get in? Where is the best place for you to get in? Where is the best
place to put your stop loss and profit target?
There are patterns (logic) for all of these decisions.
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As buyers buy and sellers sell in the Forex market, they create patterns. These patterns
show us what traders are doing over and over again. So when we see the pattern next
time, we know what is likely to happen again.
The Forex
I’m going to be brief in my explanations because there is so much that you “don’t need to
know.”
Forex is short for Foreign Exchange. It’s the largest market in the world, currently at
approximately 5 trillion USD a day in volume. I think of money as the life blood of business
and the Forex as the circulatory system. It is a network of 1000’s of banks around the world
with no central location. No one is in charge. The purpose of the Forex market is to
determine a fair price of exchange between two currencies. The price is determined using
the principle of supply and demand. If there are more buyers at any given moment, price is
moving up. If there are more sellers, price is moving down.
What is the Forex to me? A stream of data. That data comes into my software and tells me
what price is doing.
Trading Software
Trading software takes in the data feed about buying and selling around the world and can
be used in many different ways.
In 2001, platforms became very stable so that we were able to trade from our personal
computers. So the industry or retail Forex trading (you and me) is still in its infancy.
Brokers or dealers provide most of the data feeds, charting software and trading platforms.
These should be free of charge. Most brokers are willing to supply these to you (free of
charge) in hopes that you will eventually trade a live account with them. Be sure you only
open a practice account, NOT a live account. If you are a member of my community, you
will find free software and tutorials there.
Do not open a real money account until you “actually” know how to trade.
If you open a live account prematurely, even if you intend not to trade it, there is a 90%
chance (at least) that you will trade it and that you will lose all of your money.
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For those of you who are MAC users, you will need to use Windows Parallels or a program
like it to take full advantage of the tools available to a Forex trader. I know MAC users don’t
like to hear it, but MAC is only 10-12% of the PC market, so those who write software write
it for the bigger market first.
The good news is that programs work pretty well using Parallels. You can use web based
software on MAC but functions will be limited, though adequate.
With modern software, you can execute trades directly from your charts. I recommend a
desktop trading platform for new traders because it has functions that enable you to learn
details you don’t know.
Please make a note that some user codes expire every 30 days. So your charts and trading
platform will become inaccessible when a code expires. Simply register for a new user
code in the free member area once you are a member. Use that new code to login to your
charts and trading platform, and you are good to go again.
Charts usually display military time as 00:00-23:00. To calculate the time, just subtract 12
hours. So if you see it is the 14:00 candle and you are not familiar with military time,
subtract 12 hours and you know that is 2PM.
It can be beneficial to set your charts to New York, ET if they are adjustable. This will make
it easier for you to read other trader posts, and make it easier for others to review something
you share. For example, if a trader writes that they entered the trade at 13:00. This could
cause confusion if your charts are set to a different time zone.
If you do prefer a different time zone, that's okay, because what I'm showing you will work
for any time zone or charts.
I recommend Fibonacci retracement tool settings of 23.6, 38.2, 50, 61.8 and 76.4. These
are used to measure the natural retracement areas of price waves, and will be important
later. You will find instructions regarding in the charting tutorials within the community area.
Give yourself time to practice and become familiar with the charts and trading platform. I’m
going to give you a specific method (rules) in this guide so that you can practice. This will
help you develop proficiency with the tools, a familiarity with the vocabulary we traders use,
and you’ll be going through the motions of applying good trading logic.
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Chapter 2: Market Language
There is definitely a vocabulary or language to trading; a few words and terms. I think the
fastest way to learn is to begin using the charts and trading platform. You find out quickly
what you don’t know or are not sure about.
When you come across a word or term you don’t know, just ask or look it up. I’ll briefly
define most of the words and terms that are important.
Currencies are traded in pairs. So when we trade, we trade a pair such as the EUR/USD.
The currency on the left is the “base” currency. The currency on the right is the “quoted”
currency. So that means when you look at a EUR/USD chart, you are “seeing” the Euro
value move up and down on the chart. The price on the right side of the chart is the USD.
So that chart is telling you how much US Dollars it takes to buy one Euro.
You don’t really need to know that to trade, though (ha).
All you need to know is this: If you buy and price goes up, you make money. If you buy and
price goes down, you lose money. If you sell, and price goes down, you make money. If
you sell and price goes up, you lose money. Buying or selling is the exact same thing
because of the great liquidity in this market. That just means that there are almost always
buyers and sellers available. That is very different from stocks where price could be
plummeting and you cannot close the trade because there are no buyers.
What you need to know is this: buying and selling is the same exact action. This can be
confusing for new traders. We understand that if we buy something and the price goes up
we make money. If the price goes down, we lose money. But how do we comprehend
selling something and the price going up or down and making or losing money? It’s
because currencies are traded in pairs. As one goes up in price, the other is going down by
exactly that same amount. So imagine you are trading the EUR/USD. If you buy the
EUR/USD and it goes up, you make money. Simple enough. But what if you sell it? Think
of it this way, if it helps. Selling the EUR/USD is the same thing as buying the USD/EUR.
So just change their places, and you are back to buying!
Another thing you need to know is that price movement is measure in PIPs. Just think of it
as a currency measurement just like quarters, nickels, dimes and cents. Only it is even
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smaller. In US Dollars, a PIP is one 10,000th of a cent (there are actually no pennies in US
currency, we just got in the habit of calling a one cent coin a penny).
Now you don’t need to know all of that. All you need to know is that a PIP is the last two
digits (decimal places) on the chart. Many brokers have switched to fractional PIPs to be
more competitive. So for example, if your EUR/USD displays like this 1.3882 you have
whole PIPS in the last two decimal places (82). If you have fractional PIPs (as I now do), it
may be displayed 1.38827. That means that the last digit on the right (7) is 1/10 of a PIP.
Or 82.7 PIPs using the last three digits.
My suggestion as a new trader is to simply ignore the 5th decimal place for now. You
really do not need to complicate the process further at this point.
So as Forex traders, we are only watching the value in PIPs. You don’t even need to know
what PIP stands for. It used to represent Price Interest Percentage. It has become popular
to call it Percentage in Point (popular among a very small group).
While you are new, stick with US Dollar pairs. It will save you confusion. For example, if
you are trading the EUR/GBP (called a cross pair), there is no US Dollar in the pair. If you
were trading US Dollars, you would need to determine the actual PIP value in US Dollars.
No need to concern yourself with that now.
Keep in mind that there are so many things that you can learn about this market. But if you
want to learn fast, focus on only the essentials. Then learn the other stuff as you go. Keep
trading as simple as possible!
I think it is useful for even a new trader to know that most of the volume in the Forex market
is the US Dollar, Euro, Great British Pound, and Yen. USD 40%, Euro 20%, Pound 12%,
and Yen 8%. Those are approximate enough to show you that 80% of all movement in this
market is in those four currencies, with much greater volume with the EUR and USD.
The Yen tends to be a little more erratic. So when you are new, avoid that currency. From
time to time, the Bank of Japan does its best to manipulate that currency. This is called an
intervention. An intervention is when a central bank, a group of central banks, or policy
makers take action to alter the price of a currency.
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Chapter 3: Setting Up Your Charts
For a new trader, I recommend practicing with EUR/USD, GBP/USD, and then minor pairs
AUD/USD and NZD/USD. You don’t need a lot of pairs to practice. The minors (AU, NU)
are only there for practice. The logic I teach you will work best on the GBP/USD and
EUR/USD. With all other pairs, there will be other factors which will influence your
probability of winning. For example, commodity prices play a huge role in the price of the
AUD/USD and NZD/USD. For now, just use them for practice.
In 2008, the future of the financial world became very uncertain. Will the Euro have a
future? Will the US dollar remain the world's reserve currency? The very existence of
these questions cast a shadow of doubt on long term positions. So for years, I focused on
trends that are created and run their course on much shorter time frames. In September
2014, the world markets began to compete again, with central bank interest rates
telegraphing divergence. That was followed by Japan in October engaging in an “every
man for himself” philosophy. This was followed the Swiss bank making a unilateral and
surprising decision in January 2015 that stunned the currency markets. So there has never
been a better time to trade Forex. Competitive markets create more opportunity and
make the market more predictable for a skilled trader.
When you are newer, I think the most important thing to do is practice. You need to develop
basic market proficiency with tools, logic and language.
 Tools such as charts and trading platform

 Language such as PIPs and Stop Loss
 Basic trading logic that teaches trends, barrier, entry and exit
This is what you need to “get down” in the first level, as I see it. Be careful not to take on too
much at once or you will be easily overwhelmed. Just focus on getting proficient at those
three areas first.
To accomplish this, I’m going to give you something to practice.
First setup your charts so that you have EUR/USD, GBP/USD, AUD/USD, and NZD/USD.
Set each chart to be 30 minute candles. You will find a complete tutorial on downloading
and using the charts in my community area, but many brokers are very helpful with their free
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software. I recommend 30 minute candles because they will give you more opportunity to
practice.
Always keep in mind that a trader does not look for a way to enter a trade. A trader
waits until the right opportunity presents itself and then strikes. There is a very big
difference. Make this a part of your mindset at the very beginning.
I have important reasons for recommending the following. Place a 21 and 55 EMA on each
of the charts. These are called exponential moving averages. It doesn’t really matter how
or why they work. All that matters is how we are going to use them.
Now you should have four (4) 30min charts with 21 and 55 EMAs.
I recommend “candlestick charts.” They are the most common charts being used. Once
you get to know me, you will see that I’m always just watching what the trend is doing,
watching what everyone else is doing, and based on what they do, I form high probability
conclusions. So if most traders are using candlestick charts, that’s what I want to be using,
too. That’s simple logic.
Here are the reasons I ask you to setup your charts in this way:
 More trading opportunities

 Learn to follow a trend
 Learn to see a pullback
 Learn to see a barrier
 Learn to enter and exit trades
If you are ever going to make consistent profits trading Forex, you have to be able to
successfully execute this logic. So even though we are not focusing on making profits right
now, you are going to be applying much of the logic that does make you profits.
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Your chart should look something like this.
You can adjust the colors however you like. I have a black background (in this picture), but
you can use whatever you want. Some traders prefer to use different colors for candles.
Some need to use different colors because of the unique way their eyes (brains) process
information. Whatever the case, it really doesn’t matter what the colors are, as long as you
know what they represent.
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Chapter 4: Basic Chart Data
About Candles
The time of the chart is on the bottom, left to right. On my chart, you see blue and red
candles. The blue candles represent buyers and the red candles represent sellers. We
could make these candles represent any time frame.
When you see a completed red candle that means there were more sellers than buyers in
that 30 minute period. Candles have bodies, wicks, and tails. A candle is created by the
high, low, open and close prices. The tail is the vertical line extending from the body down,
and the lowest point of that tail is the lowest price that candle reached during that period.
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The vertical line on the top of the candle is the wick. The rectangular part of the candle is
called the body. If the body is blue, then the candle began (opened) on the lowest part of
the body, and ended (closed) at the
highest part of the body. If the candle is
red (as pictured), then price opened on
the highest part of the body and closed at
the lowest part of the body. These are
quite a few details that I am throwing out
at you, but it is information you need to
know.
So let’s think about some of that. If

there were three blue candles in a row,
which way does price have to be going?
It can only be going up. The inverse is
true of red candles.
Sometimes it will be necessary for you to find out what the high, low, open or close is. You
can eye ball this, but the more accurate way to do it is to use the cross hairs and Display
Data Box. On most charts, when
you left click, and line up the
vertical axis on any candle, a
box will pop up. That box will tell
you all of the specific information
you might want about that
candle. It will also tell you the
positions of moving averages
and other indicators.
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Chapter 5: Trends, Pullbacks, Introduction to Barriers
The TREND
As I mentioned in the beginning, all of our decisions are based on logic. That logic is the
result of a study of historic patterns that are created by buyers and sellers. There are chart
patterns, candle patterns, indicator patterns, and even other not so well known patterns.
The most repeated pattern on the charts is what we call a “trend.” In

trader speak, a trend is when you see price moving in a particular
direction. In this picture on the left, price is “trending” down.
The reason we want to know about the trend and learn to recognize it
first is because MOST traders want to trade in the direction of the trend.
So YOU should be looking to trade in the direction of the trend.
A trend is any clear price move up or down. In this picture (under), price
is not trending, it is “sideways.”
In this picture to the left, I want to bring your attention to something else.
The more experience you get, the less you will need to rely on
indicators. The yellow lines are the 21 and 55 EMAs. They are moving
averages. 90%+ of the time, they are going to give you an accurate read
on the trend direction. That’s good enough when you are learning how
trading works. So trending is easy for you. If the faster moving average
is on top, you only buy. If the faster moving average is on the bottom,
you only sell. Note that the “faster moving average” changes direction
faster. If it helps, make the slower moving average (55) a dotted line.
Don’t overcomplicate this. Even some of the most skilled and successful
traders use moving averages. Why? Because it gives them something
“definitive” on which to base decisions. The more experience you get,
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the more you will appreciate the value of good definition. So we can see
in this picture that price is making a steady move down. We can also just
look at the moving averages and see that they are apart and down. In
later levels, I’ll increase the reliability to 100%.
We are now building a trading method for practice that will consist of
 Trend
 Pullback to barrier
 Entry and exits
 Sticking with your plan
So far we have explored “trend".
Pullbacks
The barrier is just as important as the trend. We said that “traders like to trade in the
direction of the trend.” We also know from repeated observation that traders like to enter
that trend when price “pulls back.” Because of this market psychology, you will see a
pattern repeating over and over again. You will see a “trend,” you will see a pullback, and
then you will see price push again in the direction of that trend. Look at the picture
below. Follow the white lines. Price trends and pulls back, trends and pulls back… So the
next key is “how do we know WHEN” to get back on in the direction of the trend?
We see this happening over and over again, so the question is this: where will we get in?
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Barriers
We know from looking at charts for years and tens of thousands of hours that traders like to
enter a trend at a good barrier. A barrier is also called support or resistance, also referred
to as areas of likely “supply or demand.”
Resistance is a barrier that is above price, and
Support is a barrier that is below price (demand
below price, supply above). So you will need to
know how to draw horizontal lines on your charts.
When price trends and then goes sideways, as you
see on the left, this is called “consolidation.”
There is a subtle difference between the use of the words sideways and consolidation.
They will both be sideways. But sideways movement can be caused by periods of
uncertainty. Consolidation is usually the result of very bullish or bearish price movement,
and the bigger money needs to take profit and regain some capital for the next move up or
down. You can learn more about that nuance later.
There is another type of barrier (support or resistance) that is called “historic barrier.” This
refers to a price “area” where price has trouble going below or above. I write “price area”
because it is usually not a specific price, but a “range” of prices.
Historic Barriers: As you can see, I am using a rectangle to show this “area” where price
has struggled to get above or get below “in the past.” You are looking for “multiple touches.”
This takes some practice. So practice.
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In level 3, I will show you how to see when historic areas of resistance and support are
more or less meaningful.
Whether it is a historic barrier, or consolidations, both are barriers, both are support or
resistance. Our goal is to anticipate where price is likely to “bounce.”
It’s not too early for me to put it another way. You are looking for areas where we are likely
to encounter buyers or sellers. You will hear us referring to this as “orders.” As in, “there
are probably some buy orders sitting there.”
I’m going to share one more technique that you will need to practice for identifying barriers.
Remember to connect with other traders, review work of traders at your level, and above all,
ask questions when you have one. I can still remember how nice it was to have community
when learning these techniques.
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Chapter 6: The Fibonacci Retracement Tool Basics
Once you see your trend, and that trend “begins” to “pullback,” this is where we will look for
our trade. The word pullback is also called “retracement.” Retracement refers specifically
to the Fibonacci Retracement Tool levels. A pullback can refer to any counter movement of
price.
In the beginning of this book, I

gave you Fibonacci settings of
23.6, 38.2, 50, 61.8, and 76.4.
This is what that tool looks like
all by itself. We start at the
beginning of the trend, and
then draw it to the end of the
trend. It is extremely valuable
because there are repetitive
patterns here, too. This tool
can help us to identify a good
barrier.
First you need a trend. When that trend “starts to pullback,” that’s when you can use the
Fibonacci retracement tool. From here on out I’ll refer to it as the “Fib tool.” Once we draw
it, I’ll refer to it as
“Fib.” As you can
see if you follow the
arrows, price is
going “sideways,”
and then it begins to
“trend down.” In a
downtrend, we
would want to “sell.”
But we want to sell
when price pulls
back to a good
barrier (green). The Fib can be one “confirmation” that we have a good barrier.
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The Fib is always drawn from the left to right. You know it is time to think about drawing
a fib because price begins moving counter to the trend. You’ll see the opposite color
candles like the one at the white arrow. The previous candle was blue at one point.
You start the Fib where the trend

begins down.
23.6% and 38.2% are natural profit

taking levels, and 50% and 61.8
are correction levels. No need to
get more into it than that at this
time.
I suppose I could write a book on

why this works, but the historical
pattern is this: 38.2, 50, 61.8, and
76.4 can be barriers indicating
where price will turn. I don’t pay
attention to the 23.6 barrier as a
potential place for a trade. All too often it moves to 38.2 anyway, and a shallow entry can
increase the probability of your stop loss being reached. So I would like to see price move
back to 38.2 before I consider a trade. That said, feel free to enter at any barrier at this
point.
Now you have two things to look for at a barrier. 1. A Fibonacci retracement level OR 2. A
historic barrier. Once again, at this level, you are learning these key things:
 Proficiency with Charts and Trading Platform

 How to see a trend
 How to see when price is “pulling back.”
 How to enter and exit a trade.
 Sticking with your plan
When you have the basics down, your next focus should be "defining the right high
probability setup for you." Most traders spend years of wasted time at this level, making the
mistakes of thinking that "if I just know enough about the market, I will succeed." This is just
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a mistake. Your second level can be accomplished in a single month if you know what your
job is at that second step. He's exactly what you should learn to do next (at the next level)
1. Learn the elements involved in any high probability trade

2. Learn to balance those elements
3. Learn to manage risk
4. Identify Your Personal Setup
Now I will discuss an example of the trend, pullback and barrier in an uptrend.
Look at how the trend moves up (faster moving average is above), and then begins to a
pullback the other way (back down). As it does, I draw a fib from the start of the trend to the
top of the trend. Now I’m looking for price to come down and reach at least the 38.2 Fib
level. When price reaches my barrier, I can buy. Just do the best you can drawing your
Fib for now where you think the trend starts up. I developed a technique called New Wave
Fibonacci Drawing (you will learn in level 2) that will enable to you draw Fibs with greater
accuracy, but for now, I suggest you keep it simple and monitor color change.
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Sometimes you get “two” barriers lining up at the same time. So take a look at the picture
above again, and then look at this picture below. In the picture below, notice the barrier with
the three white arrows. This was the former resistance area that price broke above. It is
“easy” to see. Then you can see at the green arrow that this barrier coincides with the
former barrier. When two barriers coincide, this is called “confluence.” Over time, I have
found confluence to be more coincidental than useful, so probably not that important to use.
What is useful later is the increased comfort level you get when you can get your stop
behind one of these former levels.
For now, just look for a historic barrier like you see at the three white arrows OR a 38.2-76.4
Fib level). In other words, you only need “one” barrier to practice (at this time). Do
your best not to focus on winning trades right now. Comparing this to baseball, you are not
attempting to “get on base” right now. You are just learning to “swing the bat.” Once you
get the basics down, you will practice getting on base.

23

Chapter 7: Entry and Exits
Entry is about where you enter the trade. I’ll keep entry and exit very simple so that you
can move very fast to the next level of trading.
We will be entering right at our barrier. So when you see price trending, you will look for the
23.6, 38.2, 50%, 61.8, 76.4 or a former barrier to. As you see here, the moment price pulls
back to any level, we buy. That is the green line, and I suggest you just use a green line
from now on to illustrate your buy price. At this level, simply buy or sell 4 contracts (40k).
Contracts are also sometimes referred to as “lots.” In the next level, we’ll learn how to limit
our risk by a specific percentage. For now, just buy or sell 4 contracts in your (mini) practice
account (this assumes you are using a 10k-50k demo account). For now, practice entering
at “any” barrier. You are going through important motions. In level 2, we wait for at least a
38.2 pullback, but at this beginner level, as I wrote, go ahead and just enter at the 23.6, as
well.
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An “exit” is your profit target or stop loss. First let’s discuss your stop loss. For now,
simply place your stop loss 30 pips away from your entry. Again, do not be concerned with
winning or losing. I’m teaching you good form for “swinging a baseball bat,” so to speak.
We are just practicing good form while learning the basics. So if you are buying, as in this
picture, your stop loss is placed 30 PIPs below your entry price. If you were selling, your
stop loss would be placed 30 PIPs above your entry price.
It is important that you enter your stop loss immediately on the trading platform. You must
always be in the habit of doing this. The stop loss limits your overall risk in every trade. It is
crucial you do this for many reasons. The most important reason is this, and I suggest you
write it down and pin it up on your wall: “Each trade must be thought of as a random
event.” What that means is that “anything can happen.” No matter how smart or
knowledgeable we get, no matter how great our trading setup is, at any given moment,
anything can happen. An oil pipeline can get attacked. Fears of a bank collapse can
emerge. A bank can make a surprise announcement. The possibilities are numerous.
We don’t have to monitor everything that is happening in the world. We just have to trade
our plan and always know that there is no way we can ever prepare for every possibility.
Nor do we need to. We make money from a “series of trades,” not a single trade. This is
reality. This is just how it is. It is only natural to be disappointed when we lose and excited
25

when we win. But in time, this will change. It will be a while, but it will change. So you
MUST ALWAYS trade with a stop loss limiting your risk.
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For our target, let’s also keep this really simple. Your plan will be to make 15 PIPs.
Prior to 2014, it was necessary to learn to factor the spreads into all of our
calculations. Spreads have dropped in many cases to .5, making this no longer an
issue. So I chose to drop that requirement at the beginning level. Once you move to
live trading in Level 4, it will become more important to account for spreads.
As I wrote, don’t worry about your “total risk” at this time. Later we will limit our risk to 2-
2.5% maximum of our equity when we trade. This adds more complication to your practice.
For now, when you trade, just buy or sell 40k in contracts (lots).
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Chapter 8: Application
Stick with Your Plan
The final piece is "sticking with your plan." One day, you want to be so detached from the
outcome of the trade that trading is just like setting a timer. If the noodles take 13 minutes,
you set the timer, focus on something else, and come back when the timer goes off. The
goal of the Forex Art of War program is "developing the skill to make consistent profit." I
believe that you cannot make "more" until you first learn to make "some." Focusing only on
consistent profit, and knowing how to do that is the fastest path to real success.
Keep in mind that your brain is very much used to processing information in a different way.
I’ll be discussing this in more detail. But clearly the beginning of processing information in a
new way is practicing the right strategy (pattern).
When you take a trade, you want to set your stop loss and profit target in the trading
platform, and once you do that, your job is over. Price is either going to hit your stop, or hit
your target. So practice this over and over. If you find yourself making changes during the
trade, then I suggest that you turn your computer off and come back later. You are training
your mind to understand that there is nothing for you to do. You'll see what I mean. The
mind thinks that there is something to do. You need to train yourself that once you place
your entry and exits points, your job is over.
Beginner Psychology: Self-Discipline (the ability to delay immediate gratification)
At Ted, you can view a video titled, Don’t eat the Marshmallow (just go to www.Ted.com
and search). The video shows you one way that future success can be predicted. A
professor at Stanford took children who were only four years old, put them in a room and
gave them each a marshmallow. He said, if you wait 15 minutes, I’ll give you a second
marshmallow. But if you take even one bite of the first marshmallow during that time, you
will not get the second marshmallow. At the end of the 15 minutes, about 33% of the
children refrained from eating the marshmallow.
14 years later, they did a follow up study. They found that 100% of the kids who did not eat
the marshmallow were successful (doing well in school, good relationships). MOST of the
kids who did eat the marshmallow were not okay. In trouble, poor grades, some dropped
out, not going to college, and so on.
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This is an important principle because whenever you set out to change an existing behavior
(like making decisions in a different way), you are going to run into discomfort (brain’s
resistance to change/fear or discomfort). Don’t eat the marshmallow.
In summary, trading is a marathon, not a sprint. You must become proficient at language,
basic tools, and basic logic. Once you do, then you will be ready for more. Always
remember “it’s not about what the market does, it’s about what you do.” Always keep
in mind that your success depends on your ability to make good decisions, not on what you
see happening in the market. Do not chase trades. Learn to let the trade come to you.
Remember to write any questions, any time in your personal forum.
Congratulations on a great start, and I wish you the very best on your journey!
VERY IMPORTANT: Below, you will find the Level 1 trading plan. When you carry out
the objectives in that plan, you can then move to Level 2. PRINT THE PLAN!
Your most important step is to become familiar with the Level 1 Trading Plan and look for a
trade. Very often traders overcomplicate this level. If you are totally new, you will want to
become familiar with the tools and language, but in terms of carrying out an objective
trading, getting past level 1 could not be easier. Just follow the plan, and post your trade in
your personal form.
Look for feedback from other team members. Did you get right? Do you need to improve
something? Remember that there are no grades. You either “got it” or you don’t. If you
find yourself hesitating to post, just remember that there is no growth without
suffering/pain/discomfort. If you find yourself disappointed, remember the same. I have
personally had a policy for years: If I make mistake, I look to quickly see if there is anything
I can learn from it. If I can great, if I can’t, okay. Then I get back on the horse and move
forward. I have no time for shame.
To be good, you must master your craft. But to be great, you must master yourself. Most
of the time, the trick is to accept a little bit of temporary discomfort in order to gain the bigger
rewards (Don’t eat the marshmallow). And remember that the secret is practice.

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Level 1 Trading Plan
Level 1 Trading Plan Revision 4 ‐ Using only 30 minute charts. EU, GU, NU, AU pairs
Chart ‐ Use only a 30 minute chart
Currency Pairs ‐ EUR/USD (EU), GBP/USD (GU), AUD/USD (AU) NZD/USD (NU)
Trend
If faster moving average (21 EMA) is above slower moving average (55 EMA), only buy.
If faster moving average is below, only sell.
Pullback/Barriers
Need only one barrier (any barrier)
Can use Fibonacci retracement levels 23.6‐76.4 (no need to be precise in Level 1)
Can use historic support or resistance (illustrate with rectangle)
Entry
A. Enter when price reaches your barrier (market order)
B. Use a buy or sell entry limit (pending order) – called “entry order” on other chart services.
Exits Stop Loss: 30 pips below your buy price, or 30 pips above sell price.
Profit Target: 15 PIPs from entry
Additional Rules
 Take one trade at a time
 Trade 40 contracts (40K)
 Once you enter, set the stop and limit orders and do not touch it. Let price reach your stop or
limit. Stick To The Plan
 Observe spreads, but ignore them in your calculations

Post Trade in Your Personal Forum
Label chart prices, describe reason for entering
Trade, post before price reaches stop loss or profit target if you can.
Watch for feedback from others
30
Level 2: SEIZE THE HIGH GROUND, Forex Art of War

Introduction to level 2
The Level 2 information is what most people are after when they enter Forex trading. In a
nutshell, it is about your ability to read the market. But as powerful as the knowledge, tools,
and techniques are in this section, the real results come from application. I’ll tell you
what I told every trader I coached over the years: I am not your teacher. Experience is
your teacher. If you want to save a lot of time, also be wise. Wisdom is your ability to
reflect on your experience and make better choices for your future.
When I was a very young man, I became determined to succeed such that money was
never going to be an issue for me. I think I began working on that dream even in my teens.
I struck out into the world at 18, not knowing how little I actually knew. In the first years, I
struggled, always struggled. Then I had some sporadic success, followed by painfully dry
spells. But it was not until I was 26 that I first tasted what I wanted so much. My success
was the result of a lot of effort, and a few really important ideas. Many of those ideas and
others I learned years later are in this book. But one of the ideas I want to share with you
first is this one: It changed my world. “Make your first dollar first.” This was not the first
principle I ever applied, but it might have been the first time I became fully conscious that I
was making a choice to apply a principle. I could understand it. I could see what made it a
principle, and I could see why it worked.
It’s the idea that your first measure of success is that point in time when you have
made one more dollar than you have spent since the beginning. Now think about it: If
you know the goal is to make your first dollar, do you really need a new desk? If you don’t,
buying a new desk makes it take longer to reach your first goal. But it isn’t just about items
you spend money on. It’s also how you focus your time. You will make your first dollar
faster, if you focus your activity on those tasks which actually move you closer to your goal.
For example, if you are in sales, talking to new people is, by far, the most important activity
you can engage in.
Now let’s apply this principle to Forex trading. Because anyone can get lucky and make
their first dollar their very first day, we cannot measure the first dollar in the same way we
would a traditional business. In addition, we must define what that goal is. Before we do
that, I’d like to share some additional perspective with you.
Years from now, you will come to see that when it comes to skill and execution, there is
fundamentally no difference at all between making $5 a day and making $500 a day –
or $5000 a day for that matter.
How much you make per day is purely a function of how much capital you have. That said,
there can also be other factors that can change our behavior when we jump from trading
$500 to trading $50,000. They key words there are “a change in behavior.” While I will
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share ideas that lend themselves to advanced psychology, the goals of this book are
centered on “the skill of consistent profit making.”
What you are engaged in here is a powerful learning system based on 2500 year old
principles found in Sun Tzu’s Art of War. It was also necessary for me to add about five
that are fitting for our day and age. But I used the principles to guide the development of
the program. You don’t need to know the principles. I’m just sharing that it was the
guidance of the principles that led me to the difficult solutions. Once I had the solution, it
was obvious that learning Forex is really no different from learning anything else.
Anyway, I want to give you what I call the core three principles that will help you with your
initial obstacles.
1. You are in Command. Anything you experience in life is the result of your choices.
2. Know Your Objective Well – at any given moment time, there is only one thing that
we should focus our attention on.
3. Be Vigilant – your current objective should be important enough that you can put
everything else aside and give it all you’ve got. We don’t always get what we
want, but we always get what we need. The power is evident in the last part of
that sentence.
So believing you are responsible for what happens in life is essential for success. This one
belief is the difference between the 80% who never succeed, and the 20% who have
varying degrees of success depending on the strategy that they employ. If you do have
this belief, then it’s just a matter of knowing what to do next. Then you give it your best.
Then you learn from experience.
With that in mind, as you are studying this course and applying it, always be mindful of your
objective, and do your best to stay focused on it. If you are not sure what your objective is,
ask.
So “make your first dollar first.” That is to say, limit your focus to a worthy first goal, and
design your activity around that goal. If you cannot make $50 a week, you can never make
$5000. It’s natural to desire “more,” but if you don’t make “some” first, you will never make
“more.”
I am going to teach you how you actually make more by targeting less. Yes the old adage
is true, “less is more.”
I’m explaining this in hopes that you will limit your expectation to consistent profit making
only. Those who do not rarely succeed. A focus on anything else leads to a quest for
“short cuts.” And we know short cuts in business lead back to where we started.
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In addition I said to know your current objectives, and part of being vigilant is being
conscious that you are going to have emotional ups and downs for a long time to come.
This is all natural. The trick is to make the right decision regardless of how you feel.
That’s part of what is means to be vigilant.
Okay on to the next important element of preparation. There is no trading plan in Level 2.
There is in every other level. But not in level 2. There is a plan, but it is not a trading plan.
There is a very important reason you want to do it in this way.
One of the most frequent mistakes made by Forex traders is that they try to copy
someone else. In another section, I’m going to show you how silly this is. But for now, I
want to just expose you to the idea that your brain processes information differently from
every other person. You could stand behind a great hitter and try to emulate everything he
does… OR… you could learn the logic (behavior) common to all great hitters, copy the
logic, and then improve on how YOU do it.
There is a common proximity to the plate. Common position of the hands on the bat. A
common direction the eyes are looking. The knees slightly bent are also a common
behavior. And we could look at all that they have in common, and it is this that we would
practice. If we have a coach, or the help of our fellow players (our trading community),
when we swing, others can give us feedback on how we can improve.
Just so you know, I have a mentor I meet with regularly, who is an expert in the field of
psychology. I tell him what I am experiencing, what I’m doing, and he gives me feedback. I
always sought the guidance of mentors who could share powerful ideas about me. That’s a
little different. In that scenario, they were teaching me ideas. With my current mentoring, it
is about how I am applying the information. It’s about my application of the ideas, in
addition to the ideas.
That is built into the community. The best advice I can give you? Be authentic. Be
willing to fail in front of others. It’s not actually failure, after all. Your ability IS WHAT IT IS.
If you can accept that, you will post what you are actually doing in real time, and you will
receive the best feedback. I’d love to spend more time on that subject, but I’ll move on.
There is another trap that traders fall into. It doesn’t take much at all to find yourself in the
wrong mindset. What am I talking about? I’m talking about the mistake of imagining that
“if I just know enough about the market, I will succeed.”
Again, this is the introduction, so I want to be brief and say that there is a great
preoccupation with “knowledge.” Let me turn the lights on in this way: who do you think
would be able to hit a baseball better? 1. Someone who studied one hundred books on
hitting a baseball and practiced for one hour? 2. Someone who studied one book and
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practiced for 100 hours? The answer is pretty obvious in those terms, is it not? And yet
90% of the traders you will see out there in the world are focused on knowledge, not
experience. I’ll touch on why this is happening in a future section. Always remember that
the mind can only think in “symbols.” So just about all mind function we are accustomed to
using is “imaginary.” Only your experience is real.
Back to our subject… There is no trading plan in level 2. Just like in the example of
emulating the “common behavior” of all baseball players, that is what you are going to do in
level 2. I’m going to give you the complete logic. Then you are going to do your best to
apply that logic. But it goes without saying that YOU are going to be applying the logic, and
not a single trader is going to do it in the same way. There are no right or wrong answers.
There is just what you know now, what you can do now, and what you need to learn or do
next. I often tell people that the difference between what I do and just about every other
Forex training in the world is simple: just about everything else is education. Education is
you watching me. Training/coaching is me watching you. Take a moment and think
about real life examples of this and you will see quickly that this is true. So the community
aspect of this program IS your most valuable tool.
Now let’s introduce you to what you will be learning.
When I trade, I see only a few of things, really. The buyers or sellers have an
advantage. I can measure the strength of that advantage. I can see how I can get in
and out of the trade with good risk management. Like writing a beautiful song, before
you can get there, you first have to learn the alphabet, the rules of language, which words
symbolize your intent best, and so on. But eventually, you will become an unconscious
competent. But you have to learn to walk before you can run, as they say.
In the early parts of level 2, I will be discussing the ideas behind our decisions, such as logic
and probabilities. Then I will move towards high probability trading piece by piece. In level
1, I gave you simple rules for using the Fibonacci. In level 2, I will give you specific rules for
using this tool with greater accuracy, and in such a way that will enable you to measure
buyer and seller strength and weakness.
You will learn the complete logic for making good trading decisions, and you will be applying
that knowledge in such a way that it is personalized to you from the very beginning.
And finally, I’ll show you exactly what to do to optimize your experience by applying what
you have learned and getting feedback from the community.
That’s a small sample of what you are going to learn.
Do not try to master trading in Level 2. Try to master carrying out the level 2 objectives and
the rest will follow.
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Level 2 Objectives
 Study this course material
 Focus only on applying complete logic by taking trades in your forum
 Look for feedback on your trade
 Ask questions when they arise.
 Be patient
 Focus on the process, not the end result
If you go through the information once or twice and are still uncertain, let me assure you that
an imperfect effort today is always more valuable than a more perfect effort
tomorrow. That means you are better off just “taking a swing” and getting feedback than
you are studying.
The Goal of Level 2
The goal of level 2 is for YOU to SEE a setup consistently that represents the
application of complete logic. You might have 90% of it, but continue to make a mistake
here and there. Perhaps you didn’t quite understand ROA. Maybe you aren’t quite getting
what a “trend advance” really is. Perhaps you are not seeing the “New Waves” well yet.
It’s better not to rush. Once you get all of that down and see the trading setups that contain
the complete logic, it will be apparent in your most recent 4-8 trades. When that happens,
others in the community will tell you.
When that happens, it is time for you to move to level 3. I suggest that you don’t jump
ahead. I have designed this course specifically so that you can learn at your current level of
ability and understanding, and at your own pace.
I wish you the very best on your journey in level 2. I can tell you with confidence that the
ideas you are about to learn are powerful. Everything I teach you, I teach you from
experience. You can do this. Just keep in mind that the way our results affect us in Forex
trading is different from ordinary life. In the end, the most difficult part is dealing with how
we feel. To help with this, I suggest abandoning language that triggers emotion. Instead of
calling it a win or a loss, just say it hit your target or stop loss. Try not to celebrate your wins
or mourn your losses. You will feel something, and accept that. Just allow it to be and
continue on to the next setup.
Now, let’s get started with high probability trading. Let’s do this on a higher, more effective
level of consciousness. Get ready to part ways with superstition and things you don’t
understand. Let’s begin using the best information possible in order to make our decisions.
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Chapter 1: Logic, Probabilities, Risk
Probabilities
Understanding probabilities and how to use them are crucial to trading success. When I say
“probability,” I’m referring to your ability to calculate the likelihood of an event in the future.
If you think this might be difficult, consider that you do this all day long, every day, usually
without even thinking about it. When you are approaching an intersection in your car, and
the light turns yellow, you begin calculating probabilities without even thinking about it.
It goes something like this: You look at the distance you need to travel to get to the other
side of the intersection. You take into consideration your speed and the distance to get to
the other side. In less than one second, you determine if it’s probably a good idea to
continue forward, or to step on the brakes. If you are inexperienced, you have a third option
(lol) to step on the gas.
So you are doing this all of the time.
Now I am going to tell you something very important about the mindset and worldview of a
trader. An experienced trader knows that he/she has no idea what’s going to happen in the
next five minutes or five seconds. Why? Because the next moment in time is nothing but a
probability for us.
In ordinary life, it usually “feels” like we know what is going to happen five seconds from
now, but a trader has come to see and understand that there’s no way to be certain of
what’s about to happen. It’s just a probability based on your past experience.
The reason why this is critically important to understand is because in ordinary life, we make
assumptions all of the time without realizing how often our assumptions are incorrect. I’m
going to suggest to you that about 50% of the time, our assumptions are incorrect. Why are
we so bad at this? The simple answer is that we aren’t often held accountable for our
assumptions. Therefore there are no consequences, and no incentive to learn from the
mistake.
In addition, poor assumptions create poor expectations, and poor expectations create all
kinds of psychological issues which distort how we see and understand our relationship to
the information being presented to us.
So try to imagine that you are seeing the future as it is. It is totally uncertain. That can be a
little uncomfortable if you are new to the idea, but it “is the way life really is.”
Try to imagine having no expectations. So now you are approaching the next moment
totally with an open mind.
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It’s important that we get into the habit of thinking about the future as a probability. It’s
uncertain, and that’s okay. From this point of view, we can then use simple logic to put the
probabilities of winning in our favor.
As I said, you are assessing probabilities all of the time. In fact, you mastered this a long
time ago. You use your past experience to form the best conclusions about what you
should do and anticipate what is going to happen next.
That’s what we do in Forex trading. If you are new, you don’t have much trading
experience. But the good news is that there’s a record of past experience of the market that
you can draw upon to know what has happened in the past.
As you have already seen in the previous section of this book, as traders we use charts.
What are charts, really?
The charts are buyer and seller orders that show up in the form of pattern. As patterns form
over time, the behavior of the buyers and sellers is revealed.
Some behaviors repeat more often than others. And it is this information which enables us
to anticipate what will happen in the future. It’s how you do it in ordinary life, and it’s how
we do it as traders.
We just need information about what has happened in the past. Can we rely on past
information? ABSOLUTELY!
This is all possible because HUMAN BEINGS REPEAT THE SAME BEHAVIORS OVER
AND OVER AGAIN.
In fact, we’re such creatures of habit that even when we make a conscious effort to change
any behavior, we find it difficult to do. Just think about the last time you made a New Year’s
resolution, are attempted to changing eating or exercise habits.
But this tendency for human beings to repeat past behavior is good news for us as traders.
You can be confident that people will continue to repeat the same behaviors over and over
again. In fact, they can’t stop themselves. Any meaningful change takes a very long
time or is usually contingent upon some kind of catastrophe.
It’s not too early to let you know that my goal in level 2 is to guide you to patterns that repeat
with enough regularity that they will keep your winning potential above 70%. Once you
have the complete logic down, you will be able to go back in time and confirm that this is an
accurate assessment of history. But don’t do this the other way around. Don’t formulate a
trading strategy based on “back testing (how many traders fail).”
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In other words, wait until you have your setup with complete logic, and THEN go back and
validate that it is correct. Back test to validate. You cannot back test to create. It would
require a lot of writing on my part to explain why this is. As my friends would tell you, I
would love to write it, and it would be no effort at all. But to keep this brief and on point, I’ll
just let you learn that it time, from experience.
I’m going to teach you patterns that are reliable. If you were here for the past 11 years like
me, you would know this to be true. But even if you are completely new, what I’m going to
show you is so full of common sense (can be confirmed by prior life experience), that it will
be very easy to accept.
The main point is this: you can rely on what I am showing you. In time, you will know this.
Why? Because you will see the patterns repeating over and over again in your own
experience.
Usually, when we are new to trading, when we think about winning, we think about choosing
the right direction that price will go - perhaps choosing the right direction without price hitting
our stop loss before it reaches our profit target. But having this focus tends to keep us
preoccupied with those two issues. So we end up spending most of our time trying to
anticipate price direction and read barriers well enough to give our stop loss enough room.
But your actual probability of winning a trade involves more parts. The probability of
winning is determined by all of the parts, working in a relationship with one another,
as I’m going to show you.
How do we know which direction price is likely to move? A pattern.
How do we know the potential the movement has? A pattern.
You get the idea.
What creates these patterns? Simple: Repetitive human behavior.
We are so predictable that we might blush is someone skilled pointed this out to us.
Consider that in everyday life, you are actually being taken advantage of by businesses like
grocery stores. I could show you many ways this is going on. For example, it’s
conventional wisdom that if you buy a bigger package (bulk), you get a better price.
However if you look closely at the price of flour, you notice that some of the bigger
packages are more expensive (2 lb. vs. 1 lb.) Why?
Because computer algorithms monitor your buying habits. They pick prices up a bit to see if
there is a change in behavior. If there is not, they bump prices up again. This process
revealed that they can charge more for the bigger package of flour than the smaller.
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Why? Because you “assume” the bigger package is cheaper, equating greater quantity with
greater value. And really this is happening everywhere now.
They also know that if they give you three prices to choose from. A low price, a high price,
and one in the middle; if this is not a special occasion, you are going to choose the middle
price. If you are pressed for cash, you will choose the lower price. We have gotten into
such of a habit of buying the middle price, that now, very often, quality and middle
price might not equate at all. You might be getting the bottom shelf product at the middle
shelf price. They try it. If you keep buying it, they just keep it there and keep banking the
additional profits.
It is well known that convenience stores charge more, because they are more convenient
than going into the grocery store. But the major chains are in the game, too, with a new
angle. I was in a chain hardware store some time back. I was there to buy light bulbs.
The first section I came to had all types of light bulbs. I can say that looking at the prices, I
wondered where the bargains were. They are all quite expensive. I was curious and went a
little farther down the aisle. I found almost a duplicate set of lightbulbs at better prices.
You see, the chains have figured out how to use your past behavior to make more money.
They use the idea of convenience and have two displays. One for the first light bulbs you
come to, and then another display for the more conscientious shopper.
Even the price you pay for many products is determined by your behavior. But specifically,
that’s why you see prices that vary by up to 40 cents per gallon in different parts of the
same exact city.
Their goal is to maximize what they can charge, based on your behavior. If there is a sharp
drop, they lower prices to restore demand and then they go through the cycle of inching the
prices up again. And somehow, the prices rarely get back to the former low 
I could go on with many examples of how businesses are capitalizing on your behavior.
I’m telling you all of this because when it comes to price, I want you to know that you can
totally rely on past information (human behavior) to anticipate what is likely to happen in the
future. Again, when you look at charts, you are not really looking at candles. What you are
really looking at are symbols that represent human behavior. I don’t really see candles
anymore. I just see behavior, and that is why I call this approach Price Logic Trading. It’s
because we are focused on the behavior, not the symbols of behavior. Let me give you a
real life example of the difference.
Perhaps someone was taught that if they walk under a ladder, it is seven years of bad luck.
You are conscious that there is a ladder. You are conscious that you should not walk under
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it. But you are not conscious of the real reason why. The real intent of this “story” is to
teach you very fast not to walk under ladders when someone is standing up high on one,
because you could knock the ladder over and injure the person. But as someone who is
superstitious, you lack the understanding of why you are making these choices. And this is
what Forex traders are like that learn and trade “systems.” The system is akin superstition.
It’s easy to check and see if this is the case simply by asking the trader to explain what they
see.
Now that’s not to say that you cannot be successful trading systems. The truth is that
systems just have a lower win/loss ratio. Too low for an inexperienced trader. I’ll explain
later why you will be disabled psychologically if your winning percentage is too low. The
reason why systems have a lower win/loss ratio is that they are often rigid and unable to
account for hourly, daily, or even weekly or monthly changes in market conditions.
I’m not attempting to teach you a great insight here. I just want to make a small crack in
conventional thinking. I want you to be thinking about using the absolute best information
possible to make your decisions. I want you to avoid walking under a ladder because it
is dangerous for the person standing on it, not because you might get seven years of
bad luck.
Let’s focus more on probabilities. You know that a coin has two sides: heads and tails. So
on a coin flip, our probability of guessing whether it will land on heads or tails is 50%. This,
by the way is how we define gambling. My personal opinion is that if your probability of
winning is 50% or less, and you have poor risk management, you are gambling. After all, if
the odds are not in your favor, why are you taking the risk in the first place?
Psychologically, the bigger the risk and the bigger the potential reward, the more
exciting it is; hence the allure of gambling.
Good decisions involve taking calculated risk when the probabilities of winning are in your
favor. Of course winning is only one part of the formula for making consistent profit. You
also have to manage risk and be able to execute. But let’s take this one step at a time.
It’s fascinating when you think about it. I can show you how to turn a 65% probability setup
into an 80% setup. And this is an opportunity to point out an important principle. You will
find that when you “increase” something in one area, it must “decrease” in another.
Specifically, let’s use the example above. If the trade is a 65% probability, I can do two
simple things to increase the probability of winning. I can increase the size of the stop loss
and decrease the distance price must travel to the target. So my wins get smaller and my
losses get bigger. This will immediately change the probability of the outcome. But what do
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I give up? I give up profit if my losses are too big and my wins are too small. We’ll be
discussing this in future parts.
Let me give you another example. Let’s say I am intending to buy as price pulls back to an
area. I set my stop, my entry and my target prices. I look at that trade using my experience
and say to you: that has a 65% chance of winning (how do I know? A lot of experience).
We can improve your probability of winning by lowering the entry price and the target.
Here’s that principle again. Since you increased your probability of winning, you have to
give up something. What is it? You must give up trade frequency. In other words, if you
are going to “wait for a better price” in order to increase your probability of winning, then you
will also need to be okay if price doesn’t pull back to your entry and just leaves without you.
So let’s review some of the important ideas covered in this section.
 You are already a Pro at calculating probabilities
 We are able to put the odds in our favor using history
 History is created on the charts in the form of patterns
 Those patterns are created by the repetitive behavior of PEOPLE
 You can rely on this information
Logic
We’ve been talking about logic all along in the previous section, but here I wanted to give
logic its own section to get very specific about the definition we will be using.
Since there are many different definitions, let me just give you my definition and explain it.
The logic we use comes directly from the most repeated human behavior. So if I show
you a pattern on the chart that repeats 80% of the time, we would consider that GREAT
logic on which to build your decision. Now there are many parts to a trading decision, as we
shall see. All of they should be based in good or great logic.
Good logic to me is 70% or higher. Great logic is 80% or higher.
Some of you might be wondering: how high of a probability of winning can one achieve?
Well quite high, actually. In fact, a master trader once told me that if he used only the best
of criteria for his trades, the previous year, he would have won every single trade. Note
that he “would have.” He didn’t actually take them. But the catch was this: there were only
four. And again, they were looked at in hindsight. You cannot rely on anything being 100%
when it comes to probabilities. But it is not out of the question that you could achieve 90%
with a lot of experience.
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But as you might guess, to achieve that “gain” you must “give up” something. And what you
give up is frequency. In essence, you will use more criteria and only wait for the best of
circumstances – when every factor considered is “great” logic. And because of this, you
won’t have very many trading opportunities.
So as we shall see, there is always a BALANCE to be achieved between the variables
involved in trading decisions, and even your personality plays an important role.
What I’m going to say next is very important: logic comes from us observing repetitive
human behavior, and every single part of the decision has logic associated with it. The time
of day, the currency pair, the stop price, the entry price, the target price. Even your
experience level has a value of logic to it. If you are new and inexperienced, we MUST
balance out that trading factor using even better criteria for the complete setup. It’s just
logical, is it not (lol)?
As you continue forward, try to be mindful that candles, candle patterns, and chart patterns
are “symbols” of behavior, no different from words. If you do this long enough, I’ll put a
crack in the “symbolic” reality, and you will see the real human behavior behind it.
Eventually you will see “resistance and support” as just obvious areas where sellers
or buyers might have their orders parked.
If you understood that last sentence, congratulations. If you didn’t understand the sentence,
no worries, it will come with time. But the difference is that if you don’t understand it, your
reality (what you see, the information you use) is based on more crude symbolism. If you
do understand it, you are closer to observing the underlying logic (behavior).
Why would we know that there are likely to be orders there? There are almost always
orders sitting at obvious barriers. In many ways, it is a self-fulfilling prophesy. But now or
one day, you will stop seeing candles and patterns, and you will instead just see the
repetitive behavior. Supply, demand, support, resistance – all obvious areas where there
are orders parked. Why? There are almost always orders parked near an obvious
barrier. Some are stops to close out trades, and some are new positions.
Probabilities? Our probability of winning is determined by our ability to see and apply good,
complete logic. I have been using the word “complete.” I would like to now change to a
better symbol. From here forward, I will use the word “holistic.” I tend to think of holistic as
“all of the parts.”
Just so you know, the greatest advantage Sun Tzu had over his enemies was simple: He
had a holistic approach. He said that it took six months to plan a single battle. He took six
months to consider every factor that would affect the outcome of any battle.
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Risk
I want to touch on risk in this section. One of the challenges to learning and teaching is
making sure that we understand one another (as best we can).
Risk, like other words in English is a word that is spelled the same, but often used to
describe very different ideas. Knowing the definitions of some of them will help you have a
quicker understanding of what we mean when we speak.
Sometimes we use the word RISK to describe the risk of our capital at any given moment in
time. We call this “risk to equity,” which we will be covering later. To a certain extent, there
is catastrophic risk to capital. This is if something unexpected and unprecedented happens
in the market, usually. But you can also be at catastrophic risk of capital if you trade
without a stop loss (a “no no”), or if you trade without discipline (in a live account).
The word RISK is also used in this way. It “felt risky.” This is a form of what we actually call
“risk tolerance.” It’s how circumstances (more equity, uncertain circumstances) make us
feel more at risk. “For me, risk tolerance refers specifically to the moment your
feelings interfere with your execution, causing a change in behavior.
Risk is also used to symbolize Risk to Reward. This is the relationship between the
percentage that you may lose, and the percentage you may gain. This is a very important
concept, but here I just want you to know that it is another way the word “risk” is used.
There is another way we use the word risk, and I wanted to bring your attention to this here:
“The risk was higher because the setup came just before the release of non-farm
employment data.”
This use of the word RISK is symbolizing a factor that lowers your probability of winning. We
could just as easily say that “the probability of winning is lower.” It’s the same thing as
saying that the “risk is higher.” In this context, saying “the probability is lower” is probably a
better way to communicate. But as an instructor, there are some ideas that people just
won’t let go of, and you just have to accept it.
For example, you will notice that we write the words risk to reward with the word “risk”
appearing first in the term. But when we actually write the numbers, it is reversed. .75:1 is
showing a reward of .75 but a risk of 1.
And I could give you a number of examples. I tried, for example to get traders to refer to the
GBP/JPY as the GJ. Why? Because it is the first letter of each of the three. But they
thought of it as the Great British Pound vs. the Yen. So Great/Yen or GY.
Oh well. Pick your battles, lol. No sense in arguing for this, since it really doesn’t
matter.
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But on topic, if we see price coming into an area of resistance, if everything else looks good,
I might say, the barrier increases the “risk,” so you need to get in at a better price.
As you can see, learning to trade Forex can be tricky. Do you understand what I actually
said? The only way to know is to check. And that, again emphasizes the importance of
the community.
On that note, you will notice that as you practice techniques and the application of logic,
when you get feedback and get it right, your confidence will grow. This is important.
Most traders out in the world don’t have that. Since they don’t get much feedback, the only
way to gain any confidence is to trade with consistent success. That’s a long time to go
without building any confidence. So take that to heart.
Beginner Trading Psychology
I get asked all of the time which books I would recommend. Hands down, I would suggest
The Four Agreements, by Don Miguel Ruiz. After more than 20 years in the field of
personal development, in my opinion it is one of the most helpful books of our generation.
Pay particular attention to “no assumptions.” When you read those words, I want you to
think “no expectations.” I suggest you begin thinking about the value of expectations in life.
And even if you decide they have value in ordinary life, know that they “have to go,” when it
comes to Forex trading. More on psychology, later.
Always remember that I have no spiritual, philosophical, or religious agenda. Don’t’ believe
anything I say. Apply the information and you will see the value for yourself.
Just about every idea I share with you can be validated by your own life experience, and I
would encourage you to test this as you study and apply the program.
Okay so let’s move forward. I would love to take you on more of a journey into the
psychology, but that’s enough for now. Since you are already a master of calculating
probabilities and risk, let’s learn about the building blocks and variables you will be using
here.
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LEVEL 2: Time/Timing
Charts
We are not making any changes to the charts in level 2. They should be setup exactly as
they were in level 1. Simple enough? You are welcome to practice with more pairs if you
like. But as I told you, the AUD/USD and NZD/USD are for practice only. The EUR/USD
and GBP/USD are chosen specifically because they are the biggest (Yen excepted). There
is a logic to size and dominance. If you think of a sports team, there are 1-3 players that
usually dominate. So while there are many parts that will affect the outcome, the 1-3 are a
significant influence. The Dollar, Euro, and London hub (Pound) are like that.
Time is Relative
Now that you are in the level 2 material, I need to touch a little bit on the dimension of time.
When it comes to using charts with different time frames, there is no perfect or “right” set of
charts. I want you to get used to the word “story.” The momentum traders have their story.
Those who show up to find daily trends have their story. Those who look for bigger trends
have their own story, too. There is even a lot of money moving around that isn’t even
speculating at all. And yet all of that activity all over the world is happening right on the
same chart.
One trader can be buying, and another trader selling, enter at the same time, and both win
their trades!
Two traders can enter at the same time, go the same direction, and have almost the same
trade – and yet one of the traders makes consistent profit, and the other trader loses money
consistently.
Here’s where I’m going with this: No one can tell you the best chart to use. They can all
work. But you have to pick something that is based in good logic and begin.
Let me give you an idea about why I chose the charts I did. If we used four hour charts,
they would provide us great opportunities with longer term trends, or even a market that was
caught in a bigger range. However, we might only get 1 or 2 high probability trades each
month. If we focused on daily charts, we would get far fewer trades, yet. You could argue
that you could increase the number of currency pairs, but that would require substantially
more learning and experience with the variables of each currency pair, and each would
have their own important nuances. So that option is out for now.
Now let’s go to the other extreme. Imagine a one minute chart, and lots of movement. So
you would identify a trend on the 1 minute, and enter. But you would find that very often,
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bigger money, focused on longer time frames would just mow you over when they decided
they were going “the other way.”
Without telling the whole story, let me tell you essentially why I have chosen the charts I
have. There are two primary stories we are following in Forex trading as of the time I have
been writing this (June 2015), and this has been the case since September of 2014. The
first story is about the rising Dollar and the falling Euro. It has to do with the US being
optimistic about the future, and the Eurozone experiencing nearly the opposite. It’s about
the US stopping quantitative easing and the Eurozone starting up. It has to do with the
expectation of the Fed raising interest rates, while the Eurozone stays the same. This story
has a view of 8-24 months down the road. Now that doesn’t mean that price will do that for
8 or 24 months. What it means is that the information we have (now), which formulates our
picture of the Euro and Dollar relationship causes us to have a VISION about that far out. A
“story” is, in essence, “a vision.”
This drives what I call the “medium term trade.” So all of the information surrounding that 8-
24 month vision is a “story.”
It could be argued that there is a “long term” story, but being someone who has been on the
front lines where there “was no future” at all, I’m not ready to do that just yet. Besides, I
really don’t think it is necessary.
There is another story. This is about what is happening today, or this week, about data
being released today or in the coming week. All of this information also forms into a story
that provides “fundamental” conclusions about whether price is likely to move up or move
down. As a reminder, when you see or hear the word “fundamentals,” you should think
“news.” This is in addition to the “technicals” which refer to the behavior patterns we read
on the charts.
As you might guess, the 4 hour and daily charts would be keying on the 8-24 month story.
The shorter term charts (30 min and 5 min) would key on the daily/weekly story.
Since we need frequency (of trades), especially when we are gaining experience, we have
to focus on the daily/weekly story, while keeping an eye on the medium term story
unfolding. Don’t worry, I’m going to bring all of this together by the time we are done.
Okay now that you have those two stories in mind (which drive price), now we need to
decide which time frame we are going to use.
Instead of explaining everything, let me just say that the daily/weekly story unfolds very
nicely on the 30 minute chart, and the 21 and 55 EMA’s help you to see part of that story
while you are still learning. Could you see the same story on the 15 minute chart? Sure,
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but you’d probably need to change the periods on the moving averages. I’m saying that
you just have to pick one.
I would also add that there is a “price resolution” element involved with time frames as
well. For example, when I talk about your optimal profit target, we will look to see where the
candle body closed at the end of the five minute period. This shows a bit of a struggle
between buyers and sellers during that period, where they reached a 50/50 level of
buying/selling at the end of that period.
Using the same technique, I can tell you with conviction that when price resolves on a 30
minute period (candle), it can even be more telling. For example, if price has been in a
range, and moves out of that range, it is a higher probability advantage if price “closes”
outside of that range in a 30 minute period.
It shows that the seller or buyers had more power outside of the range. So if this was a 30
minute candle, for example, closing below an important level, the sellers definitely have an
edge. If however, you are at minute 16 and the sellers have it pushed out, you can’t really
see that edge. Very often, the buyers will just push price back up into the range in the next
14 minutes.
Note: Please pause to notice something very important that I just did in the italicized
area above. While we could make that knowledge above into a symbol in a system
(sell if the 30 minute candle closes below the support), this would be us trading
blindly. You need to see what is actually going on with the buyers/sellers, not
looking for some short cut of symbols to chase a quick buck.
These are not my only observations. But we see the trend, key levels of supply and
demand, important 1-7 day ranges, and so on – all on the 30 minute chart.
Some have asked me, “Can you do this on a one hour chart?”
Sure but by the time the one hour candle completes, the opportunity to trade might have
already played out. So again, you see, longer time frame, fewer trading opportunities.
Now we also use the 5 minute chart for something very specific. And I should tell you that I
do not have four 30 minute charts and four 5 minute charts. I have four charts, and when I
see something I like on the 30 minute, I “zoom in” with the 5 minute chart to take a closer
look at the behavior.
So I want to be very clear. I am NOT trading a 5 minute chart. Think of it like flying at a
higher altitude in a helicopter. You might see movement in a direction, but can’t quite make
out what it is. So you fly lower and you can see more detail about the movement. I could
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use a 4 minute or 6 minute. It doesn’t matter. I am just looking at the buyer/seller
movement (behavior).
So that’s what I mean by time being “relative.”
Timing is a factor, but “time” is not.
I’m going to explain when and how we use the 1 minute chart in Level 3. Why not now? I
would encourage you to practice the tools I give you in level 2. You need a “base of
operation” for experience. I want you to know how well the 5 minute chart works, and when
it tends not to work (from experience) before I explain when to use the 1 minute chart. But
so you don’t feel baited, it will be necessary (later) to move to a 1 minute chart when price is
moving very fast. One of the doors to the paralysis of analysis waits for you in this very
space, so let’s deal with that later.
Why am I explaining so much? If you knew how FAR “lost in space” most traders are, you
wouldn’t ask that question.
You can’t make money copying another trader or system. There is no machine you can put
money into and have profits pop out the other side (auto-trading).
Consider that 99% of the traders never have a good trading plan written, and you can’t
make money without one. It’s not because it is not possible. It’s because it is not “doable”
for most people. I’ll explain why, later. Moreover, I can tell if a person is trading a plan or
not, very fast, just by watching or listening to them for a few minutes. The inconsistency in
decisions, and the way they talk make it very obvious.
When we get to New Wave Fibonacci drawing here in level 2, I’ll be explaining exactly how
we use the 5 minute chart. That being the case, I won’t spend any more time on that subject
here. But have a little faith for now: the thirty minute chart will work very nicely for you,
providing great information for high probability trading setups.
Time of Day and Trading Hours
Time of day for me is a “market condition.” But it doesn’t change much, so we’ll just get it
out of the way right here. I told you that the USD, Euro, and Pound (speculators) were the
major players (influence).
You will also find, in time, that WHEN those traders are active are also the best times of the
day to trade. This I also consider logic because it is linked directly to the behavior of the
people who move the market the most.
Now you will get differing opinions on this, but I’ll tell you what my experience has taught
me. London is the best session to trade, and it runs from 3AM-11AM ET. Because of
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where I live, I trade at the US Open, which is at about 8:30AM ET. So this is the period
where you get a cross-over of the London and US markets. I actually live in the Pacific
Time zone, so I get up pretty early. Since January of this year, I found that I can get up at
5AM, get to the charts just before US data is released at 8:30, and be ready for trading.
It is estimated that about 40% of all Forex transactions occur out of the London Hub.
If you can trade for a period during this time, that would be ideal. This is because the
market is going to move with greater consistency (more consistent behavior) than at any
other time of the day. I prefer the US open also because usually when the Pound traders
choose a direction (from 3AM forward), price has a preference to continue in that direction.
I call this London Sentiment, which we will be adding in the level 3 material. Again, let’s
not take on too much at one time, and keep in mind that ALL OF THIS looks a little different
with the RIGHT EXPERIENCE.
Now should you trade the entire London session? I wouldn’t recommend it. This is
probably a good time to let you in on a little known fact: A full time trader only needs to
spend 30 minutes maximum trading. As a fully skilled trader, it takes about 15 minutes
to get up to speed and get all of your tools up. As a skilled and experienced trader, you are
looking for something very specific. It is either there or it is not. If there is the potential of a
setup, you set alerts to call your phone and let you know. You could mull around for an
hour, and really, you could spend only 10 minutes a day (on average).
I have known some great traders, and some who spend 8 or more hours at the charts. In
the end, almost all of them changed. I only know of two who consistently sit at charts
waiting for a short term setup for a few hours.
So you CAN do it. But you probably won’t end up doing it. If you NEED action, take up free
online poker. Or do what I did, and start playing Destiny (currently level 32 Warlock, PS4)
or something that feeds that need. Just so you know, I have never been a gamer. I started
playing Destiny in February of this year, and just fell in love with it. But the point is that you
have to know yourself and you have to know your market. And then, of course you must
manage your life. There are not endless trading opportunities. The guy who tells you that
you can scalp (pick off 1-5 PIPs at a time) is probably making money from your activity in
some way. Or he is a true believer that isn’t actually making much money.
In a later section, I’ll explain the range of “noise.” Because of this range, you can’t manage
your risk well at all targeting under 8 PIPs or so.
I referred to being able to tell a lot from how people speak. When you are really, really good
at Forex trading, it should be boring – not exciting at all. How do we know this? It’s basic
psychology.
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Excitement is generated by a central conflict. You have the “thing hoped for,” and the
“struggle to get it.” As you draw closer it becomes more exciting. As you move farther
away, you become disappointed. When you get the thing you wanted, it is no longer
exciting. There is no central conflict to create the emotion. Therefore, when you get good,
there will be nothing exciting about it at all.
When new traders asked how much time should they set aside for this work, I always
suggest the same thing: 2 hours per day, four days per week. Much more than that, and
your mind is just going to be on overload. Naturally you can put in a little more time taking
initial classes and even watching older ones. But my suggestion is to be careful not to
overdo it. It’s just not necessary, and you run the risk of creating an imbalance with family
or work if you spend too much time at the charts.
Let me put it to you this way: There are only so many high probability trading opportunities.
You don’t create them with your skill. Each element of your setup is based on some piece
of logic. If the logic is not there, you cannot MAKE the logic be present with more
skill.
Yes, with more of the RIGHT EXPERIENCE, you will have more opportunity. But it is not
knowledge or observation that will make this possible. Only experience trading good
setups. This also involves mistakes, which is our greatest source of insight.
I also want to caution you not to make a mistake that so many make. Most traders think “if I
just know enough about the market, I will be successful.” This is not true at all.
There is only the logic that affects your probability of winning, and then the bigger task,
which is execution. That said, if there is a subject that you are truly interested in, by all
means, study away! I think that Steve Jobs illustrated this best in his talk about “connecting
the dots.” Follow your interests, but do not imagine that knowledge is the key. It is not. But
follow your interests, you never know where they may lead.
What if you can’t be around at any point in time for the London session? That’s okay. You
can only do what you can do. At other times of the day, you will have less opportunities,
and the opportunities you do have (especially if the pairs are not EU or GU) will yield less
consistent results. But if you don’t think about winning or losing, and focus only on the
application of logic and the feedback you get, you will do just fine.
Later, one of two things can happen. 1. You free yourself up to trade at different hours. 2.
You specialize in a currency like the AUD/USD and learn the unique nuances and
correlating factors that move that currency pair, driving your winning percentage back up
into an acceptable range.
50

As you trade in level 3, you will notice that there is something different about the 2AM-3AM
period. The European markets open one hour earlier. It is very common for price to make
a move during that hour, and then when the big boys show up at 3AM, just go the other
way. I wasn’t sure where to tell you that, so I just included here in the time of day section.
There is a search function in this PDF file, but perhaps I’ll create an index of topics listed
alphabetically, too.
So remember that timing is a factor, but “time” itself is relative. I think if you keep this idea
in mind, it will help you to structure a framework that focuses more on the “orders” and not
the symbols that represent them.
51

Chapter 3: Introduction to Market Conditions
It would be easy to “miss” consciously that most traders have a poor idea about how you
actually learn to do this. There is a big herd running towards the cliff. And “how could so
many people be wrong?” It happens all of the time in life. In fact, my first business teacher
said on my first day: “find out which way everyone else is going, and GO THE OTHER
WAY!”
The truth is that you learn to trade Forex the way you learned to do just about anything else.
There is not much to driving a car, right? Today if you have the key with you, you step on
the brake and push a button to start. You put it in gear, and apply the right amount of gas.
You observe the lights and stop signs and as you drive, along with other rules of the road.
But if you have been driving for years, there isn’t much to it at all.
But if you think about it, driving a car is full of complexity. You might not notice because you
rode around in a car long before you began driving one. You never questioned the risk of
being killed driving through an intersection because for you, that risk was “normal.” But
seeing it and doing it are two different things. I can still remember the struggle to learn to
parallel park. Driving was “not” learned in a few days, or even a few weeks. It just seems
like it was because you gained knowledge and training for a very long time.
As a Forex trader who does not have their own customized setup or who has never traded a
good trading plan, you are like a brand new driver who has never even been in a car, and
maybe never even seen a car.
So give yourself time.
In the end, once you are fully skilled, you will see a buyer or seller advantage, you will be
able to gauge the strength of that advantage seeing the best place to get in and out of the
trade, and you will execute without your emotions getting in the way. It will be that simple.
But first you need to learn to crawl before you walk and walk before you can run. And with
practice, you’ll be able to walk and chew bubble gum at the same time 
Market Conditions – Time of Day
I already talked about time of day. This is clearly a factor that affects your probability of
winning. Why? The people who trade 3AM to 8:30 AM (All times in this book are written in
Eastern Time) are different from the people who trade from 8:30AM to 11AM. The people
who trade from 8PM ET to 2AM ET are VERY different from the people who trade from 3AM
to 11:00AM.
Why is this important?
57

Think about a close friend. If you have been friends for a long time, you can probably
predict many things about them. What do they like to do at night? What drink will they
choose at dinner? How would they react to a particular political topic?
You can predict a great deal of your friend’s behavior, why? Because you have observed
their past behavior. But if asked to predict the behavior of someone you don’t know, well…
you aren’t going to get the same results.
The bottom line is that the people are different at different times of the day, and so the
buying/selling behavior is going to be different too. So the most important thing I can tell
you about this is to pick your hours and stick with them. In this way, you won’t be
observing patterns at one time of the day which are less repetitive at another time of
the day. Remember that the logic you use to make your decisions are based on the
behavior of real people. This is Price Logic Trading. That means that you are trading
behavior. Not price, not candles, not systems. Price, candles, systems and such are
“symbols” of behavior. It might be okay for you to make a decision not to walk under a
ladder (based on a poor belief). But for more complex decisions, and especially those
which result in a positive or negative consequence each time you make one, better
information is needed.
Having said all of that, do not be too concerned with the time of day in Level 2. Just trade
when you can. You can make any necessary adjustments in level 3. Level 2 is just about
“seeing good and complete logic.”
Market Conditions – High Impact Data
There is a lot of news in the world that affects price movement. For level 2, don’t be too
concerned with this. In fact, even in Level 3, we do not make rules about this at first. But
you can begin observing, and even making notes along with your trades. Our team and site
publishes the information we think might have enough impact to move the market.
Information that can cause the market to slow prior to the release, and even create hyper
volatile activity.
This is a real factor that affects your bottom line in trading, but just observe and
make notes for now. And by all means, trade the high impact data in level 2! It is far better
to have experience with the idea than to rely on something you saw me write here. Do
make notes of anything you see. For example, in your forum, write “this setup came 15
minutes before Consumer Sentiment out of the US. Not sure if this is factor.”
In this way, you are not pressured to understand anything, but you are becoming more
familiar with the information and gaining the experience of the role it plays in your decision
making.
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In level 3, I will also explain “anomalies.” In essence, this is the ability to recognize quickly
when “something unusual” is happening or has happened. For example, if price suddenly
moves 100 PIPs in three minutes, this is an anomaly. While this is not rare, it is unusual.
And the reason why we need to recognize these patterns is because we make our money
on what “usually” happens. Again, focus on the “repetitive human behavior,” not the
“unusual behavior.”
More Than You Bargained For
I think on this journey, you will discover that you got way more than you bargained for. You
will likely see that the principles you are applying here can be applied to anything in life.
There are greater implications. As a trader, you must learn to “see the world as it is.” You
must learn to let go of expectations. You might decide to eliminate them in every other area
of life. What another person chooses to do (like the market) is beyond my control. Why
should another person’s actions dictate what I experience emotionally – especially when I
don’t even know the other person? Something to think about.
59

Chapter 4: The Most Reliable Pattern (345), Trend, Ranges, Key Levels
Okay in this section, I’m going to begin showing you WHAT we are looking for, and WHY.
Inherently this all works because human beings are herd creatures (feel safer in greater
numbers). Whether we are talking about trends in shoes or clothing, or a great new song
on the radio, we are more comfortable going with what is “popular.”
So it is just human nature to go with the trend.
Many years ago, I noticed that when price made a “strong move” in a direction, it liked to
pull back and then make another push in that direction.
Later I studied Elliot waves and saw the same pattern right in the middle of the Elliot wave
pattern.
But let me show you the pattern that Mr. Elliot observed all those years ago.
Elliot Wave
As you can see, there are five waves that move price up (or down), and then three
correction waves. You can always get the book, Elliot Wave Principle if you would like to
study more. But I’m going to show you the direct correlation between what I do, and what
Elliot observed.
In this picture, you see the 1 wave makes a move up, followed by the 2 wave moving back.
Then there is a very strong wave, which we call the 3 wave. This is followed by the 4 wave
that pulls back, and then a 5 wave that makes a new high. Then the correction waves begin
with A coming back down, followed by B testing the former high, and C correcting to 50-
61.8%.
345 Waves
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Obviously this is an “ideal” picture. It almost never looks exactly like this. But let me tell
you the part of this which you can see repeated over and over again, and it not that difficult
to see at all.
Notice that I did not include the entire 5 wave. I only included 3, 4, and part of 5. This part
of the pattern is what my work, and Elliot Wave Principle have in common.
So one way you could describe my pattern is this way: 3, 4, 5, or just 345.
We don’t really know what a 1 wave is until we see the “strong move” or 3 wave. It is not a
high probability that wave 5 will move higher, not at all – not in Forex trading, anyhow.
If the 5 wave is hitting an obvious area of seller interest, then there might not be a wave B or
C. Wave A just might correct all by itself. I’m just pointing out that the high probability
waves are 3, 4, and most of 5.
The human psychology is easy to see. Traders see price making a good move (3), and
want to get in that trend. When they do get in, as the 5 wave starts to the former high (of
wave 3), they begin to wonder if it is actually going to go higher. After all, they encountered
selling in that area before (which is what created the 4 wave). So they just don’t have the
conviction to go higher.
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So here’s what we know about this
pattern. Traders want to trade in
the direction of the strong move (3).
Price is likely to pull back at some
point (4), and then price is likely to
test the former high (5).
Pretty much any information can be
confusing and interpreted in many different ways “if you lack a context in which it is
being viewed.”
So let me give you a couple of pieces. First of all, we are looking at this pattern “in the
context” of the daily/weekly story, or vision. If you recall, there is a certain amount of money
that is being moved based on what investors decide about “today” and “this week.”
It is easy to follow that balance of money moving up and down on the 30 minute
chart, with the 21 and 55 EMAs.
If we also add that “price must be advancing,” we will have a pattern that is very predictable.
Some will say that moving averages are unreliable because they are “lagging.” This is true.
But it is also true that if you look for the position of the moving averages ONLY when price is
“advancing,” suddenly the MAs become EXTREMELY reliable.
If you think about it, if the MAs are showing that the buyers have an advantage, AND price
is advancing up, they cannot be telling you a lie. Using those rules, they are 100% reliable.
I want to remind you about what we are really doing here. 1. Seeing a buyer/seller
advantage 2. Gauging the strength of that advantage 3. Placing entry and exit orders
such that our risk is managed well.
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Said in shorter form, we are
seeing an advantage and
managing our risk.
Okay let’s take a peek at this
pattern we are looking for on
an actual chart.
In this picture, it is inverted,
showing a selling trend. But
you can see the pattern.
Here I have highlighted the (345) pattern that we want.
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In this next picture, I am only
illustrating the actual pattern we are
looking for. Very strong move down,
a pullback, and then a “test” of the
former low.
I think it is important to stick with
only the highest probability “stuff”
until you are fully skilled. As you
gain experience, you will come to see,
“from experience” when price is likely
to continue lower.
What is a Trend?
Now take another look at the gray 21
and 55 EMAs (above). When the 21 (faster moving one) is below the 55, the trend is down.
That’s what we see in this picture. So while trends can be defined in many different ways,
in our context, a trend is defined by the position of the 21 and 55 EMAs on the 30
minute chart.
Ranges
Here are a couple of examples
of price in a range. This most
often happens 1. Where there
is an unusually strong move.
2. Trends begin to show
exhaustion 3. When the
currencies markets are closed.
For example, GBP/USD at 5PM
ET. Both the US and UK
markets are closed.
In these small ranges, during
good market hours, we will look for price to break these levels (green). I refer to these price
levels in green as “key levels.”
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Market Cycle
What some call an Elliot wave pattern, I call a “market cycle.” There is a strong move, a test
of that high/low, and then a correction of 50-61.8%.
I care little for a newly forming
trend or the correction waves
(yellow left) when looking for a
trade. If I see that price has
already tested the previous low,
there is no trade for me. At that
point, the balance between the
buyers/sellers becomes much
closer, making any trade a lower
probability outcome.
That will do it for now. We will be coming back to this pattern frequently in this book.
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Chapter 5: Supply & Demand
I’m going to go a little deeper into this in level 3, but here in level 2, there are some things
you need to begin seeing and defining.
Supply is driven by sellers. Demand is driven by buyers. So if we have greater demand,
price is moving up. If we have greater supply, price is moving down.
There are many terms you will hear. Supply & Demand, Support & Resistance, Historic
Barriers, and something I call Former Support or Resistance. You’ll see the differences
when we begin identifying a range of advance, and what actually constitutes a “trend
advance.”
These terms are all referring to price levels where we think we will find more buyer or seller
orders being placed. In Level 1 I already defined Support and Resistance. To repeat,
resistance is any barrier above price. Support is any barrier below current price. Just like
support and resistance, we would see supply above price, and demand below current price.
Always keep this one principle in mind: the more obvious a barrier is, the more relevant
it is. If you read a high tech book on barriers, and you are only one of 20 people in the
world that sees it, using that principle, we can know that your information is not likely to be
that relevant.
But let me define each quickly.
Historic Barrier
A historic barrier is just an area
of two or more touches back in
time, as is showing in the thin
rectangle below. As with all of
these ideas, the more
experience you gain with them,
the better you will see them,
and the better you will be able
to use them.
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Supply & Demand, Resistance & Support
As you can see, the terms are virtually interchangeable. Over time, I have come to like
supply and demand better as terms because that is what moves price up or down.
Former Support or Resistance, Former Trend High/Low

I have to jump ahead a bit in order to include this idea here, but if you don’t quite
understand, not to worry – I’m going to
be going into this much more.
As you can see, price is on the move
up. Price reaches a high point (former
high), and then retraces 38.2% or
more. Following that, the trend
“advances” again. The advance takes
place when price moves above the
former high point, or what you will also
hear me refer to as “former resistance.”
This specifically refers to the former
high of the trend, on the move up. If
this were a down trend, we would refer
to “former low.”
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This is good enough for level 2. If you find yourself struggling with barriers, don’t be too
hard on yourself. Just do your best, and in no time at all, you will find you will be quite good
at spotting an area of supply or demand. And remember that principle: the more obvious
the barrier, the more relevant the barrier.
It may seem like I should say more, but this is really the basics that you need to know for
now. In Level 3, I’ll discuss how longer term barriers come into play, and what trend lines
really represent. I’ll also explain when and why you can ignore price points, when those
price points were created in a different story context. Obvious examples would be 1.
Where the market went sideways briefly waiting for some important data 2. Where the
market briefly visited a price level based on speculation during a period of HID (high impact
data) release. Don’t worry about that now. I’m just letting you know there is more to come.
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Chapter 6: Winning Percentage, and Risk to Reward
We are inching our way towards the (holistic) high probability logic you will be using. As I
said, in the end, trading can be as simple as “seeing a buyer/seller advantage, and
managing your risk well. You can see me doing this many times, but this morning (June 9,
2015) I did only that during the live session. You can go back and time and watch in the
community area.
There are still some important ideas we need to cover before we focus on the specific
variables we’ll be using.
70% Probability Importance
You will often see me reference this 70% win/loss ratio. I’ll explain this in more detail in
level 3, but for now, I’ll just give you the facts. As an inexperienced trader, it is important to
put the odds in your favor as much as possible. The less experience you have, the larger
the percentage of events that will appear random to you, driving your winning percentage
down.
The problem here is that there is a directly correlation between how much you win, and how
many trades you will lose in a row when something changes in the market. The problem
with this is that if we lose too much, too soon, we will be disabled psychologically. This is
because of the great difference between ordinary life/circumstances, and Forex trading. It
has to do with what we feel when our decisions result in consequences. I call this the
Psychology of Consecutive Loss. In ordinary life, there are few painful consequences. In
Forex trading, we could be faced with many in a row. So I wanted you to be mindful that I
have important reasons for guiding you the way I am in this book and in the community.
This leads in nicely to our next subject.
Risk to Reward Ratio
Risk to reward is about the relationship between how much you are putting at risk vs. how
much you are targeting for your profit target.
I get the opportunity now to show you another important idea at work. One of my trader
friends, who was a student for a while, loved to trade a lot. He traveled the world in search
of expertise. But he was always itching to trade. This was just part of his personality that he
was born with. He was quite smart and educated, having a PHD in the field of psychology.
*I think it is important to define what I mean by experienced trader. I mean this in a very specific way. Experience
assumes 1. You are using complete logic 2. Your setup is unique to you, derived from the application of that logic 3. You
have defined that setup in your own words, into your trading plan. Until you have these components, I do not consider
you to have any more than a couple of month’s experience, even if you have been doing this for years.
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Here’s what he did. First, in his main money account, he followed his trading plan
religiously. Next, he had a dummy account where he took whatever trade he felt like taking.
And finally, he had a $100 account where he did something quite extreme. He traded with
no stop loss and only targeted 1 PIP of profit.
He did this for over a year, and one time, he was able to have 99 wins in a row before
getting a margin call. Years earlier I had a friend who I gave the nickname “stop loss
Tommy.” I gave him that name because he traded with no stop loss. He was doing
amazing, ranking up 67 wins in a row. Then in about 2005, the Canadian Dollar (he was
trading), went the other way, never to return for ten years to his price. These two stories
illuminate an idea:
The lower your target, and greater your stop loss, the higher your winning
percentage.
Before you go off the rails, there is no way to use this idea to get rich. You will always
“blowout” your account at some point in time. And keep in mind that these examples I’m
using represent “the best they ever did.”
But I find it useful to know this information. The next question for me was this: What is the
optimal ratio – in particular for the inexperienced trader?
In 2010, we got our answer. We were trading a system with four criteria. We documented
every detail in complex spread sheets. I’ll explain all of this in level 3, but the optimal Risk
to Reward was .75:1. This means targeting 75 cents of profit while risking $1.
If you targeting less, it ate into your bottom line and made you less profitable. If you targeted
more, it lowered your winning ratio. So we see again, that in all things, it comes down to
finding the right balance.
I knew by that time that we had to target between 70 and 80% wins in order to avoid the
disabling psychology. Now I had the numbers to back it up. So I gave traders the choice to
target .75:1 or 1:1. Over the years, most have settled on .75:1, recognizing that the first
goal is simply to achieve the ability to earn consistent profit. Those who can’t shake the
desire to “get more,” went with 1:1, all the while with me telling them that they will make less
money doing that.
You see, our numbers showed that you make more money targeting .75:1 than when you
target 1:1. Targeting less PIPs to make more money? Yes, less is more.
And something popular in Forex trading, 2:1, is simply out of the question. In level 3, I’ll
explain exactly why you don’t want to target 2:1 as an inexperienced trader.
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So as you are going to see, I am suggesting you target that optimal .75:1, and hopefully I
gave you some good reasons why, even if only in an introductory way. This brings us to the
next idea.
PIPs Don’t Matter
You will find a lot of traders focused on PIPs. The truth is that PIPs are relative. If your risk
to reward ratio is 1:1, for example, if you get 10 PIPs or 100 PIPs, you make the same exact
amount of money. And how many PIPs you get are not a function of your personal desire
for them, but rather a function of the variables involved in any given trade. If the pattern we
are trading has moved only 22 PIPs, for example, you aren’t going to get 100, 50, or even
22.
Your potential, as least working on your first goal of consistent profit is limited to the
boundary of the pattern you are trading. You will see what I mean.
Consider another way of looking at PIPs. As a teaching question, I have asked the group
“which makes you more money? 10 PIPs or 100 PIPs.
Naturally most of the traders are suspect when I ask a question like that, but most new
traders want to answer 100 PIPs.
Here are the numbers. If you have $200 in your account, and make 100 PIPs at 2.5% risk,
you make $5.
If you have $5000 in your account, and make 10 PIPs at the same 2.5% risk, you make
$125. That’s 25 times the money targeting ten times less PIPs. My message to you? DO
NOT focus on PIPs. PIPs are an irrelevant factor when it comes to decision making. In any
given trade, you will manage your risk effectively, and only then find out what your potential
for PIPs will be.
Now it may be that you find down the road that your particular setup has an optimal
potential of 15 PIPs (or whatever the number is). Notice that the market is providing that
information to you, and not the other way around.
Now it’s time to learn about a very important tool that you are going to be using in your
work.

71

Chapter 7: New Wave Fibonacci Drawing
I gave you an introduction to this tool and the settings in Level 1. Now I’m going to take you
to the next level.
I first developed these rules back in 2007. This led to advances in trading that I had not
previously imagined.
Most traders know what a Fibonacci tool is, but if you are out in the mainstream Forex
culture, you will find traders using different settings and different rules.
In 2004, I attended a live trading room each morning. The trainer there only used the
Fibonacci. When asked how to use it, he said to, “watch and practice.” So I ended up
drawing thousands of them.
Over the next few years, traders would ask me how to draw it. I would give them some
guidance and then just tell them to practice. In 2007, I noticed that I seemed to be drawing
the Fib using the exact rules. I wondered if this was true. So I looked at what I was doing
for a couple of days, and realized that I was, in fact, using rules that could be defined and
taught to someone else.
Since then I have taught this to many traders, and it works with an extremely high level of
effectiveness. First of all, it shows you the most accurate way to draw the Fib, and
secondly, it enables you to measure the strength of movement.
New Wave Fibonacci Drawing Rules
Let’s begin with the rules:
1. Always draw from left to right
2. Always start and draw in the direction of the trend
3. The end point is the high of an up trend or low of a down trend
4. The starting point is where momentum begins that breaks a new trend high or low,
but which does not retrace 38.2 or more on the way
5. Draw on a 5 minute Chart (will add 1 minute in Level 3)
Context
Trend will be up or down, based on the 30 minute chart and the position of the 21 and 55
EMAs.
Price must be advancing.
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What is an Advance?
I’ve been doing this long enough to know that I need to define this very well so that you
really “get it.”
So I’m going to provide you with several examples. There are classes recorded specifically
based on this book that you can also access.
But first I want you to know that price movement has a definition, too. A new wave is
ALWAYS price movement that advanced the trend, and which DOES NOT retrace 38.2
or more during the course of that movement.
I’m jumping ahead a bit on purpose. I want you to know what an advance is, and then I’ll
come back to basics.
First notice the start and end points. Now tune your eye into the Fibonacci retracement
levels. Top line 23.6, next lower line
38.2, and so on.
Notice that when price is moving up at
the red dashed line, it does not pull back
to 38.2 or more. Then when it does
begin to pull back, that’s when you place
the start and end points of the Fib.
Movement like this is defined as
momentum. In these case, the buyers
have momentum. We also want a
minimum amount of movement, but we’ll
get to that.
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First notice the new wave on the left side which creates a new trend high. Then you will
notice that price goes sideways making small waves up and down, but without breaking that
high. Then you see the new wave on the right side of the picture “advancing” past the
former trend high.
So it is important to recognize that in order to have a “new wave,” price must be

“advancing,” or breaking the former high (or low). If this were a brand new trend, there
would be no new high to break. In this case, you would have price advancing the (new)
trend, but not breaking a former high of the trend, since it just began. Trend direction,
again, is only based on the MAs on the 30 minute chart.
Because I use 30 minute charts and then change to the 5 minute charts, you see the 21 and
55 EMAs (gray) on this 5 minute chart. But they MAs have no meaning on the 5 minute
chart. On some charts, such as MT4, you can set them to show the MAs only on the time
frame you want.
Let’s review our rules again.
1. Always draw from left to right
2. Always start and draw in the direction of the trend
3. The end point is the high of an up trend or low of a down trend
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4. The starting point is where momentum begins that breaks a new trend high or low,
but which does not retrace 38.2 or more on the way
5. Draw on a 5 minute Chart
Take a few minutes, read the rules, and see if you can see the rules at work in these
pictures.
Once again, our definition of a new wave: A new wave is ALWAYS price movement that
advanced the trend, and which DOES NOT retrace 38.2 or more during the course of
that movement.
Here are three examples of New Waves, and one example of a wave which is not a new
wave
I suggest you practice only
this technique in your forum
in the community many times
and let others validate that
you have it correct.
It is an important enough idea to
justify such action.
2 PIP Rule
Inevitably, this is where we need
another idea. Those who are
precise in measurement always
ask, “Vance, it came within one
PIP of 38.2, before price
continued in the trend. Do we
ignore that, or do we consider
that a 38.2 pullback?
This is a great question, and an opportunity for you to learn more.
There is no central exchange in Forex trading. Stocks go through a central exchange on
Wall Street. There is no such thing in Forex trading. The Foreign exchange market is a
network of thousands of banks, and as crazy as it might seem, they are all trying their best
at every moment to gather every bit of data on the cloud and determine what the price
actually is. Because of this, this is what creates gaps on the charts, and it is the reason why
one broker shows that price hit one area, and with another broker, price never reached that
level.
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Here calls for a general rule to compensate for these differences in price. Setting unusually
volatile movement aside, the prices are usually going to be off by as much as .75 PIPs in
either direction. That puts us at 1.5 total, and the easy rule is 2 PIPs.
So going back to that question: “if it came within one PIP of 38.2, do we just consider that
at 38.2 pullback, the answer is yes. Because on some feeds (just not yours) price probably
did reach 38.2.
Okay let’s go back to our rules.
In my experience, traders tend to struggle with one part of New Wave Fibonacci drawing,
and that is the starting point. Where does momentum begin?
First you look for the break of the former high. Then you look to see where momentum
began, and where price did not retrace 38.2 or more.
Tune into the green arrow here. Notice that in the yellow highlighted area to the right, it does
not extend up to that first red candle. The color suggests that momentum began at the red
candle at the green arrow. But if you
look closely, you will see that after that
red candle at the green arrow was
created, price moved up 38.2 or more
(you can tell by the wick). Therefore, I
would begin drawing my Fib at the next
candle (one candle after the green
arrow). There is either momentum or
there is not. Getting this down is just
going to require practice. So the more
you practice, the faster you will master
it.
In level 3, I’ll also show you how to use
the Fib to anticipate where a trend is
likely to reverse. It’s not important at
this point. I suggest you pause going
any farther in this book, and practice this
technique in your forum until you are sure you have it correct. Then you will be ready to
move on.
As you will soon see, we are looking for trend advances. When we see one, out comes the
Fib tool, and then we next look to see if the movement is strong enough to get in and out
with good risk management. When you are ready, proceed to Range of Advance.
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Chapter 8: Range of Advance
Range of Advance once referred to the number of PIPs that the New Wave advanced
beyond the former high or low of the trend. Over time, I noticed that using the entire wave
was a better way to gauge the strength of buyer/sellers, but by then the term had stuck.
A better name would be Range of New Wave or RNW. It doesn’t really roll off the tongue,
and making a change at this point would only be confusing.
Then again, you could think of it as the Range of the Advancing Wave, and ROA would not
be that far off. Whatever the case, I’m sticking with Range of Advance and ROA, for short.
The definition is simple. The ROA is the entire length of the New Wave. Since your Fib
is being drawn from the beginning to the end of the New Wave, then the ROA can also be
defined as the distance from the start to the end of the Fib.
You can see that illustrated in this picture here. From the start to the end of the Fib, is 18.8
PIPs. So the ROA or
range of advance is 18.8.
In order to see the correct
ROA, or determine the
strength of the move
accurately, you first need
to draw the new wave fib
correctly.
Range of Noise
Very soon, a question will
be popping into your
head, if it hasn’t already.
How small of a range
can we trade? In other words, how big does the ROA need to be? It’s a great question. I
can only tell you from experience that you do need some kind of range guideline. I refer to
this as “noise.” And the word simply symbolized a range of “random movement.” This is
about 0-14 PIPs. What I mean to say is that at any given moment, price can move 0-14
PIPs for any number of reasons which cannot be anticipated. That’s not to say
someone with a lot of experience cannot anticipate the next 5 PIPs of movement up or
down. I do it once in a while in the live session, being in tune with the market, reading small
movements up and down in real time.
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Keep in mind that this book is about how you learn to make consistent profit. So we must
consider what “you” will be able to do. So I would recommend you stay out of this “range of
noise.” I suggest a minimum ROA of 18 PIPs for trading. Usually I recommend 20, and
those who like to push the envelope go for the 18. What’s the difference? More trades. Is
more trades better? At this point, the answer is yes.
But clearly, with experience, you will see nuances that will enable you to make decisions
that are not so generalized. I’ll discuss this in future levels in the book. But to give you an
example, perhaps there is a new trend. The first new wave is 13. The second new wave is
16. This might indicate that the buyers/sellers are getting stronger, and therefore there
would be less risk of a reversal. That’s an incomplete scenario, but perhaps a little
illuminating at this point in time for the possible exceptions.
For now, I suggest that you keep it simple.
I might point out that if you are interested in applied math, or logic and algorithms, you could
assign any system of symbols to the logic in this book. Then you could give each symbol
values. For those not interested in math, I’ve got news for you. You are already doing this
with your minds. I’m just saying that someone with applied math interest will find the
variables quite compelling in formulas. But on that topic, do not mislead yourself by thinking
that you can use the logic to create an automated trading system that you can sell for
others. A good automated system should be based only on your unique trading
method, and will always need some degree of supervision to input real time variables
that can change at any time. This is my strong opinion based on reason, validated by
experience and principles.
As you gain experience, you will also notice that there is a “maximum ROA” based in logic,
as well. This falls into core logic, which is “usual vs. “unusual.” Taken to an extreme for
illustration purposes, if a candle moves 200 PIPs in 5 minute with no pullback, this is
“unusual.” But as you work your way back towards the 18 PIP minimum, you will find that
55 is probably a good number. If a new wave has an ROA of 65, there is probably
something unusual happening. Remember high probability logic depends on what people
“usually” do.
With experience, like many general rules, this rule will become nuanced, and I’ll talk about
that in later sections. For example, even smaller ROAs close to the London close might be
ignored. Heck, if the ROA is 18, but the previous ROA was 21, and you might decide over
time that when strength is diminishing, you don’t like this risk. But like all nuances, they
need to be determined by what your eye sees, and by your personal experience.
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Remember no one swings a baseball bat exactly like you. We all begin with the exact same
logic, but that skilled swing that hits the ball is like no one else’s.
At this point, I want to expose you to the progression of logic
that you have learned so far.
First is the trend, which is determined on the 30 minute chart
by observing the position of the 21 and 55 EMAs.
While the moving averages are not labeled, the 21 is above the
55 (21 changes direction faster). You can make these different
colors if you like. So this gives us our first criteria. We are
okay for a “buy.” The trend is UP.
The very next thing we would do is change this chart to a 5
minute chart so that we can see the behavior better. If we
don’t change to the 5 minute, we may not see all of the
movement that took place. For example, that blue candle at
the black arrow might have pulled back 50% and then moved
back up before closing where it did. We don’t know. Since we are trading behavior, not
symbols of behavior, it is important that we get the best information we can.
This is a 5 minute chart, showing that same movement. The black dashed line shows the
New Wave. The ROA of that New Wave is 39 PIPs. This also gives us an opportunity to
see that your Fib and ROA can all happen on a single candle. While it is small to see, on
the wave up, when this wave reached its high,
price pulled back just below 38.2, setting up a
potential trade, and then price continued up.
Remember, if you are reading any part of this
book and have a question, just ask the
question in your forum. I’m quite sure that
members of the community will be eager to
help you 

Chapter 9: What Have We Learned About?
Before we go into the entry and exit parts of
high probability trading, I felt it would be good to review the important ideas we have
covered so far, in a more succinct form.
Let’s review the main ideas I’ve covered up to this point.
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 Market conditions- time of day, HID, anomalies
 Risk to reward ratio (optimal .75:1)
 Win/loss percentage – psychology factor (70% or better)
 Supply and demand – where orders are likely to be
 The most reliable pattern - New Wave, pullback, second push
 Trend (buyer seller balance)
 Strength of Advantage – ROA using New Waves
 Dominant pairs – EUR/USD, GBP/USD
 6-18 month story
 Daily/weekly story
At this point, you can make notes in your computer, or on a sheet of paper. I want you to
make your own notes. On that page, you will make a note of things you are observing (like
market conditions), and some notes will be rules (minimum risk to reward is .75:1).
I’m not making a list for you to print. You need to read this section and make your own
notes. Trust me on this. It’s sort of like taking a test where you are asked to read a story.
Then they ask you a bunch of questions about the story. If you didn’t actually read the story
and experience it to some extent, you won’t be able to answer all of the questions. Resist
the desire to copy someone else’s notes.
I have a very important reason for not making a trading plan in level 2. Based on my many
years of experience, working with thousands of traders, I KNOW you need to do this step on
your own. Then you take your notes, and step up to the plate and swing. Think of a swing
of the bat being worth 10 points, and re-reading worth only 1 point. So make your notes
and get in the game. If you need to go back and study any subject more, it will become
apparent when you take a couple of swings. Our community or your team will give you
feedback.
Start Making Your List
Here in level 2, you are only “observing” market conditions. Risk to reward is a single
decision, so that can be a rule. With respect to 70% wins, this is a psychological factor and
an “aim” of your use of logic.
Supply and demand is also something you will “observe” in level 2. You will get a perfect
setup for a buy, but will notice that your profit target is on the other side of a very obvious
barrier. You will know this trade is higher risk, but you will take it anyhow, and make notes
of what you see and experience. In the end, this is really about being able to see where
orders are likely to be. This falls into the category of nuances which are subjective to
you and your experience.
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For now, your trend will be determined by the position of the 21 and 55 EMAs. If the 21 is
above the 55, you will only buy. If the 21 is below the 55, you will only sell.
When the trend advances, you are looking for a new wave that has an ROA of 18 PIPs or
more. Some traders increase that a bit more with time and practice. For now, 18 will give
you a higher frequency of trades, giving you more experience.
In level 2, your main focus is the application of logic, not winning trades. Your two main
pairs will be the EUR/USD and GBP/USD. I suggest you also look for setups on the
AUD/USD and NZD/USD. This is only for practice, and will also increase your trade
frequency.
Several members of the team publish information on fundamentals and we talk about them
in the live sessions. Follow this information if you are part of our community. Just observe,
and in time, you will begin to get a good sense of how this information is telling us these
stories. If you have your own community, start a thread about Fundamental Sentiment.
Work together to form conclusions about what is currently driving the market and in which
direction. For example, when the markets are focused on something the Federal Reserve is
going to say at a particular time, you will see the market likely go into a range the closer we
get to that designated time. You’ll notice how an event like this “becomes” the daily/weekly
story.
Again, with experience, you are going to learn many more nuances. I’ll be covering much
more in Level 3.
Remember that real confidence does not come from how well you know a subject, but
rather from “the validation of your experience” you get from the community.
Okay now this leaves only the entry and exit points. Where do I get in? Where do I get
out?

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Chapter 10: Where to Get in and Out – Dynamic Relationships
First I want to tell you that your own personality is a very important factor in the decisions
you are about to make. I know that there can be a lot to consider, and just when you
thought it couldn’t be more overwhelming, the emotions kick in, and sure enough, you are
proven wrong.
I promise that in a very short period of time, this is going to get much easier. In fact, I
suggest that you apply yourself for 3-4 weeks before you evaluate how you are doing.
Just put your head down, take trades, make notes, and review your feedback. This is all
going to look very different a few weeks from now.
You really must know the market and yourself to make this work. The role of personality is
critical here. You might see someone like Rob placing a stop loss very close to his entry,
and in a very small range. Your reaction might be, “geez, I would never put my stop loss
that close!”
Let me interpret what you really said. “I feel uncomfortable with the stop loss that close!”
(Observe the symbols you use to represent your emotional experience)
The flip side is that someone else is very aggressive. While you are feeling cautious, looking
for just the right trade, they can wait to find a reason to pull the trigger!
Who is right?
That’s my point. Both are. In fact, one trader can be buying, another trader selling (at the
same time), and both of them can win, even in a couple of hours. That’s an extreme. But
certainly YOU can be more aggressive, THEM more cautious, and you can both win!
Just like in ordinary life, the more aggressive you become, the more risk you must deal with.
There is a limit to how aggressive you can be. But there is also a limit to how cautious you
can be. If you are only waiting for the perfect, highest probability trade you can get, you
might only trade once every couple of months, or even less than that.
I’m writing this section to impress on you that it is very important for you to be who you are.
Personality is a very important dynamic in trading. So as you begin this process, pay
attention to the information you are receiving in the form of emotions.
Now the first thing to know about entry and exits is that there are optimal locations for all of
them. There is good logic to be applied. What I mean is that we can point to a very good
reason (logic) why we would want to place the entry, stop or target at a particular price.
So let’s get to what is good logic first, and then we’ll come back to personality.
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Optimal Profit Target
Follow the black arrows from left to
right. Price makes a New Wave
down, then pulls back, and then
makes a second push. Notice that
at the last black arrow down, price
stops at the blue line. If you look
on the left (first black arrow), price
actually went down farther. Each
of these candles are 5 minute
candles. So when price reached
that low at first black arrow, the
buyers began to buy. At the end of 5 minutes, you can see where the red candle closed
(the blue line). I’m just telling you that the 5 minute candle body close is the optimal
target. Is it the highest probability target? No. If you move this target higher, it increases
the probability that it will be reached. Said correctly, it is the “optimal” target. You might be
thinking, “but wait, I want it to be even higher probability.” That’s fine. I’ll be discussing this.
You can have your higher probability target. But there will be a price: You will get fewer
trades. More on that in a bit.
I witnessed this pattern for years. It makes sense when you really think about it. The
sellers drove price down (first black arrow, left). As price pulled back, other traders wanted
to get in on the action. BUT… as price began to reach the low point (where sellers ran out
of gas last time), the new sellers will be less confident that price will break even lower. This
is the psychology that is moving the market.
The simple way of looking at this,
is in this way: When the low was
made (black arrow left), price
moved up until that candle body
closed. What that is telling us is
that at the end of 5 minutes, the
buyers and sellers reached
equal buying and selling at that
price. In other words, it was at
that spot where buyer and
sellers reached a 50/50 balance.
I call this price resolution. It’s a
very useful idea that you can carry
over to other charts, as well. But more on that later.
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For now, it is enough to know that the 5 minute candle body (close) is the optimal target.
I want to pause for a moment and repeat an important thought. Be careful not to go down
the “back testing” road. I get it. I understand the appeal and the intention. You are on an
entirely different level of consciousness here with me. What you need is good and complete
logic, and then experience. So you do not want to “back” test. You want to “forward” test.
Again, like a teacher once told me, “find out what everyone else is doing, and go the other
way.”
I’m not saying that you should not study patterns in the past. That’s a big part of what we
do. I’m saying not to make the mistake of thinking you can copy a system that has been
back tested (yes, I feel this subject was worth repeating).
Personality, Entry and Exits
In this next section, I’m going to show you different ways to place your stop loss, entry, and
profit target. Simply pick one that feels right to you, or try them all. Do you recall when
you first began hitting a baseball? Can you remember how different every single bat was? I
can remember trying to find the one that felt just right for me. These decisions are like that
experience.
In this next section, I’m going to walk you through the complete evaluation of a setup.
First of all, noticed the position of
the moving averages. The 21 is
below the 55, indicating the
balance shifted to the sellers.
But this is a new MA cross, or
new trend. So again, be careful
to confirm that the cross is truly
done. That can only happen
when the 30 minute candle
closes at the green arrow. I
placed a vertical line on the chart
so that you can follow it up to see
that when that candle closes, the
MAs are crossed. At this point
we would drop to the 5 minute to
see if we have a tradable New Wave.
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Notice on this 5 minute
chart that there is a new
wave at the black arrow.
But also notice that this
happens prior to the
MAs confirming a cross.
So we can only trade
“after” the vertical time
line, at the green arrow.
There appears to be a
nice new wave there, so
I’ll now picture that.
In this next step, I have

drawn a Fib on that New Wave. In addition, though it is a little small, you can see that I
have used another tool (the ruler) to measure
the ROA. At the black arrow, you can see
that is it 22.1 PIPS, qualifying for a trade.
In this same picture, at the blue arrow, I have
placed a blue line at the blue arrow to show
where the 5 minute candle body closed on
this New Wave. So our target is known.
Now we will take a look at our stop loss
options, and this will determine our entry
price.
I’m going to zoom this picture out just a bit,
but I’ll leave the blue line for the target as a
point of reference. Also note that from now
on, I’ll use the color blue for targets, green for entries, and red for stop loss.
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The yellow box outlines the trade
area. You can see the former low
of the trend at the black arrow. I
have placed a stop (red) above that
former low price area. I didn’t plan
this picture in advance. This is just
how it worked out. This is the
more conservative place for your
stop loss (above the former low)
position, beyond former
high/low. What we would do next
is determine the distance from
target to stop. Then we would
choose an entry that is .75 to
target. At this point, I suggest you
get “manual” experience, and don’t be too concerned with precision at this point. There are
spreads, and fractional PIPs to consider.
Just keep this simple for now. Your job is to apply complete logic and practice setups, not
to know the price of tea in China. 1.1284 – 1.1269 = 15 PIPs. Let’s call it 16. The risk to
reward ratio should be .75:1.
Feel free to “eyeball” this on your
chart for now. Essentially you
would choose an entry that gives
you approximately .75:1. We have
a calculator you can use later to be
more precise.
That would look something like this.
Again, working with traders, I would
rather their focus be on the logic
right now, not getting caught in the
minutia (details).
In this example I’ve been
illustrating, notice that about 30%
of the ROA is inside of the former
low.
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Also recall that this is a
“new trend.” I’ll be covering
this in Level 3. When there
is a new trend, it is only
natural to have more “push
back” from the opposition
(buyers in this case). So in
this example, since this is a
new trend, and the ROA is
22, it is likely that we will
get a pullback of 50% or
more. I’m just exposing
you to these two ideas for
now. Don’t feel like you
need to remember them.
We’ll come back to these
ideas and more in level 3.
Now you will notice that I placed the stop just above the former low (black arrow). You
could have moved the stop up higher, and moved the entry up higher. You would not be
wrong to do that. But notice if you tried to enter too high (above 61.8), your order would not
have been picked up. So yes, you can be even more conservative, but then you risk
your order not being picked up. Again, it’s a balancing act with the dynamics of
personality (YOU), and good logic. And you will find that balance. Remember not to
think too much about this. Just swing the bat, and you will find in short order that this will all
make sense to you. Seek confidence in “knowledge,” and you will delay your progress.
MAs not in Position
Before we discuss stop loss again, I want you to
notice what is happening with the market right
now (as I’m writing the book).
This is a 30 minute chart. As price was moving
up, the question would have been, “can we trade
this?” But notice that the MAs do not confirm a
cross until later at the vertical line. So prior to the
trend shifting to “buy,” you can see that the
pattern we look for already played out. So this is
“no trade.”
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Will you be able to ignore the MAs later and take this trade anyhow? Yes, it is certainly
possible. But you will do that as a result of your personal experience.
Here’s another setup. This represents a 5 minute chart, which is all we will officially use in
Level 2 for New Waves, ROA and
entry and exit points. Notice that the
ROA is 35. Also just take a quick
look and see that about 90% of the
ROA is above the former high. Again,
nothing to remember, just exposing
you to the idea. When most of the
ROA is outside of the former high/low,
as in this case, it presents us with a
little different picture. As you can
see, I have placed the optimal target
in place. Now you “don’t have to use the optimal target.” You can aim higher than the
new high for your target if you want to.
In this setup (above), notice that price is more bullish than usual (one of the reasons we
have an ROA 90% out of the former high). Now we can see in hindsight in this picture that
price did pull back to 50%. But in real time, many traders would have been thinking, “this
looks so bullish, I don’t think it will pull back much more than 38.2%.
So let’s examine the different choices you might make. First let’s look at a more aggressive
decision.
Entry 38.2, stop beyond former high, solve for target exceeding trend high
There are two factors driving this type
of decision. 1. You want to get in
before price makes another move up.
2. You still want the stop loss in what
you feel is a safer position. When
considering these decisions, keep
in mind that 76.4 is the final stand
for this new wave. Usually, 76.4 is
going to be enough. In particular
when 76.4 is above the former high.
The only reason you could possibly
justify placing the target so high is that
you feel that the move is so strong it will move higher. If you feel that way, it is okay. Be
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who you are, and make changes based on your experience in a series of trades. Your
experience may change how you feel about this.
Keep optimal target, enter at 38.2 (first possible), solve for stop
This is still a bit on the aggressive
side, but certainly okay. You
choose your optimal target, which is
great. You then go in at the first
possible chance at 38.2. Then you
solve for stop to get to .75:1.
Note that you are making the
judgement that price is unlikely to
reach beyond 61.8.
Optimal target, stop below 76.4,
solve for entry
This setup focuses first on optimal target, then on good stop position (beyond 76.4), and
then solves for entry to get .75:1
This is probably the right balance between conservative and aggressive. That doesn’t
mean I’m telling you to do it. You should examine all of these setups I’m illustrating and see
what you feel best about. It’s
okay to have more than one
way of entering. In other
words, use the logic, trade what
you see, and then after you
have made the trades, take a
look at what is working well for
you, and what you see well.
The community will help with
this, too. In a 3-4 weeks, you
will gravitate to the ideas that
you like most and which
work best for you.
In essence (for a buy trade),
the lower you move your stop, entry, and target, the more conservative a trade you
are taking. The opposite would be true when selling.
Safe stop, good entry price, solve for target
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In this setup, probably the first thing you do is place your stop in what you feel is a safe
place. Then you likely choose the entry at 61.8 or better, and then solve for target to get
.75:1. You also could have ended up with this same setup by choosing a different order:
stop, target you think is likely, solve for entry.
I know that what I’m sharing with you might not seem very specific, but this is intentional. It
is important for you to find out how you trade best, not for someone to teach you how to
trade. Yes, we teach you the
logic and the options, but not
exactly what to do. What you
need to do exactly will be
revealed in a short period of
time, by practicing in your
forum.
I encourage you to simply do
your best. That’s all there is.
The community will recognize
what you are doing well, and
what you need to focus more
attention on.
What if Price is in a Range?
Usually, your guidelines are going to determine whether or not a range is big enough to
trade. For a good starting point, if the market is sideways, you will only trade if the range is
bigger than 50 PIPs. And in this context, you must get in and out of the trade (profit
target) before price reaches the top/bottom of the range.
As you will find, much of this will be decided for you. For example, by the time the moving
averages establish in position, price might have already hit the top or bottom of the range.
Naturally a “range” can be subjective. In other words, one trader defines the range in one
way, and another trader defines it differently. All that matters is how YOU define it. I didn’t
make a picture here on purpose. When the time comes, you will remember that you need a
minimum range of 50, and you must get in and out of the trade before price reaches
the top or bottom. Naturally the moving averages need to have a cross, you need a new
wave, and all of the other criteria. I’ll talk more about this in level 3, once you have more
experience.
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Why can’t you buy on the bottom of the range and sell on the top? You can, but this is not
consistent with the high probability logic we are using to reach your first goal of consistent
profit making.
You might have noticed me writing “solve for entry,” “solve for stop,” “solve for target.”
This suggests that you found two of the three, and are now solving for the third,
arriving at the .75:1 optimal risk to reward ratio.
Manually Calculating Entry and Exits
Solve for entry? Whether you are in a sell or a buy, you simple measure the difference
between your stop loss and target, and then multiply that number by 42.8. When you get
the sum, add it to your stop for a buy. Subtract if from your stop in a sell. This gives you
your entry price. You can round your numbers for now. This will cause some inefficiencies,
but is nothing to worry about right now. We’ll get that sorted out in Level 4.
Solving for your target or stop loss is very easy, too. If you are solving for target, measure
the distance between stop loss and entry. The multiply that number by .75. Add that sum
to your entry. If you are solving for stop loss, get the distance between your entry and
target, multiply by 1.4, and then subtract that number from your entry. This will get you
close.
I would encourage you to go through the level 2 section again. Write down the rules you
think you can use. Write down what you will be observing, and write down the ideas that I
said I would be covering with you later (if you want to).
In the last chapter of level 2, I’ll be discussing the application, briefly.
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Chapter 11: Community Application, Level 2
Special Note: This section shows you how I have my community designed for best results.
Feel free to copy what I do on your own site, with your own team. See the back of this book
for more details on our community if you have no one to work with.
Your personal forum is where you do this work. Hopefully you did your work in Level 1 and
got a thumbs up to move forward to Level 2. If you didn’t, I want to strongly encourage you
to do this for level 2. If you jump to level 3 before you are ready, you might end up
struggling for a very long time, not realizing what you are missing.
Level 2 Objective
Identify YOUR unique setup, applying complete logic.
As part of that, you will be mastering the New Wave Fibonacci Drawing. Many traders have
to practice this a bit to get it right. In addition, we all tend to have blind spots in one area or
another. Often this can be “not seeing that the trend has not actually advanced.”
All you need to do is practice. Your team will give you feedback on how you are doing.
ALWAYS post your trades in real time, whenever possible. Notice that I don’t often
underline words in this book. I underlined that previous sentence because it is one of the
most important things you can do.
When I personally coach traders, I require that they post in real time. That means posting
BEFORE the outcome is known. With this book and the community, you are really free to
do whatever you want. Why did I require this?
I think as a trader we must get comfortable in our own skin. Why would you not post in real
time? Maybe you would fear looking silly? Trust me when I say that the trader who is
willing to make a mistake in front of others has MORE respect from the community
than the person who seems flawless. After all, none of us are flawless.
So by being willing to make a mistake in front of others, you gain more respect. But more
importantly, this is not about what other people think. This is about you making consistent
profit. And to do that, you need to show the community WHAT you are ABLE TO DO
NOW.
I can tell you from experience that if you wait to post your trade until after the outcome is
known, you will not post all of your trades. Think of it like “holding yourself accountable.”
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Just so you know, when we tested this program for the first time, I posted 87 trades in real
time, in a live account, in front of everyone, before the outcome was known. This is a
liberating experience.
Now that I have that out of the way, feel free to do whatever you want. As Morpheus said to
Neo, “I can only show you the door. You have to walk through it.”
How Will I Know When I Have Completed Level 2?
As I said, give yourself 3-4 weeks of application before you even think about evaluating
what you are doing. If two days ago you still didn’t have the New Wave Fib Drawing correct,
you are not ready for level 3. If three days ago, you took a trade and the trend was not yet
advancing, you are not ready for level 3.
You need to have the basics correct, and then about 5-10 trades beyond that. So after you
are no longer making logic and technique mistakes, then the community will be looking for a
pattern in your trading. You tend to take the same type of trade each time. If you know
what you are looking for, put it out there in the community. Ask them to look at your last five
trades and get their opinion.
The bottom line is this: try to get some validation from more than one person in the
community that you are ready for level 3.
There are many traders that I trained for as many as two years in our community. They
know exactly how this works, as do many others who came after them. I think you can rely
on their feedback if you are using the community I designed. If you have your own
community following the guidelines in this book, just follow the guidelines in this book.
But in the end, no one tells you what to do in the community. They can only make
suggestions. You can do whatever you want.
In my community, during live trading sessions, when I am there, you can count on me to
review questions I see in the forum, and any you pose to me while I am in the live session.
Level 2 Procedures
There are a few things that you need to do that will help other people follow your work. For
example, when you save pictures for upload, in the name, include 30 or 5, which represent
the chart time frames. So today is 061115_1_5 . The date is obvious. This the next
number (1) represents the picture number. The “5” is the time frame of the chart. In this
way, traders can see under your picture what it is, without you marking it. You can also
label your charts if you want.
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Keep in mind that files size is often
limited. Usually 300k or smaller is
okay. I suggest JPEG, GIF, or my
favorite, PNG. All will work.
Be sure to “insert into editor” after you
upload the picture to your forum. You
can upload up to 3 pictures per post.
You first click attach to upload your file.
Then click “insert into editor. When
finished, click “post reply.” You can
always edit the post, as well.
In fact, if you want, you can edit and
post a follow up picture after the outcomes is known. It’s up to you. Sometimes traders get
a little chatty, and there can be several posts between the time you took the trade and the
time it was completed. So in this way you can keep them all together. Then again, you
might like the conversation and then the follow up picture. It’s really up to you.
Try not to post too much. If you make ten post to your forum in a single day, for instance,
traders might just tune you out. They want to help, but it’s just not practical for them to read
so much. That said, always ask a question when you have one. It is best to ask in your
forum in most cases. Naturally if
it is about someone else’s trade,
you would ask in their forum.
Be sure that you label your chart
well. I suggest using rectangles
to show your price barriers on
your charts. Also label your
entry, stop loss and profit target,
including the prices. The best
way to get a lot of help is to make
it really easy for traders to follow
what you did. I would go one
step farther and use green for
entry, red for stop, and blue for
target.
In the picture above, the trader is choosing to show their barrier as a thick black horizontal
line. That’s fine, too. Be sure that your 30 minute chart is zoomed out enough so that
you can see what was happening leading up to your trade.
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On the left here, you see his 5 minute
chart. He is zoomed in, you can
clearly see his Fib, and you can
clearly read his stop, entry, and target
prices.
You can see that the trade is actually
using the same chart to picture both
the 30 minute and 5 minute. He is
actually going through the additional
step of adding a label of the time
frame, which is not necessary. I
suggest you upload the 30 minute
first, and then the 5 minute, as these
are the order that we usually look at a trading setup.
Successful Traits
I did notice a pattern in traders that tended to do well, and it might do you some good to
know.
1. Whenever they had a question, they asked, willing to ask any question
2. They posted their trades in real time
3. They had no expectation of when their success would come
4. They focused on the process, not the destination
5. They made a great effort to follow what I showed them to do
6. They were consistent in their efforts. Again, 8 hours per day is total overkill. Once
you are well into level 2, an hour a day is plenty.
How Many Trades Will I Get Per Week?
A conservative trader will get 1-2 per week. An aggressive trader will average 1 a day.
Naturally the aggressive trader tends to become more conservative, in time, and the more
conservative traders becomes a little more aggressive.
My final advice is really just to repeat that you should take trades as soon as you can, and
ask questions in your forum whenever you have one.
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Level 3: RULES OF ENGAGEMENT, Forex Art of War

Level 3 Introduction: Execution and Experience
There are three important things going on in Level 3.
 Develop Trading Plan

 Learn to Execute
 Review each series of trades, as you gain experience, modify for nuances you gain
experience with.
If you are wondering how many trades you need to take to get to level 4, the answer is
different for everyone. For the past three years, I have not tracked these results. But in the
first group, two years earlier I can tell you that most traders were ready after taking 70-80
trades.
If you target the average of 2 trades per week, you can quickly do that math and see what
that means in terms of time. Some have done it sooner. Generally it is going to be 70-80
trades. Note that it is not all about the trades. It’s also about trading in different market
conditions, which give you different experiences.
More aggressive traders were trading more often, so I created a minimum window of three
weeks. 10 trades or 3 weeks was my rule. I found that aggressive traders need more
trades and experience than the other traders. So in the end, being aggressive probably
won’t save you time. In other words, an aggressive trader probably needs to take more
trades.
Consider that you are building a new neural network in your brain for making these types of
decisions. But just like any new habit, it takes time. You need to have the experience to
make the impressions necessary. My teacher used to say that “Forex trading is a
marathon, not a sprint.”
The first thing you will be doing in level 3 is developing your plan. I would really take your
time with this, because you want to get it as right as you can from the very beginning.
Over the past three years, I have published little about this process. I worked with each
trader one-on-one, careful not to allow bad habits to enter into the process.
For example, the first thing you might want to do is go and look at someone else’s plan.
That would be a natural thing to feel like doing. If you ended up copying them in some way,
this would be counter-productive. So I had a new forum just for working on the first plan.
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Other traders could not see that information. I said, “This will take 5-8 days of us going
back and forth.”
I would ask traders questions, and they would write me back answers. And I would keep
asking them questions until I felt we had it right.
I am going to publish everything here. You can do your best to follow the patterns of
success – the most efficient path to it. But know that most of us have the natural tendency
to take short cuts where we can.
I think if you rely on the community, you will be fine. I should say that about two in one
hundred traders has something going on that I could not put my finger on. In other words, it
was just impossible to help them, no matter what I did. In everything else in life, that
number is 6 in 100. For example, in our optimal health program, there was a 94% success
rate. For the 6%, no matter what they did, they could not be healed. As you have come to
see, I always look to numbers to reveal some insight.
That said, I noticed that the 2 in 100 seemed to fall into two personality types: 1. the person
who felt they knew a lot and really needed to feel autonomy which came from the “do it
myself” style. 2. The second type was someone who just never wanted to believe that
their personal development was the most important factor. They wanted it to be about
market information, not about them. Both appear to be the heightened need for control.
Remember to just relax and let go once in a while. Don’t blindly follow, but don’t try to
control everything, either.
I think we also have to acknowledge that not everyone REALLY wants to be a Forex trader.
One of the best traders I knew mastered trading and then just stopped. I was on the phone
with him when he realized that what he really wanted from Forex trading was something
Forex could not give him. What he really wanted was more along the lines of being a world
class poker player. He wanted the recognition that comes with turning $1000 into $1million.
He was making consistent profits of 5-15% and more a month in a sizeable account, and it
was just not enough to meet that need. He was independently wealthy, so his story will be
an exception to the rule.
In the first step you are developing your trading plan. And it is not “just” a trading plan. It is
a GOOD trading plan. 99% of those who enter Forex trading NEVER trade with a good
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plan. This is based on my observations of how traders talk and what they do. Once you are
trading with a good plan for a little while, you too will pick up on the fact (almost
immediately) that the person is not trading with a plan. I would not point it out to the person.
They are on their own journey, and that needs to be respected in my opinion.
I think most traders with us now get excited about working on their plan. We’ll be doing that
first.
In level 3, you are learning to execute. I say learning because Forex decisions are
different from ordinary life. You will find that you feel like doing one thing, and you really
need to do something else. I want to share something I think is quite relevant. I can still
remember what it was like to be young and a little rebellious about “the rules.” RULES
made me feel less free, if I am honest about what I was feeling (or that’s how I experienced
it).
Ironically, I learned around the age of 26 that the right rules are what created my freedom.
And I that didn’t bother me because I wrote my own rules. I’ll share how I applied this
idea with my daughter in Chapter 1.
Naturally it is much easier to create the rules than it is to follow them, and that’s really the
art of discipline. It’s not really about will power or getting psyched up. It’s about knowing
yourself, and finding a way that works for you. One of the keys to good health is drinking
enough water each day. Going to the sink and getting a glass of water always felt like a
chore to me. But eventually I discovered that if I filled a one quart water bottle and kept it
beside me, the water would disappear over a few hours. That’s what I’m talking about when
I say “get to know yourself.”
Learning to execute takes lots of practice. But if you do it enough, it will become your “new
normal.”
Once you take 10 trades, or if you take more trades and three weeks passes, it will be time
to review. I did this with every trader, every time. I was looking for how well they executed,
and I was looking for experience with nuances. There is A LOT that I did not teach traders.
But what I did do is watch for them to “see it” without me teaching it to them. To move them
to level 4, I was specifically looking for consistent execution, and enough adjustments
for nuances in the market to keep their probability of winning in the 70% or higher
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range. Sometimes the rules would get too rigid and they weren’t getting many trades.
When this happened, I had to get back together with them, and make some adjustments to
help with this. I’m going to cover all of this in level 3.
Keep this in mind as you work with others. You will find some traders are totally focused on
figuring out an idea. You can remind them that nuances are about their experience. And
remember it is okay to explore ideas you are interested in. I think that is great! Just keep
the perspective that “some of this you can learn from knowledge, and most you learn
from experience.”
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Chapter 1: The Importance of a Plan
Welcome to the Top 1%
The first thing I want to say again is that 99% of the traders in this industry NEVER trade
with a good plan. This is a big problem, since the way we make decisions in ordinary life
will not work for Forex trading. So I want you to know that when you complete your first
plan, and take your first trade, you are going to leap frog ahead of 99% of the traders
in the world.
People ask, Vance, how do you know it is 99%? You’ll see. Trading with a plan is VERY
different. So different, it immediately changes the way you talk about Forex trading.
You are going to be developing the skill to execute and making adjustments to your plan as
you gain experience and review.
But your first job is to execute. Don’t concern yourself with anything you don’t understand.
Just execute. And don’t be hard on yourself. If you only execute 50% correctly in your first
series, this is normal. Our mistakes show us where we have work to do.
The Importance of Your Words
I could write a small book just on this subject. But I want to impress on you why it is very
important for you to write your own plan. In the introduction, I told you that I asked
traders questions to develop their plan. I did this because I discovered that we don’t
understand each other as well as we think (assume). When I first tested the Forex Art of
War learning system in 2010, I gave the traders a plan. In time, I was baffled for a couple of
days after something happened. I taught them the setups and gave them the plans. They
then took 20 trades. When we reviewed the trades, every single trader got around 50%
correct. In other words, they broke a rule in their trading plan about half of the time.
This happened over and over. I soon decided that what I was taught them, and what they
heard me say were two different things. So in the second generation of this learning system
we did it differently. I gave them the logic, they traded, and when they got it right, then we
defined their trading plan. In this way, each trader trades what they see, and has a plan
written in their own words, avoiding the problem with teaching assumptions.
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Notice how the problem was eliminated. Instead of trying to make sure that everyone
understood what I was asking them to do, I let them show me and tell me. It would
have been easy to be stuck at the same problem for years.
So you are going to be choosing a couple of setups that you traded in level 2. I’m going to
provide you with questions to answer. Then you will need to rely on the community to help
you shape that into your trading plan. Now here is the key: one or more members who
already have a trading plan need to “understand your plan.” More on that later.
The Power of a Good Plan
When my daughter was 14, I could see that she was pushing for more freedom, and her
and I sat down and had a conversation. I asked her what she really wanted. She told me
without hesitation that she wanted to be peer level with me by the time she was 16. She
wanted mutual respect, and wanted to make her own decisions. I recognized that the time
had come where she was naturally craving more independence.
I thought about it, and after a day or so, I told her I had come up with an idea. I told her I
didn’t know if we could get it done by the time she was 16, but that my idea was probably
the best way for her to get to where she wanted to be.
The first thing I told her was that if she was going to be free, she was going to need to
create rules that make her free, and learn, over time, how to follow them. But I emphasized
that she would be making her own rules from day one, and not following my rules. She
liked that idea a lot.
The first thing we did was sit down with a pen and paper and I asked her questions like:
“how much sleep do you need at night?” She replied 8 hours. I then asked, “What time do
you need to leave for school?” Then, “how much time do you need to get ready for
school?”
As you see, I am asking her about her life. She caught on right away that we were arriving
at a rule for bed time. I asked how much time she needed to fall asleep along with a couple
of other questions, and soon we had the right time for her to go get ready for bed and go to
bed. So I would then ask, “So do you think that 9:30 is a good time to go to bed?” She then
agreed that it was obvious, and we made that a rule.
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I asked, “Do you see that YOU created that rule, not me?” She agreed, and was very
excited about the process.
We took a little time for the next few days to do this with everything. In a short period of
time, she had a plan for her life. I also told her that this was a starting point. That
experience would require that we make some adjustments.
In addition, I told her that the first year, I would enforce the plan and the consequences for
breaking the plan. The second year, she would do the plan herself, but I would still enforce
the consequences. The third year, she would do the plan and enforce the consequences.
With respect to consequence, for example, if she did not follow her plan, she had to run
around our block two times. She did not like to run at all, but recognized the punishment
was good for her.
At times we would review. For example, she was feeling light headed at school by 10AM,
and could not concentrate. I suggested that she eat eggs and toast instead of cereal so that
the food took longer to digest. That perhaps her body was going into detox mode around
10AM. That worked.
Those two years, and even years beyond were not without their challenges. In fact, there
are a couple of days I would dearly love a do over.
At age 18, my daughter was attending the University of Washington, but with the college
credits of a junior (3rd year). She graduated with a BA at 21.
Best of all, she is herself. Now she is 22, and thinking about her double masters in clinical
psychology and nutrition. I only asked her to complete the BA. Now I’m just dad the
sounding board. She and I are very close. During those years, she talked to me about just
about everything. In fact, at least one thing, I would like to forget, lol.
I don’t imagine her accomplishing anything else. It’s her life to do whatever she wants. Dad
just wants her to be happy, and to do what she loves to do.
I want to also mention that when she was still in high school, she was sad at times, and
complained that her friends were just not working this hard and they were having so much
fun. I would tell her, “Sweetie, you just keep going. You will see that you are going to find
yourself in a completely different world with so many more options than they have.”
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When she was 20, I think she told me exactly that. “Dad, you were right, my friends have
no idea what they are missing. I think if some of them knew, they would have worked much
harder.”
My daughter was the first in my family to get a four year degree. Check.
As you might imagine, when I was learning The Art of War (no easy task), I saw so many of
the principles at work in my life in the past.
When I created the learning system I call Forex Art of War, you will see that I used that
experience with my daughter. Without knowing it, I had been applying Art of War principles.
So this is why I ask you questions about your trading, rather than teaching you how
someone else was successful, which never works. Can you imagine me trying to teach my
daughter to prosper in the world by making her do things that made other people
successful?
There have been studies that show that kids who go to bed at 7PM end up more successful
than those who go to bed later. This is the difference between making a decision based on
some evidence, and making a decision based on principles.
The others who are not successful are not that way because of the bed time. It’s because
of how they spend their time. But it would be easy for a parent to make a rule “go to bed at
7PM, and believe, based on very strong evidence that this is a good rule.
And yet it would be rules like these which would cause children to rebel the most when
those rules are not working for them.
In this first section, my goal was to impress on you the importance of a good plan. That the
plan needs to be based on you, and no one else, and the rewards for choosing this path are
not insignificant.
Okay let’s get to work on your trading plan, and we’ll learn more along the way, here in level
3.
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Chapter 2: Getting the Right Information for Your Plan
You might see two other trader’s plans accidently or on purpose, and think to yourself,
“those plans look almost identical.” They do look that way, but believe me when I say that
no matter how identical they look, they ARE different. If not in word, in meaning. So keep
this in mind as you proceed.
To do this right, you are going to do a little bit of work, and also will need some help for
others. Hopefully you got the thumbs up from one or more members of the community,
validating that your setup was consistent and that you are applying complete logic.
From your last five trades or so in level 2, you should be able to get a picture of one or two
setups that represent what you do well.
Here’s how I did it.
First I looked at the most recent five

trades (that have complete logic), and
looked for what was consistent and what
was the application of complete logic. I
usually found one picture to best
represent this. It doesn’t matter if it is a
losing trade. It doesn’t matter if it is an
odd pair like the AU or NU.
The main thing is that this picture

represents what you see best, making
good decisions. I just took this picture
from a trade that one of our level 2 traders
took yesterday. You can see the 30
minute chart on the top. You can see the
5 minute chart on the bottom. From this
picture and the details he wrote above, he
would have all of the information he needs
to create a trading plan. The most
important is the ROA he listed as 21 PIPs,
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in terms of the information at the top. The rest of the information is on the chart. I can see
the trend, the advance, the fib drawing, the entry and exit prices, and so on. I’ll be giving
you a list of questions to answer.
So this is what you need to do. Find a picture of a trade that has the following information,
and which you did consistently.
 Trading in the direction of the trend

 Trend is advancing
 New Wave Fib is drawn correctly
 Minimum ROA is met
 Entry and exits reflect what you “usually do.” (previously used the word consistent)
If you are a member helping another member with their plan, you need to be
looking for this, too.
What you want to do is choose a picture, and then post that picture in your forum, and ask
for help from other members. What the other member will do is look at your picture, and go
back to your level 2 work, and see if they agree that this is the trade you should use. Stay
with this until you feel like you have agreement. It’s okay to take a good week for this
process, though it is possible to get it done in much less time.
I’m just saying not to be in a hurry. If you get this right, you will be ahead of the game. Get
it wrong, and you will be wasting a lot of time.
You have a horse in the race. In other words, you have attachments. You are hoping to
make money doing this. You might be hoping to do this sooner than later. You might have
emotions distorting what you are seeing. This makes it difficult to be objective. The
member’s only motivation is to help you like someone else helped them.  So it is best to
get this third party validation. You’ll have more real confidence in the process if you do.
Remember that confidence comes from experience that is validated.
Okay now, if you have that part done, then you are ready for the next step.
The “top” of your trading plan will look like this.
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Vance Williams 6/15/15
Golden Rule: Follow Your Rules
 If you discover a mistake let your stop or limit hit

 May note change a rule during a series of trades
 One trade at a time (add these three to the top)
I had a rule: “share your trading plan with no one.” It would be very difficult to make a
program that is community support without you publishing your plan. As I said, in my
personal coaching program, traders never saw a trading plan until they made one of their
own. But that’s just not practical with a self-study program with an important community
dynamic.
By far, the most difficult part (of the plan) to define are the entry and exits (entry, stop loss,
target), and this is not really that difficult. It just may require a series of back and forth
questions and answers to arrive at the best rules to begin with.
Okay here are the questions. You want to look at the picture that was chosen and answer
these questions in your personal forum: (feel free to number these)
 What hours are you going to trade (should be same hours as your trade)
 Which currency pairs are you going to trade? You get more practice if you continue
to include the AU and NU, but this is up to you
 Which charts are you going to use, and for what purpose? I would keep this simple
for now, sticking with the 5 minute and 30 minute. Perhaps adding the 1 minute for
fast moving market. But know that “fast moving” will need to be defined by you in the
future (note that not everything needs to be defined now. In fact, there are good
things you are probably doing that you are not even conscious of yet).
 How do you determine the trend direction?
 What is your minimum range of advance? Is there a maximum?
 What risk to reward ratio did you use in this trade?
 In this next section, you will have three different areas of rules. The “order” is not
important. But you need to determine “why did you choose that entry point? How
did you determine your stop loss? How did you choose your target?”
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For some traders, they go right to their stop loss or target first. For others, it
depends on the setup. You can also use words like “solve for entry” or “solve for
target” or “solve for stop” if you are actually doing that.
 What is your maximum risk to equity? I suggest a maximum of 2.5% - I think this
may be the first time I’m saying to do this in the book. There is a later chapter
which has “risk to equity” in part of the title. Please review that chapter.
After you have answered all of these questions, there is one more thing for you to do. Go
back to the last 5 trades you took and answer this question:
 Is there anything else you were doing consistently in your trades which did not get
included in this process?
 If there are things you are watching for, such as high impact data, or even nuances
you are watching for, put those under the plan.
Just do the best you can.
As a member who already has a trading plan, if you are helping someone with this, what
you are really doing is making sure that the trading plan is complete, and making
sure that you understand what they are saying in the plan.
Remember that they are already trading good logic. You are just helping them to define
how they made those decisions.
If their answer to their entry rule is too long or unclear, ask them to explain, and include a
different picture if it helps. As I said, the entry and exit points are usually where you are
going to need the most clarification.
And sometimes traders overcomplicate the process. For example, their stop and targets are
well defined. Yet there is a paragraph explaining the entry, and the entry might be a simple
as “solve for entry, 38.2 or better.” That’s the entire rule. It’s saying that you can enter
anywhere you want, as long as price has pulled back 38.2 or more.
You might have 2 entry rules, or 2 stop rules, or 2 target rules. Before I give you an
example, I want to remind you that this is not about “trading.” This is about “YOUR trading.”
Maybe you like the stop loss beyond 76.4, but if there is a strong former support or
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resistance, it’s okay to just put the stop beyond the barrier, even if it is not beyond 76.4.
You’ll know just by looking at your trades.
And maybe this is something you do later after a review as a result of your experience.
Always remember that changes in your trading plan are based on a series of trades,
and changes are made based only on your experience. There’s that rare underline
again.
Validate that you have it Right
Give this process whatever time it takes to get your plan defined. Do not let someone else
choose the words for you. They can suggest ideas, but you really need to look at what you
did, look at the words you are choosing, and say, “Yes, those words define what I did.”
There will come a point when this process will come to a close. The more advanced traders
will keep an eye out for a plan that is not coming together and use some of their expert skills
to help out, even calling on me if necessary. So do not worry. You will get the help you
need.
As much as I don’t want to say this, the next step is to publish your trading plan in your
forum. I would suggest you make a note of the page, and include that in each trade you
take (I’ll put this in procedures).
The very next thing you do is PRINT and HAVE YOUR TRADING PLAN IN FRONT OF
YOU WHEN YOU ARE TRADING. Underline AND CAPS? You need to be going line by
line over your trade. I’ll talk about that again in procedures. Some traders are under the
false impression that they have their plan memorized. They probably do, but when
emotions like greed, carelessness and fear enter, the memory does not work so great. Go
line by line for each trade and you will achieve your goal faster.
Building a New Neural Network
When you are following your plan, you are learning to make decisions in a different way.
You feel emotion when you win or lose because your defense systems are triggering fear
when it looks like you could get hurt, and euphoria when it looks like you have been
vindicated of all wrong doing in your life (ha).
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So there is a “system” triggering emotions. Your brain needs to learn that this type of
decision making is normal. This takes time. Your brain is actually made of neurons. If you
do something like follow a trading plan, a new network of neurons is formed. If you keep
reinforcing that neural network with practice, eventually, the myelin with cover the nerve
endings, turning the network to gray matter (physical brain). That’s the gist of it anyhow.
The goal is eventually to create a “new normal.” Right now losing 4 trades in a row is
painful. But in time, your brain will learn that this will not kill you and that it is perfectly
normal. So in the meantime, you will need to be patient with the swings of emotions. Just
realize that these feelings are just “information.” The purpose of this information is to help
you navigate. Since you are flying in new territory (so to speak), you will need to learn to
allow these feelings to pass. Remember the marshmallow, and a powerful principle: there
is no growth without suffering. If that sounds too harsh, put it this way. You don’t grow
stronger muscles without tearing the existing muscles. If you are going to become good at
Forex trading, you are going to be challenging yourself to grow. The best tip I can give you
is from physics: “for every action, there is an equal and opposite reaction.” Our natural
tendency is to push away or run from discomfort. What would happen if you went
towards the discomfort and welcomed it? I’ll let you find out for yourself.
My mentor always says that “when people finally turn to face their demons, they find a pack
of puppies.” In my experience, this is true.
Coming up next is procedures. I’m going to keep this very simple for you at this point. But
you need to follow some procedures. In this way, you have the information you need to
effectively evaluate a series of trades. Often traders take 5 weeks to complete the series.
When we get to the evaluation, we just have no idea what was happening around a
particular time in a trade. Perhaps a 30 minute chart was just zoomed in too far. So
procedures are VERY valuable, and as I said, I’ll do my best to keep them very simple.
Okay on to the next chapter on procedures!
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Chapter 3: Level 3 Trading Procedures
It is very important to follow procedures and gather this information because if you are
missing information when you get to your review, it will slow your progress.
At this point we are still ignoring the fractional PIPs, though if you are comfortable, you can
include them. In addition, up to now, we have been ignoring the spread. If your spread is 1
PIP or less, you can continue to do this. In level 4, you will need to account for everything
because then we are actually talking about bottom line profit. You need to be hitting .75:1 to
achieve the optimal risk to reward balance.
Things are going to slow down a bit in Level 3 because you are getting more discerning
about your trades. But keep in mind that you are going to start seeing more nuances, and
this will keep you a little busier. It’s also okay to slow down and spend more time with family
or with something else you love doing.
If you want to begin accounting for the spread, I suggest at this point you continue to ignore
the fractional PIPs. Now as I explain this to you, please know that very few traders “get
this” the first time they hear it. So I’m going to give you a rules to follow until you see it.
Accounting for Spreads
The reason why this can be confusing is because buy orders are executed at the buy price
(ask price), and the sell orders are executed at the sell (bid) price.
To make things more confusing, a sell order closes a buy position, and a buy order closes a
sell position. Your chart price should be set to “bid.”
You now have enough information to figure it out, just so you know. So if you have the
great desire to really “understand it,” then by all means study those two paragraphs as
much as you like.
But you will all understand this eventually. You see, in order for the brain to receive
information, there much be a corresponding pattern in your neural network (brain) to receive
it. This happens as a result of “impressions.” It’s why advertisers repeat the same
commercials over and over again. “Ace is the place with the helpful hardware man.” You
hear that enough, eventually you will think of Ace when you need some help with your
house.
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Here’s the reason why: If you are in a sell position, in order to close that position, you must
execute a buy order. The buy price is “higher” than the sell price. So if the spread is 2, for
example, your trade will be executed 2 PIPs “lower.”
If you were selling at 1.2000, and you wanted to close the trade at a target at 1.9985, if you
used 1.9985, your trade would close 2 PIPs LATER. To get the trade to close at the correct
price on your chart, you would need to add 2 PIPs.
Why? If the spread is 2, when the chart price is at 1.9985, the buy price will be at 1.9987.
Can be confusing, but consider that the buy price has not yet reached 1.9985. Your target
has been reached on the chart, but your trade didn’t close!
That’s why you need to “add the spread when inputting pending buy orders.”
But be careful not to add to the distance. It is a common mistake to look at a sell trade
going down, so see that price needs to reach 1.9985, and then to add 2 PIPs to the
“distance” of the trade, making the order 1.9983. Don’t do this.
In lieu of understanding, I’ll give you some simple rules to follow. Any pending buy order
requires that you add the spread when placing the order.
The simple rule is this: When in a sell, when inputting the stop or target orders, add the
spread (in this example, 2)
The other rule you need is this one: when placing a “pending buy order,” add the spread.
Many traders call this an “entry order” from the old days. Any entry is an “entry order.” So
the symbols don’t work well. Nonetheless, let me give you an example.
Let’s say that price has made a New Wave of 22 PIPs, and you are watching in real time
and want to enter at a 50% pullback, and you want the platform to execute that for you
automatically. On this type of order, since it is a pending “buy” order, you must add the
spread when inputting the order.
I don’t teach breakouts, but if you bought on a breakout, the same rule would apply. Most
traders need to learn to do all of this. The exception would be that if you are trading below
your maximum risk to equity, and you are getting the minimum .75:1 risk to reward. In this
case, the spread doesn’t matter as much. I have traded for quite a while with Interactive
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Brokers. My particular trades usually exceed 1:1 risk to reward, and my spread are very
low. So there is no need for me to account for spreads.
Using a Trade Calculator
First of all, you are welcome to continue to do this manually. I explained how to do this in
Level 2.
Some traders like to do so as part of their routine. Others are VERY detail oriented and
prefer to use calculators. You can get the calculator in the community area if you are a
member of the community or on my home page if you are not a member. My suggestion is
to learn to use the calculator. It will 1. Save you time 2. Make you more efficient. In
addition, there are much more sophisticated spread sheets that you can use if you want to
know even MORE about your trading history.
If you are someone who is trading cross pairs, which I do not recommend at this stage,
in order for your prices to be correct, you must also use the broker’s PIP calculator to find
out what the PIP Value is. This is actually true whenever the USD is not in the second
position (EUR/USD). Said another way, if the US Dollar is not the quoted currency, you
need a PIP calculator to get it right. This goes for pairs like the USD/CHF, and USD/JPY.
Even some “experts” are unaware of this fact. We discovered it in our volumes of study and
documentation. PIP value is determined by YOUR broker.
Okay some procedures I can list. This will help insure other traders can easily follow your
trade, and that you have the information you need to make the most of your experience
when you review. I’ll keep them as brief as I can.
 Print your trading plan and have it in front of you. Go over point by point for
each trade to make sure the trade fits your rules. No matter what you are feeling, if it
fits the rules, take the trade. If it doesn’t fit the rules, don’t take the trade.
 Always label any barriers on your 30 minute chart. Can also do so on the 5 minute if
you like. Often these are the same chart.
 Make sure you can see context on the 30 minute chart. This is usually 3-5 days of
information.
 On your 5 minute (or in some cases 1 minute) make your entry price label green,
your stop loss red, and your target blue. Make sure the labels are big enough to
easily read. Automatic prices on horizontal lines or trade orders are usually too
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small to read (if members can’t easily read your work, they are less likely to provide
feedback).
 I suggest you learn the calculator. In some cases, the software won’t work on your
computer. Seek out and find a way to make it work. If you are not a part of our
community, someone in your group might have the skills. I put a trade calculator at
www.forexartofwar.com if you are not a member and need one.
 You may also want to follow higher target exits for later review. This is up to you.
Did price reach 1:1? 1.5:1? 2:1? This is optional. I’d rather you keep it simple. But
this is good information to have.
 Be sure to put an arrow on the candle showing where you entered. You’d be
surprised how many times we look back in time and cannot tell WHEN you entered
the trade. The charts I used can display an arrow automatically.
 Post your trades in real time, before your stop or target is reached.
 Write information about your trade in the comment area of the post. Be sure to
include the ROA, and any information you are noticing. For example, “I entered this
trade 15 minutes before Consumer Sentiment was being released.” Or, “I noticed
that this was a brand new trend. There might be more opposition, resulting in a
bigger pullback.”
All of this information can become useful when reviewing a series of trades. Some
traders post a lot of information with their trade. That’s okay. This is a function of
personality. Make a note of the page your trading plan is on near the top of the post,
i.e. Trading Plan page 51, or TP 51 (put most pertinent information at the top. This
will encourage more feedback).
 When the trade is complete, post a follow up picture showing the result and how that
result unfolded. Also add a note about whether price reached your stop or target
(not win or lose).
 I would also suggest that you begin taking pictures of your trading platform orders,
as well. I’ll tell you why. One morning, I woke up year ago and 15% of my account
was gone. At first, I could not tell if this was my mistake or one made by the broker.
Finally I saw that the order was executed 100 PIPs lower than the order I intended.
Now, that was probably me being careless. But the truth is that I’ll never know for
sure. From that day forward, I took a picture of my orders and saved that picture, too.
Feel free to implement this in level 4.
 I would keep a personal journal about your emotional experience. Just write down
anything you are experiencing. It will be helpful over time.
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 When you can, review other traders work and provide feedback if you have some.
This will help you as much as it helps them. Who learns more? The teacher or the
student? The teacher ALWAYS learns more. It’s a powerful principle you can apply
in this way.
 If you begin seeing a setup that is different from your trading plan, and WANT to
trade it, by all means, go ahead. But make sure at the top of the post, write
“documented trade.” In this way, you signal everyone that you are consciously going
off the trading plan on this setup. Notice that I didn’t say “if you see a trade taken by
someone else that you like.” This can only be something YOU SEE. Again don’t fall
into the copycat trap.
 Do not evaluate your trades during a series. Only make notes about anything you
observe.
I think that’s enough procedures to get you started. The next step is to print your plan and
procedures, and take your first trade. Just get it done. Don’t worry about making a mistake
or winning or losing. You’ve come this far, now cross that barrier few have ever crossed!
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Chapter 4: How to Review Trades
My first suggestion is to see if you can get someone else to help you review your trades.
Remember that this is new territory. Up to even the present moment, I have been doing
every single review for every trader.
Another trader is likely to be more objective. Ever notice how it is easier to solve others’
problems than it is to solve your own? That’s what I’m talking about. We are just too close
to the trees to see the forest when it comes to our own stuff.
So see if you can get someone who has more experience to pay it forward for you and help
out. Then you can do that for someone else in the near future, too.
Okay what are we looking for?
 For the first section of this, the trader remains silent.

 When I look at a series of trades, the first thing I do is read the trader’s plan. Then I
literally go through the forum page by page seeing if the trader followed the plan. I
write “Trade 1” on a piece of paper. I make notes of anything I see.
 Did they follow their plan in the trade?
 Are there any areas that need improvement?
 Did they make notes about something else they were seeing that we might want to
consider putting in the plan?
It is only natural to feel like we need to make a change when we lose. It is the job of your
helper to look objectively at the setup. If you followed your rules, it was a good job. Any
single trade is a “random event.” Always remember that. Reliable patterns can only be
revealed in a series. If you did everything right, a single win is still just luck. You have
actually crossed over from Newtonian physics, into the world of quantum mechanics. In
QM, you cannot predict the behavior of the individual, only the behavior of the group. In this
reality, everything is just a probability.
Now maybe there is something that can improve. But be VERY cautious when changing
your plan. The rule is this: A plan may be changed IF the trader has “experience” with the
nuance being observed. Perhaps they want a different rule, for example when the trend is
new. Well, to make that change, they should have been making notes about that in their
forum in the series.
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If it is not clear, DO NOT change the plan. And keep in mind that ten trades is actually a
very small sample.
 I literally write “good” next to Trade 1 and 2, and so on. If I see something, I make a
note of that.
Next I include the trader.
 Tell me about the experience. I listen and make notes of anything that seems
relevant.
 I then ask, “What would you like to change about your plan.”
I then evaluate whether or not that is consistent with the rules for changing the plan and
consistent with my observations. Remarkably, we are usually on the same page.
Again, if there is any doubt at all about a change, do not change the plan. Just make a note
on the plan to observe this during the next series.
Remember that the goal is NOT to make money as quickly as you can. The end game is
making good decisions. In time you will come to clearly see important nuances. You will
add these to your plan. You will consistently execute your plan. When these two things
happen, you make consistent profit.
If you are in our community, ask about a recording of me doing a review with a trader. This
will give you a really good inside look at how this is done. If you are not, just do your best.
It will work!
 During the first review, if the trader has not been documenting well (this is natural),
the value of doing so will usually become apparent.
 There are times when we step away from the trading plan for a day. Maybe have the
trader go over the trades again. Then we get back together and make any final
changes.
 The changes are made. This is Plan 2, and you head out to take ten more trades.
Make a note of the new page that the revised plan is on for your documentation.
You can always edit any post with this information.
It’s okay if you end up with 11 trades or 15. But if this happens, make a note in your forum -
post something like this: Trade 2-1 (series 2, trade 1)
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Remember that if you are helping someone with their trades, this is not about you at all.
This is about them. Before I begin with them, I pause and close my eyes. I focus on what I
want to feel, not a “symbolic” outcome. I find feelings of confidence, then insight, then
presence, and gratitude, with the intention of helping them with their personal and financial
goals. That’s usually enough and only takes me about ten seconds.
 By your fourth series, you will have been watching high impact data enough to make
rules about them. So be sure to add in rules about high impact data at the end of
series 3 or 4.
 Also note that it is unlikely that your trading plan (rules for trading) will become much
more than one page. The chances are very good that the bigger your trading
plan becomes, the more you are trying to gain a “feeling of “certainty,” and
there is no getting there. What ends up happening is that you get so picky, at the
extreme point you rarely find a trade to take. This we call the paralysis of analysis. I
will be commenting on this in subsequent sections of level 3.
Also, it couldn’t hurt to get a second opinion on your series if you can find someone to do it.
Keep these ideas in mind.
 Complete logic
 Changes based on experience
 Strengths and weaknesses
In addition, they might have broken a rule in their plan, but actually been trading a good
nuance that they saw. You should make a note of this when you are reviewing a trade.
One of the most difficult parts of learning to trade Forex is having some confidence that you
are making progress. This process will help a lot with that. But give yourself 3-4 series of
trades before you even take a look at this. In 3-4 series of trades, YOU WILL see a huge
difference in your skill level.
Always look to encourage and build others up in the your community.
Review Multiple Times – Glean All You Can
I once reviewed series of trades five times, and each time I found something new. This
suggests that I should have reviewed more. So you can one-up me in that department.
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Guideline? Keep reviewing until you don’t see anything else. Keep in mind that as you
are making your first 40 trades, there are going to be changes. But as the changes become
fewer and farther between, then begin going back and reviewing several series of trades.
Trust me on this, you will discover valuable insights about your trading! Does all of this
sound like a lot of work? I guess you could say that the path to success does involve a lot
of development. But once you get skilled, this gets very easy. But until then, yes, you have
work to do 
Don’t Take Anything Personally
I’m going to go into a little bit of psychology to wrap up this section.
I have a rule: I can take nothing personally (The Four Agreements). It took a little doing for
me to get that rule fully engrained, but it is very difficult to offend me anymore. This is
something we all need to practice, in my opinion. It makes us learn much faster. People
should not fear giving us feedback.
As my mentor says, “You are not allowed to make up stories about other people.”
So if someone gets mad at you, your reaction should be compassion. Otherwise, you are
taking something they said personally. I can hear my smallest boy saying “Lucius said I am
stupid.” He says it with so much seriousness. I always ask. “Are you stupid?” He says,
“No.”
“So if you don’t agree with him, there is no reason to be upset. When people say things
about you that you don’t like, they are just expressing something they feel. What they are
saying is not about you. It just came out that way.” And I might point out that this shows
that we human beings have a lot of work to do in this area. Is ordinary experience primarily
a result of our feelings, or are feelings triggering those experiences (stories)? I think you
will find that the latter is true.
You can see I’m struggling with the words above because for me, the only real experience
is the emotional experience. But prior to coming into this awareness, my experience would
have been expressed in a “story.” How do we know this is true? Because one is “symbolic”
and the other is not.
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If you really don’t care what other people think, you will not hesitate to post your trades.
The chances are good that most of us will have some reservations on this subject. The key
is always to “do the right thing, regardless of what you are feeling.”
I can almost hear some people thinking that this is “gobbledygook.”
No. If you are going to succeed, you must become more response-able than you are now.
This means learning to see the world more “as it is.” It means accepting that uncertainty is
okay. You don’t know what is going to happen 5 minutes or 5 seconds from now. It’s okay
that we are vulnerable. You can die at any moment. The truth is that the future IS
uncertain, and you really ARE vulnerable.
It means seeing that other peoples’ “stuff” is THEIR stuff.
It means showing up, being HERE, NOW.
I’ll end this section this way. Each of us are on our own path. The real world is the world
we are experiencing right now. The past and the future can only be symbolized by
the mind. By experience, I’m talking about what you are sensing and what you are feeling.
The sounds, the images –the shades of green in the tree - your feet touching the floor – a
feeling of anxiety.
Our current culture is living in a small space in their heads, almost totally unconscious of
what they are really experiencing - of what they are sensing, of what they are feeling. I’m
telling you this, because THIS IS the source of our distortions.
Our feelings and senses are bringing us information to help us navigate. But how can we
navigate well if we are not conscious of most of it? Something to think about. The best
thing we can do is practice being conscious of what we are feeling, and what our senses are
telling us. The more you practice this, the less distortion you will experience. I told you that
we understand each other less than we think. The truth is that most of us don’t even
understand ourselves. But your best chance of reading what others are doing is by being
yourself. One of my earlier teaches used to say that the most important thing in life is to
“show up.” This is what he meant.
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Chapter 5: Trading in the Zone
This is a really simple, but important idea. Traders have heard me often talk about routine.
It doesn’t matter what you do specifically, but I think it is extremely helpful to have one.
For twenty years now, I have been working from home. As you might imagine, I had to
learn how to do that. This was everything from learning to be disciplined to actually go to
work, to knowing how to divide the work from the home life.
In the mid 90’s, I learned and wrote on NLP (Neuro Linguistics Programming). In seminars,
we would play the Theme to Rocky and the room would get very excited. Then we would
explain that all we did was use a trigger to change your state of mind. While the study of
NLP can be quite complex, I’m only concerned here with this simple idea.
In an ideal world, when you sit down to trade, you want to be focused only on your trading.
You want to feel confident about what you are reading in the markets, and confident that
you know what you are looking for. We want to be “in the zone.”
At some point in your trading, you will find yourself “in the zone.” This feels pretty good, too.
The question is “how do we get in the zone and stay in the zone.”
I consistently read the market with accuracy. I interpret global fundamentals in minutes, and
price in seconds. But this isn’t just my experience at work. This is also the result of a
routine that I go through that signals my brain and changes my mindset.
Let’s use a familiar example before I explain what I do specifically. If you have never seen
professional baseball players, you should really watch a half hour just to see what I’m
talking about. But most of us have already witnessed this. You will see much more of this if
you are attending an actual game where you control the cameras (your eyes).
Okay we start with the player is in the dugout. He is up at bat next. He has his favorite bat.
He has his favorite batters helmet. He might even touch his cross or rabbits foot as he gets
up and heads on deck (the area just outside the dugout). On the way there, he might spit,
he might look out to the field. But usually he grabs more than one bat to practice swinging
initially. At some point he drops the other bats and is left with his favorite. It’s his turn to go
to the plate. He might spit again, tap the bat on his foot. He gets into position at the plate.
Maybe he steps back and then steps forward again.
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He might tap the bat on the plate. He might kick the dirt where his feet are going to be
positioned. He then crouches down. Maybe one practice swing or two. He might look to
the outfield in a particular spot.
You get the idea.
It doesn’t matter what the batter is physically doing. What he is actually doing is repeating a
ritual that puts him in the zone. There is no confusion in his brain that the only thing they
are about to do is hit the baseball. And this is how batters get “in the zone.”
Well you can do the same thing, and that’s what I do. Again, it doesn’t matter what you do,
only that you repeat the same thing each time before you trade.
Now to answer the question, how did I separate home life from work, it was actually easy. I
used the Rocky Theme idea. I use music.
There is only one place that I listen to smooth jazz, and that’s when I’m focused on Forex
trading. You will hear it open each of my live sessions. When my brain hears smooth jazz,
I go right into a trading mindset. But my routine is more than that. I get up at about the
same time to trade.
I drink water. I grind and get coffee brewing. While the coffee is brewing, I do a little
stretching. I’m not doing Yoga. I just stretch for a couple of minutes. When the coffee is
ready, I head down to my office (apart from everything else in the house). This is where I
trade. Before I turn on the computer, I close my eyes and think about what I want to
experience emotionally (prayer or meditation would be similar). This lasts about 20-30
seconds.
I turn the computer on. I turn on CNBC. I review what traders have been doing in the
community for about ten minutes, looking at my own charts. I see what they are chatting
about for a few seconds on CNBC. If nothing out of the ordinary, check. I then read some
fundamental analysis. For the past few months, I have been following Market Pulse. I
prefer Dean Popplewell and some of his crew. I should say that my source has changed
many times over the years as companies and people change. But Dean does a great job of
going out in the world, looking at everything, and digesting it into some brief conclusions.
He is not always there, or he might not be writing about something relevant to me. I’ll also
look at the other writers there, too. If you are the kind of person who wants to follow the
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macro trends, check out Mauldin Economics. But you really need to love to read to follow
that. I’ll check that out if I see any major trends unfolding (2 or more years out).
In periods of heightened uncertainty, if I can’t get a read on the market (rare), I will then take
a look around Bloomberg as well. Which brings up an important point. If you find
yourself looking too hard and too long at the information, there’s probably nothing
there.
That all said, I spend only a few minutes on this and now I write my own conclusions which
are normally a paragraph about the story currently driving the market. I look to see what
has happened since London opened (I trade the first three hours of US open). I look at
what price has been doing, and catch up on what price has done since I was last at the
charts.
Whatever your setup is, one of the most important things you can do is go
back to where you left off in your last trading session, and follow price. Follow
the trend, the waves, and the setups and see if you can find any trades that
setup while you were away.
Do this for any and all pairs you trade. If you do this each day before you
begin, you will be caught up, as though you never left, and have a much better
read on what is happening now.
By this time, I am totally ready. I’m all Forex trading at this point. If there is no trade setting
up, I shift to work with traders, but until I leave for the morning, my mind is totally focused on
Forex.
It doesn’t matter what you do, but I suggest you create a routine. It’s the best and fastest
way (I’ve found) to get into the zone for trading.
I think it is also worth saying that I have had to learn to balance life with trading. This is
more difficult when we are brand new because there is so much to learn, and this phase
can be a lot of fun. When you know exactly what you are looking for (trading plan), this is a
lot easier to do.
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Having an Outlet
I think part of being in the zone is also managing some other tendencies that some of us
have.
There are people who display some degree of aggressive nature. This doesn’t mean that
they are violent or even pushy. The better word is probably “eager.”
If we are eager during trading, this emotion could cause us to see setups that aren’t there
and to take risk we should not be taking. So where does this “eagerness” come from? It’s
probably part of one’s personality we were born with. If we find ourselves eager to trade, I
think the best thing to do with this “information” is to find an outlet for that energy. This
could be a separate demo account where you trade any setup you like and where there are
no rules. This usually works early on. But that part of you that is creating that feeling of
eagerness is not going to go away. One trader continued to use this idea well into five
figure trading. He followed his rules in his main account, but has a $100 account that he
“played” with.
I’m a person who falls into this category to some degree. What I did for years was play
online free poker. Once or twice a week, this is what I would do. But in the past year, I
discovered the Destiny video game. I’ve never been a gamer at all. In fact, I talked down
gaming, seeing what it did to some people I observed.
But that game totally gives me what I need for that part of me. I’m always accomplishing
something. It can move fast or slow. It’s sort of like part of me wants to do something and
get a reward for it. Well, that’s what Destiny does for me. I also want to share that I began
playing at the age of 49. It was painfully slow for me to learn the remote control.
I had to call on my trading experience to look for my progress a week or two weeks down
the road. It worked. My sons (5 and 7) are better than me, but I’m more accomplished in
the game because I focus more on strategy and they focus more on fun. But they will pass
me someday in the not too distance future. The great thing about Destiny is that we can go
on missions together, learn about the game, research things we don’t know, and find a way
to win, together. And just like in trading, one of the keys to success is a balance
between aggression and caution.
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Again, Sun Tzu said, “If you know your enemy and you know yourself, in 100 battles
you will not be in any danger of losing.”
In turns out in life that we usually know WHAT to do. It’s the HOW that is troublesome.
How do we change our behavior?
My daughter once asked me what I thought was the most valuable skill. I thought about it
and answered, “If you have discipline, you can have anything.”
As a part of that HOW, I think it is more important to find out what works for you than it is to
try to train yourself to do something you think you should be doing.
I knew I needed to exercise. I would not walk. I would not jog. I couldn’t get motivated to
do exercise. But then I found Muay Thai Kick Boxing. Prior to that day, I could have
thought of myself as lazy. That would not have been true. What was true is that I needed to
find the right thing for me. Not only was I not lazy, but I was willing to get beat up for a full
hour in one of the most physical sports on the planet.
When it comes to developing discipline, focus on finding what works for you. There will
be many times where you will have to wait 15 minutes to eat the marshmallow in
order to succeed. In those moments, when you feel that discomfort, I’ll tell you the
trick. Welcome that feeling with open arms. Like it is a long lost friend that you have
been waiting to see for a very long time.
Let me tell you what is going to happen. That feeling is going to flee from you. It’s physics:
for every action, there is an equal and opposite reaction. When my mentor shared this with
me, I was not convinced. But after doing it, I found he was right. This is a powerful idea. In
fact, if you use nicotine, try it just once. When you feel that craving, focus on it, and
welcome it, totally feel it, and watch it go away. If that doesn’t happen, you are not doing it
right. How do I know? It’s physics. Don’t believe anything I say. Just do it and watch what
happens.
So if you want to “trade in the zone,” have a routine you only use for Forex trading, and be
mindful of your emotions (like eagerness). And think about ways to vent that distraction in
creative ways. Worried about how a trade is going? Are you closing trades early? Turn
your computer off, go do something else. Teach your brain (by your own actions) that there
is nothing to do. These are just a couple of examples.
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But you have your routine to get in the zone, and then observe emotions that take you out of
the zone, and consider what you might do to alter that.
Too busy?
Gandhi once said to a group of his supporters “I need to set aside one hour a day to do
meditation.” One of them said, “oh no, you can’t do that! You are too busy Gandhi!” And
so Gandhi said, “Well, then, now I will need to set aside two hours a day to do meditation.”
Am I promoting Hinduism? No. But I can tell you that if I am very, very busy, the more I
pause to consider what is going on in my mind, the more I can get done.
And on that note, my mentor got me writing 3 pages each day, a long time ago. Over time, I
came to understand that all meditation really is (for me) listening to what is going on in my
body and mind. That’s all it is for me.
I’m 100% convinced that I will achieve more when I pause to listen more, but up to this
point, I’m content with my 3 pages in 8 minutes, and pausing a couple of times a day (for 10
seconds) to decide on what I want to experience emotionally.
Why don’t I do it? I guess I have what I want and feel I am moving the direction I want to
go. That being the case, what motive could exist to propel me to do anything else?
Post Your Own Analysis
There is a forum in in our community called “The Team on Fundamentals.” Feel free to
create that in your community. This is where your team shares their “read” on fundamental
factors, and how those factors are driving the market. Once you have been in level 3 for a
while, you might want to consider engaging in that forum. Get a read on the market from
sources you are accessing and share “anything” you think. Or just ask questions. I want to
share a quick story with you.
In the first year I was trading, I came to rely heavily on my mentor who was an economist
and Forex trader. On Sundays, he would publish the outlook for the week and he was
incredibly accurate. As our team of traders grew, I would share that information with the
team to kick off the week.
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Well, there came a point in time where my mentor decided to take a two week vacation to
China. Well, the next Sunday approached, and as I prepared to meet with the team, I truly
felt like we needed this analysis. But what could I do? I’ve been in this situation before.
And I did the same thing I did before. I stepped up and did my best to do his job. I
searched information, and got as good of a read as I could. Then I published that
information for the team.
As the week passed, I looked back on Saturday and realized that my analysis had been
correct. What luck, I thought!
Sunday came again. I did it again. The new week passed, and lo and behold, I got it right
again!
Some things you just don’t know until you do it. So from that time forward, I never had to
wait for my mentor to publish his analysis again. Often I published my analysis long before
he ever published his. But as you can see, I had developed a dependency on his
information, and I didn’t even know I was capable of doing it myself. After all, he has
decades of experience. How could I do it with such limited experience? Well, you never
know until you try. And give yourself room to improve and make some mistakes. But I
would encourage you to do the same. If you feel like you are going to use “the stories” in
your trading, take a shot at it! So far those who have, have been rewarded for their efforts
every single time. Everyone won’t do this, and that’s okay. It’s up to you!
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Chapter 6: When is it time to move to Level 4?
As I wrote in an earlier section, it is important that you trade and review many times, training
yourself to execute apart from emotions, and making adjustments based on your
experience.
Here are some guidelines you can model.
Generally it will be 60-80 trades, given a 4-5 week period for each series. So if you take
more trades than usual, this might require more calendar time.
The bottom line is this:
 You consistently follow your plan

 You have made changes to your plan over time (beginning after series 3), adding
nuances that you see well. Your winning percentage is averaging near 70%. Most
importantly, you have confidence in the logic you are applying, and in what you see.
 Perhaps you go to review, and for the second time, do not see anything that requires
a change.
Note that it is possible to be ready for level 4, but having only won 60% in the last two series
combined, due to a major change in market conditions. Also note that there will come a
time when the “psychology of consecutive loss” will not apply to you (more than 150 trades
with your plan). This will increase your trading opportunities, following the principle
that the lower the winning percentage increases the frequency of trades.
Many traders will come to see the probability of winning apart from the actual winning
percentage. In other words, I can look at any setup and tell you what the probability of that
setup winning, is. The logic determines the probability of winning over a longer period of
time.
Once again, seek validation from other members of your community.
Special note: In our community, those with the designation of “Trainer” are not
employees or partners. “Trainer” is a distinction given to those traders who
demonstrate a desire to help others and full competency with material, as well is
some people skills.
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Moving to a live trading account is an important step because you unleash the possibility of
new emotions into your trading. We’d really like to get the execution emotions out of the
way, and be trading with some confidence when it comes to “what we are looking for” in a
setup.
All of that said, it is completely your decision. So if you are in a bit of hurry, I want to give
you an idea of what you will be dealing with.
Level 3 is designed to help you train yourself to execute well. This is just practice, getting in
the habit of making good decisions regardless of what you might be experiencing
emotionally. The second part is developing some confidence in the logic and your method.
If you jump to level 4 too soon, you bring a lack of confidence with your method (not
enough defined nuances) to some new issues.
The psychology is a little different trading a live account. After all of this work, for example,
now there is some fear and pressure that can enter. There are countless scenarios, but a
common one might be that your spouse or partner has been supporting you in this
endeavor, and now the rubber is finally meeting the road. Has this time been worth it? Or
it may just be that you are risking real money, no matter how small it is. It can feel different.
So I would encourage you to be confident in your logic, method, and execution before
jumping too quickly to level 4.
In the sections of Level 3 which follow, I’m going to explain ideas that were a little premature
in level 2, and share some of the most common nuances that traders will gain experience
with. Some of which you will encounter in your own experience.
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Chapter 7: High Impact Data – Sentiment - Holidays
In my work with traders over many years, I have come to see that there are some ideas that
can be taught, and other ideas which must be experienced. In addition, not every trader will
“see” what another trader sees.
Over the years, I came to see that you can teach the logic which is common to all traders,
but the nuances must be incorporated as the trader takes trades (gaining experience).
Also, in the interest of not putting on “too much” at one time on the trader, I moved some
information to Level 3. Having a different rule for trading a new trend is an example of the
former. Not trading during a period of hyper volatility is an example of the latter.
High Impact Data
As I have written previously, I would trade all high impact data your first 2 or 3 series. It’s
good to get direct experience with variable spreads or changes in pricing, and know what it
is really like to trade during these events. I still get new traders asking if they can make
money during these events. I think you need to see for yourself what is really happening.
Even if you have the greatest price reading skills on Earth, and the discipline of a Shaolin
monk, how is that going to help you when you try to sell at 1.3200 and the platform says “I
can only give you a price of 1.3174?”
Most brokers are going to need to manage their risk as well. Remember: in hyper volatile
situations, the broker might not know what price is until it moves 20 PIPs or more. So the
broker must manage this risk. Even if they were willing to give you a price, they can’t if
they don’t know what it is.
In addition, two of the biggest brokers in the US (FXCM and Oanda) have variable spreads.
So imagine high impact data coming in 15 minutes. You are interested in selling, but their
traders who have buy orders begin pulling those orders, not wanting to get caught in the
potential fireworks. So you see the price on your chart at 1.2100, but the spread jumps to 8
or 20. This is because the buyers “on their books” are pulling their orders. There are no
buyers in between you and the spread. So do you want to enter a trade at a cost of 10 PIPs
instead of 1? Note that FXCM (in recent months of observation) are more consistent and
smaller spreads during these swings.
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This is an issue with dealing desks. At Interactive Brokers, you are much more likely to
have your orders executed. They are more like an ECN. The main idea behind the ECN is
to remove the dealing desk, always giving you access to a broader market of orders. This
eliminates the swings in variable spreads, for example, and probably enables orders to be
filled that otherwise would not be filled by a dealing desk, i.e. no buyers.
Why not just learn with someone like Interactive Brokers? Well, it is a very complicated
platform to use. In addition, their minimum deposit is $10k. For most traders execution,
and experienced management like they have (as well as lower cost) will be a later stepping
stone.
Since we are concerned only with the skill of consistent profit making in my program, I treat
that as a post level 4 issue.
There is a lot of data being released each day. We tend to focus only on the data which has
been deemed “high impact.” I usually rely on the Forex Factory Calendar for this
information. They do a good job of listing what the high impact data is. This is data that
the market has deemed could “move the market.”
Our team posts this information daily as well. We further separate this into two categories
1. Likely hyper volatility 2. Possible hyper volatility. Which brings me to my next subject.
Avoid Known Periods of Hyper Volatility
Hyper volatility causes what I was talking about above. It causes high spreads, market
movement so fast you can’t get your orders filled, and so on.
How do we know that information is likely to be hyper volatile? Simple: the market is
focused on it. At this very moment, as I am writing this, it is 11:14 AM ET on June 17th,
2015. At 2PM ET, FOMC Meeting Minutes will be released, followed by a press conference
at 2:30. The entire market is focused on this event. It is dominating “the story.”
Every story has a central conflict. Will the hero save the day or not? The story today is “will
the Fed raise rates?” “Will they be hawkish in their statement?”
That doesn’t mean that every time the Fed speaks this will be the case. It’s just this period
in time. But if you are “in the zone,” you will know that the market is focused on this
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information today. So the rule is simple: if the market is focused on it, there is a greater
likelihood of hyper volatility.
Pretty much a given is Non-Farm Employment, and is released (usually) the first Friday of
each month. Two days earlier ADP (a private gatherer of similar information) gives their
estimate of jobs. ADP can also fall into this category.
From time to time a different event develops. The key is to see when the market is
“focused on the event.”
Since September of 2015 to present date, very often any information around 4:30 AM for
the UK has a greater potential to be more volatile. We don’t tend to see gaps during this
time, but the moves have been stronger. This is subject to change.
Use HID to Your Advantage
Back in 2004 I was trading with my first mentor, who was an economist and Forex trader
from Eastern Europe, we were in a Position trade on the EUR/USD. Non-Farm
Employment data was about to be released. Like we were husking corn without thought, we
moved out stops from 125 to 250 PIPs. I should point out that this is the only context of
moving a stop loss in this way that
ever made sense to me. In other
words, doing this on a short term
trade would be out of the question.
We were in trades for days and
sometimes weeks.
Anyhow, I asked him if he was

concerned that the trend could
reverse. He said, “No, a single piece
of economic data rarely changes a
trend.”
Over the years, it could almost be

said that a single piece of data
almost never changes a trend.
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So here’s how you can use that information if you find you see it well. Imagine that you
were considering a trade as the red candle was pushing down at the black arrow. But at
the close of that candle, HID data
(not deemed hyper volatile) was
going to be released. If this is the
EUR/USD, and the data being
released is for the USD, and that
data is negative for the USD, price is
likely to temporarily rise, given you a
great entry, but at the same time, not
changing the trend that has been
happening up to this point. Note that
I’m ignoring the moving averages for
the purpose of illustrating this idea.
So you set an order 50% or higher or
enter at a really good price with a
market order (real time), and wait for
that light speculation to shake out and return to the trend down.
More about Stories
Technically there is a long term story, a medium term story, and a daily/weekly story. Long
term is a third story, but one we aren’t currently trading. If I was trading long term, I might
be in a trade for many months. Why would I tie up my maximum risk for months when I
can make the same amount of money in minutes or hours?
I think you want to know what the medium term story is, and you want to know what the
daily/weekly story is. Those two stories are always being created. The conclusions that
you arrive at are referred to as Sentiment.
The Market Does Change
Prior to 2007, we were more confident in the medium term. In 2008, we lost our future.
What I mean by that is that we could not see the future (no confidence in any vision). For
years, and really all the way up until September of 2014, there was no long term future or
medium term future. It was only then that we had sufficient evidence that the markets may
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“one day” be free again, the interest rates might rise, that quantitative easing (printing
money/creating liquidity) might stop. That markets might diverge (greater returns from
holding USD vs Euro), from what seemed like such tight controls by the central bank.
Prior to September of 2014, we had no idea. Would the USD lose its status as the world’s
reserve currency? Would the Euro go away? Would the financial markets crash again?
What does all of this debt really mean?
If you go back in our member archives of recorded live sessions, you will see this evolution.
You will see that we were monitoring the DOW movement. We referred to days as “risk on”
or “risk off.” This meant that investors would change from one strategy to the next, literally
on a dime that morning if there were reasons to be concerned about the future, or reasons
to be optimistic. In the later months, there was an index that was exactly that. You had one
button for risk on, and another button for risk off.
For us, “risk on” was selling the USD. “Risk off” was buying the USD. Said another way, if
investors felt good about risk, they would move money out of the US Dollar, and into other
risk instruments. This causes the USD to go down (or EUR/USD chart up).
Until everyone became aware of this correlation, it was a great advantage to us on our team
that observed it. And that’s the other reason to be on a good team. A good team can help
you see these changes coming. In addition, you can gain confidence in the change
faster.
If you think about it, it is one thing to observe a new behavior. It is quite another to have
enough confidence in the behavior that you are comfortable risking any significant money.
The way all of that unfolded in real time was interesting, I think. In September of 2014, we
began to believe that the US was stable enough to one day raise the Fed interest rates.
This was followed by Japan adopting an “every man for himself” policy of unprecedented
quantitative easing. This was in early November of 2014. This devalued the Yen vs. the
USD 4600 PIPs in 8 months.
In January of 2015, a Swiss bank made a unilateral decision so dramatic that it almost
bankrupted the largest retail Forex broker in the US. Price moved 1500 PIPs in two
minutes.
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I saw the writing on the wall in October 2014, but I set my sights on January (following the
holidays) to begin trading the market like it was a free market again. Now it is June and we
haven’t missed a beat, keeping our finger on this pulse.
The medium term story is stronger US Dollar, weaker Euro. The UK has been preparing for
a better tomorrow better than most (I think). I have maintained that they could surprise
everyone and at some point the EUR/USD would be going down, and the GBP/USD would
be going up. This sentiment is going back and forth, with the central bankers in the UK
staying very consistent with their policy (no hint of rate increase). Update: shortly after I
wrote this section of the book, the UK, in fact did join the “rate race.”
So what is the medium term story? The medium term story is what we see out about 6-20
months. Now keep in mind, we can’t really see that far. But we conclude that the market
is likely to be bullish for the USD or Euro.
The Daily/weekly story is focused on developments that are happening today and this week.
Yesterday, the Fed information dominated that story. The market was expecting
“something” from them that would indicate a rise in interest rates in 2015 – some
confirmation – anything. They got nothing. But “nothing” turned out to reinforce the idea
that a rate increase is less likely. This caused USD selling, and confirmed that we will stay
in the USD correction that began around the second week in April. This was after the long
rise of the USD since September. So the medium term is USD bullish, but currently in a
correction. Daily/weekly confirmed more of a correction. Personally I like to trade in the
direction of the current market sentiment. My first mentor referred to this as
“fundamentals and technicals being in agreement.”
You certainly don’t have to use this in your trading, but I think it is relatively easy to follow
with a little practice, and will give you more confidence, especially when you have money at
risk.
If that seems a tad overwhelming, just remember the routine I shared with you. I determine
all of this in just a few minutes each morning.
And I want to share one more thing on this subject. Be on the lookout when there is
heightened “uncertainty” about what the story is. You will see analysts “reaching” for
conclusions. If you have tapped into your usual information and can’t get a read on the
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market, the chances are 90% that there is greater uncertainty. I wanted to point this out
because you want to see when there is greater uncertainty – be conscious of it. In this way,
you avoid confusing a “lack of confidence” with “heightened uncertainty.” They feel similar,
or one can lead to the other.
Bank Holidays
Pretty much anytime Wall Street is closed, is going to be a day you can expect “different
behavior.” This is a point of logic you must keep in mind.
If you are trading with a broker like Interactive Brokers, you must be very sensitive to the
holiday schedule for each currency. If it is a European holiday where banks are closed in
Europe, and you are trading the EUR/USD, you will not be able to execute any orders.
Brokers like this will have a schedule. With most brokers (dealing desks), they just keep on
filling orders.
Summer Time
For most of July and all of August, behavior liquidity is likely to be less (less volatility) and
behavior is like to be a little different. Why? Because this is the time that a lot of major
players are just unplugging with their families. Given the choice, I would simply take all of
August off from trading. The full kickoff would be the business day following the Labor Day
holiday in the US.
Christmas Time
I stop trading from around the 20th of December to the first business day of the New Year,
and for the same reason. Major players are just unplugging to spend time with family.
Same result, as well: likely lower volatility and different behavior. Remember that human
behavior is your source of good logic.
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Chapter 8: Pattern Potential
Writing the first edition of any book, I always have a feeling of “darn it, this could be
organized better.” My first few books were very organized and edited well. But in this first
edition of this book, I’m feeling like I just need to “get it done.”
The main goal of the first edition is to have all of the most important ideas in one place. I
can organize better in a second edition if one is needed. I don’t want to wait another month
or two.
Besides, your experience with the book will likely prompt a number of revisions. That said, I
need to move on with the rest of the ideas that need to be covered in level 3. I’ve done my
best to organize them in a way that makes sense now.
Pattern Potential
This is a simple idea that is often overlooked. It’s the idea that you need to trade what “is”
there, not what you “want” to be there. This all comes back to logic.
This is a picture of a setup on the GU that unfolded last night. This is a 5 minute chart, and
the ROA is 31.
You can see the start and end of the

New Wave. Then I use lines to show
the wave pattern of the New Wave,
the pullback and the second push.
The first move up to the end point is

what makes everyone who is not in
the trade interested buying. At some
point, price will pullback, and this is
where interest will increase in buying,
driving the second push. Because the
second group of traders (getting in on
the pullback) are influenced by the
first pattern (move to end point), they will be “less certain” of a move higher. This will
usually cause a stall, and often price will not even break that end point before correcting.
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So the pattern potential is the end point, based on the psychology that is driving the
price movement.
Where it is not so simple is when the trader is inexperienced and is “looking for a trade,”
rather than “waiting for their trade.” Instead of trading the market psychology, they end
up trading their own psychology. Make sense?
But let’s look to real life examples. I grew up in the country for part of my childhood. Not to
offend anyone, but our perception as pre-teen kids was that most city people lacked
common sense. They would come to visit our town on the weekends. What was really
going on (as I know now) is that they lacked experience with our environment. I grew
up in gold country. So the tourists would see fool’s gold and ask if it was gold. Then they
would find more and ask us again.
Then we would tell them what the old timers told us: “you’ll know it when you see it.”
But the truth is that we had experience with it. We had seen it and touched it many times.
They were in a new environment, lacking any experience, and therefore seemed “odd” to
us.
Now for a more specific example. We would joke about the “great white hunter.” Where I
grew up, this meant that someone was eager and clueless, while being overly prepared with
the tools.
Where they grew up, “hunting” was a word that brought up the imagery of “walking and
finding.” Hunting in our world was mostly sitting and waiting.
So the great white hunters would be walking through the brush maybe trying to flush out a
deer or find one. They looked like idiots to us. But they were just inexperienced. The deer
could smell them long before they were ever going to spot them.
To get a deer, you must first have an area where you have seen one. Since deer are
creature of habit like us, then on another day, you have to simply pick a spot and wait for
him. You might wait all day and not get a shot. You might wait two days, three days, and
still not see him. But this is how it is done.
Trading is the same way. You just need to know what you are looking for, and wait
for it to come to you.
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Now you might say about the pattern potential in this picture: “But this looks very bullish to
me. I think it is going to move even higher!”
You might be absolutely correct, but I

want to point out that you are trading
a different pattern. You are trading
the bigger trend up.
Can you do that? Yes, but you would

need to know the logic and have it
defined before you could take any
meaningful risk. This takes
experience, and your definition of
“bullish” will be different from every
other trader. Why does this look
bullish? If you can see it, define it,
and practice it, you very well could aim beyond the potential of the New Wave.
But I thought you said we could aim beyond the end of the Fib in Level 2.
I did. But that is a little different. Most of you are going to aim within the territory of the end
point. Some of you are going to aim higher. That’s personality. But I’m speaking to those
of you who have been aiming within the pattern potential and are now seeing the potential
of price moving even higher.
The advantage of seeing this “bullish” nuance is that you can have your stop tighter and
catch more trades. But you need experience and definition (of bullish) to do this. Most
traders who start off aiming higher, end up changing, recognizing that their real first goal is
consistent profit. There is no need to aim for “more” if that is your goal.
If you are relatively new, you still may not quite grasp what I’m saying. I’m saying that there
are logical reasons traders get into the pullback previously illustrated. And there is a logical
reason they don’t always advance the trend higher than the end point. Give yourself time.
This is a question of consciousness. Some insight I can provide, and some you become
more “aware” of as you gain experience.
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Chapter 9: Total Risk – Margin – Leverage - Security
“Total Risk” is the idea of limiting your overall risk to a certain percentage. You are
managing your overall risk, and this directly impacts your profitability.
But how do you know what that percentage should be?
If you listen to the mainstream culture in Forex, you will often hear “it depends on your
comfort level.” Sorry, but that’s ridiculous. The amount of your total risk is a function of
your win/loss ratio. Why? Because your win/loss ratio determines your drawdown potential.
Your drawdown potential is the number of trades you can potentially lose in a row when
something changes in the market place (something you could not anticipate).
Now that we know that, we can ask this question: when you do lose, how much do you
want to lose?
Let’s talk about the numbers. In an 80% area of wins, you are looking at 2-4 losses during
a drawdown. In the 70% area, you are looking at 4-6. In a 65% area, you are looking at 8-
12.
To illuminate this a little, if you are winning 80%, for example, and you are a trend trader,
you are probably seeing a market going into a range before you get hit with too many
losses. As a break out trader with 80% wins, you are probably experienced enough to
see and have defined when a break out is likely to be a false breakout.
In other words, the “changes” impact you less. But keep in mind that the higher your
win/loss ratio, the fewer trading opportunities you will get. So remember that “balance” you
are working towards.
But “risk to equity” is more like doing math. Fine tuning it comes easily with experience.
So let’s imagine you are like many traders, using the “comfort strategy.” You are not
actually comfortable, the emotion of greed is causing blinds spots in your risk
assessment.
So you risk 10% per trade. Well, if your win/loss ratio is 72%, are you okay losing 50% of
your account very quickly, only to realize that now you must make double the amount to get
back to where you were? Think about it. If you have $10,000 and are risking 10% ($1000
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per trade at 1:1), without being picky about the actual numbers, in five losses, you are now
at $5000. But now when you risk 10%, you are only making $500 instead of $1000. Not
only did you lose 50% of your account, now you must go twice the distance (not the
same distance) to gain your money back. It’s like losing twice. But if this happens to
you, know that this road has been traveled by many traders that came before you. You
simply needed to learn the hard way. That’s all. Some lessons require a painful
experience in order to sink in. If it happens, it was a mistake in your method of operation.
Learn from it, correct it, and leave it in the past.
There is some subjectivity with regards to risk to equity, to be sure. But not THAT much. I
have found it is very good to give the guideline of a maximum risk to equity of 2.5%. So in
level 3, this is what I suggest you do.
To be very clear, this means that at any moment in time, you are at no more than 2.5% risk.
So if you have $1000 in your account, the most you can risk AT ANY TIME is $25. I should
also point out that you should be consistent. If, for example you risk 1% in one trade, and
2.5% in another trade, this could seriously throw off your bottom line number. Perhaps, for
example, you lost 2.5% on that trade, but gained only 1% in a trade that hit your target. I
say “maximum,” because often you will be “close” to 2.5%, but do not want to exceed it.
Part of the reason for this is that there are inefficiencies, depending on your amount of
equity. I’ll discuss that in Level 4, where you are dealing with real money, and are less likely
to be trading such large sums of pretend money.
There are some advanced strategies that you can learn and employ later. For example
there was a trader I learned from that had been trading Forex for 33 years (in 2005) had a
technique of increasing the risk with each loss.
So he might have begun at 1%. If he lost, he increased to 1.5%. If he lost again, he

increased to 2%. It could be argued that this is a way of helping to manage the drawdown
factor. Personally, I view this as managing personal psychology more than I see it
managing risk.
I like it simple. My total risk is always close to the same percentage. My rewards can vary
depending on what the market presents me. But it is rare that I will hold a position longer.
I’d rather take the gain and look for another trade, than wait for more and potentially lose
what I have. But that’s me.
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As I said, there are very advanced strategies that are beyond the scope and goals of this
program. But you will find them in time when you have interest and experience. When you
do, hopefully I will have given you the tools to properly evaluate the functions at work so you
can decide if an idea is really good for you.
At this point, set your maximum risk to equity to 2.5%. Once the entry and stop price values
are entered, the calculator will tell you how many contracts you can trade. You can find a
place to download the trade calculator at www.forexartofwar.com if you are not a member
our community.
Contract Size
First of all, as a reminder, (for all practical purposes) a Contract and a Lot are the same
thing. I use the word contract. You are trading a contract for the money, not the actual
money itself.
The most common are $1k contracts, 10K contracts, and $100k contracts.
If the USD is in the quoted position, as with the EUR/USD and the GBP/USD, then the value
of the PIP is easy to determine. A single 1K contract, moving 1 PIP has a value of ten cents
.10). $10k contract is $1 per PIP. $100K is $10 per PIPs.
So if you bought with 5 $10k contracts, each PIP of movement up or down the chart will be
worth $5.
As I wrote in an earlier section, if the USD is not in the quoted position, you must go to your
broker to find out what the PIP value is, or you can’t actually manage the risk. Another
reason to stick with the four pairs for now that I recommended.
Margin and Leverage
We’ve heard these words a lot since the crash of 2008. If you just listen to the mainstream
information, you would think 1. You can make more money with more leverage. 2. You
are more at risk with more leverage. Not exactly.
What is Margin? Margin is the amount of money you must put on hold to cover a position.
We also call this “used margin.” It is subtracted from your balance and “set aside.” What is
left is called “useable margin,” which suggests that it was all margin in the first place.
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So just imagine you have $5000 in the account, and you must put $1000 on margin. That
means that you have $4000 of useable margin. If you happen to use that up on a day you
totally lose your mind, you get what is called a “margin call.” This triggers your position(s) to
close and your $1000 (on margin) is returned to you.
But margin calls can happen without such catastrophic implications. After the crash of
2008, we needed to get very precise in very uncertain market conditions. So there were
times when we could see a potential move of only 7 or 8 PIPs targeting .75:1 with a 2.5%
max risk. What we found out was that this was about the limit of our useable margin. Keep
in mind that I’m referring to the 50:1 leverage we are limited to in the US.
Here’s how that works: The

smaller your stop loss, the
greater the number of
contracts you can trade. As
you increase the number of
contracts, your useable margin
decreases. At a point in time,
you don’t have enough
useable margin to execute that
trade at that percentage of risk. At the time, this was the GU, and the limit was 8 PIPs. I
say “at the time” because these numbers fluctuate. Above is a chart at FXCM showing you
what the requirements are. I highlighted the pairs I am suggesting. This is on a $1k
contract. So PIPs are valued at ten cents. You increase by 10X to get to 10K or 100k
contracts. Notice how the margin requirements are different. To give a more specific
example, let’s say that you had $5000 in your account, and you set your maximum risk to
2.5%. That means you can risk $125.
How much margin will be required will be determined by the number of contracts you trade,
which will be determined by the size of your stop loss.
So, for example, if your stop loss is 25 PIPs, you could trade five 10k contracts. Because
each 10k contract has a PIP value of $1. So five 10K contracts would have a PIP
movement value of $5 (per PIP on your chart). So a 25 PIP stop would result in a $125
loss. If you were trading the GBP/USD, the margin requirement would be $340 X 5, which
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is $1700. That leaves you $3300 in useable margin. Now cut the stop loss in half to 12.5
PIPs. This now doubles your margin to $3400, leaving you only $1600 in useable margin.
As you can see, if you tried to cut that stop loss in half yet again, this would double your
margin requirements to $7200, and I remind you that you only have $5000 in your account.
If you lower your max risk (to say 1%) this would provide more useable margin, and allow
you to get even closer (though getting into ranges this small then expose you to the “noise”
factor). Isn’t it interesting to find these “borders” of our trading world?
One of my points was that you could be using a small stop, running right on the edge
(maximum useable margin), get a margin call, and really not lose that much.
Now let’s address some questions. Is leverage good? Leverage is a tool. Did the
government (in the US) do us a favor by lowering our leverage from 400:1 to 50:1. Did they
save us?
Not really. If you were trading with FXCM (who almost went bankrupt when the Swiss
bankers pulled their stunt), and they went bankrupt, you would have lost your entire
account. I know people will tell you otherwise. They will talk about “segregated accounts,”
but trust me, you will LOSE all of your money if the broker goes bankrupt. There are some
possible exceptions. But the best bet is to choose your broker wisely. This can only be
done by taking a look at the value and the management of the brokerage.
So there is that risk, though it might be small with a major. Has it happened? Yes, in 2005,
Refco (at the time the largest retail Forex broker) did go belly up. And yes, me and my
friends lost around $300,000 in total money.
Here’s the point. Back when we had 400:1 leverage, I could keep 75% of my money in an
insured bank, 25% in the brokerage account, but trade the 100%. I had enough margin with
only 25% on deposit. When you lower the leverage to 50:1, you lose that ability.
What is leverage? In this context it is simply borrowing money. In our example above, we
were trading $50,000 with only $1700 on margin (25 PIP stop). That means we borrowed
$48,300. Do they charge interest? Yes, but the daily rate is not very high. And on that
subject, note that on Wednesdays at 2PM ET (until 2:15), if you are in a trade at that time,
you pay triple the interest. In essence, you are paying for Saturday and Sunday on
Wednesday. There’s rollover every day at that time, but on Wednesday it is triple (maybe
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there is movement just before that time?). Also of interest, if you are trading with Interactive
Brokers, for example, during that period (of any day), you will see your trading platform just
go blank. Those are unfamiliar with this fact probably skipped a heartbeat if they were in a
trade the first time they saw this.
This is not usually the case with dealing desks like Oanda or FXCM.
Do we need leverage? For Forex trading, we sure do. If there were no leverage at all,
there would be little or no speculation at all. It simply would not be attractive. Think about
it. Let’s say you had $10,000 and put it all on the EUR/USD. Let’s say that price moved up
20 PIPs in profit for your trade. You just made $20 for your day’s work. See what I mean?
Even if you take it up to $100,000, now you have made $200 for your work.
Does higher leverage put me more at risk? No, not really. Not for a skilled Forex trader
anyway. If you are limiting your risk to 2.5%, using that 25 PIP stop, for example, you don’t
even need the 50:1. You used $1700 of your $5000, and still have $3400. So if it dropped
to 25:1, you would still be okay. The threshold at 2.5% is around 20:1. And then you are
still okay if your method enables you to increase your stop loss size. But the point is that if I
have $5000 in my account, my total risk at 2.5% is $125. That’s true whether I have 400:1
or 25:1 leverage. So no, leverage does not increase the risk. Did they save the
irresponsible people? I think those guys are going to lose their money no matter what
anyone does, but yes, they probably diverted them to some other latest greatest scheme to
make fast money.
I think what the government was really doing was trying to shut down hedging strategies.
There were thousands of people following complex hedging strategies without really
knowing what they were doing. There came a time when almost all got a margin call when
the market moved well outside of the normal parameters.
This is what happened in the movie Margin Call with Kevin Spacey. It’s similar to what
happened to the banks, which was the last step towards the financial cliff. If you are over
exposed to risk, eventually your luck will run out.
For the skilled Forex trader, all of this is just drama in the background.
I know I let a tiger loose in the background. The catastrophic risk of a broker going bankrupt
is real. That’s not the only risk you do not control. There were traders who lost their entire
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accounts when the Swiss made the decision to unpeg from the Euro last fall. In fact, legally
traders were responsible for money lost that they didn’t have on deposit. Companies
like Oanda covered those losses (the amounts which exceeded that which was on deposit).
Did our team lose anything? No. Years earlier when the Swiss made the decision to
manipulate the currency, I took it off of my chart and suggested everyone else do the same.
I don’t like betting on a fight that is fixed. Did we miss out on making money trading the
Swiss Franc? I suppose. But that’s part of making decisions. Where you can avoid
catastrophic risk, you must.
For this reason I don’t trade the Yen either. The Bank of Japan has a long history of
manipulating their currency, and to their advantage, I might add. So I’m saying that there
are things you can do to minimize these risks, and we take those steps on our team. In the
big picture, the chances are small that a major broker will suffer complete failure in the US.
But it is possible.
I feel pretty good about the majors that are left, which survived the incredible movement
following the Swiss bank decision. They survived the crash of 2008 as well. I think in the
future we will begin seeing insured accounts with dealers. This is already the case in the
UK. According to Interactive Brokers, funds are segregated and much more secure. They
are the preferred choice of professional fund traders, as far as I know. Perhaps on this
issue, you can take some comfort in knowing that there is less risk when you are ready to
trade larger amounts.

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Chapter 10: Level 3 Fibonacci Tool
The chances are very good that even before now, you have seen me drawing a Fib on the 1
minute chart. We did not do this in Level 1 or 2 for important reasons. I think you need a
little bit of experience with logic and execution before you do this.
Drawing Fibs on 1 Minute vs. 5 Minute
The New Wave Fib is an incredible and accurate technique. It would be very easy for
someone who is very detail oriented to go off the rails, though. What do I mean?
In a trader’s quest for better and better knowledge, once you are at the 1 minute chart, you
are only one step away from a tick chart. And once you get to the tick chart, you will rarely
find an ROA big enough to trade. So if you have the wrong mindset about this, the Fib
can lead you right to the “paralysis of analysis.”
I always tell you that you are trading the behavior, not the pattern. So you begin turning to
the 1 minute all of the time, looking to see if the behavior has already played out. You find,
more often than not, it actually has.
It is good to be precise “up to a point.” And this is the issue. What is THAT point?
Ultimately it will be defined by each of you, but I will give you some guidelines to follow.
Remember that we make our decision not on precision, but on “best information.”
So when do I use the 1 minute and not the 5 minute? You use the 1 minute in a fast
moving market. It is “fast moving market” that you will eventually define for yourself.
How? Experience.
Some will define it by the amount of movement in a period of time. Perhaps the new 5
minute candle has moved X PIPs. In the end, you will be tuned into what is happening, and
you will know WHEN this fast moving market is happening. I’m sure you will see many
different ways to define this being used by other traders. The most important thing to
remember is that this is not about a rule (symbol), it is about what you actually see (reality).
Use the 5 minute chart for drawing your Fibs unless you think this is “unusually” fast
movement. You will find your way with this, trust me. Just practice.
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I know this seems nebulous. But that’s only because you lack experience.
100% Level of Fibs
This is a really simple idea. You are trading the movement of a New Wave. You are
trading movement. Price moves, pulls back, and you get in for that second push. What
does it mean if price reverses the entire length of the New Wave? Quite simply it is telling
you that sellers (in this case) are just as strong as the buyers. In fact, nothing takes the
wind out of the buyers’ sails (or sellers) faster than seeing 100% of their efforts reversed. In
this picture, the black arrow shows the
100% retracement point (start of wave).
The Importance of the 76.4 Level
First off there is some debate about

whether to use 78.6 or 76.4. I’m even
tempted to put a picture of one of these
geniuses arguing for 78.6. But I’m
going hold off on this. They argue that
78.6 is backed up by the golden ratio. I
don’t dispute this. That’s where the
number comes from. It’s why I chose
the 21 and 55 EMAs. They are actually
part of the Fibonacci sequence (3, 5, 8,
13, 21, 55, 89, etc. etc.). And before the book is done I might tell you a little more of what I
know about the Fibonacci sequence. It’s cool stuff. But all of that said, the glaring
reality is that hour after hour, day after day, price pays attention to the 76.4 level, not
the 78.6 level.
Usually 76.4 will be “the last stand” for movement of a wave or a trend.
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This is classic what you see here. The trend is down. I have drawn two Fibs. The first on
the left touches off 76.4 to the PIP. But there is only one place where price resolves (candle
closes) above the 76.4 level. That’s the last wave before price begins to correct (black
arrow right). I don’t think I
need to explain this anymore.
There are many ways that
you could apply this idea.
For example, what if you
were in a sell at the first back
arrow, holding the position?
This could define your exit,
could it not? What’s really
going on is that at this price level, the buyers are showing almost as much buying interest
as the sellers. That’s the behavior that is most important to observe. The 76.4 level just
helps us to see and define it.
I’ve been asked if this is price action trading? Yes and no. Yes, I am reading price action,
but no, I’m actually seeing the behavior, not the candles (buyers are showing strong
interest). You will be getting a lot of practice following waves. Something else you can
watch for now. Notice that the rules for this technique are not very subjective at all.
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76.4 Level and Trend Reversals
This next technique is a little more subjective, so does require more practice and
experience. But the market
will tell you if you have it
right. This is a 30 minute
chart (where we read trends).
The black arrow shows the
76.4 level. In this particular
example, the MAs appear to
be turning much higher. But
if you look at the gray vertical
line, you will see that a cross
of the MAs are not actually
confirmed until price is well
below the 76.4 level.
So part of drawing this is looking for that convergence of the MAs and the 76.4 level.
Let’s see another example.
In this picture (right), you can

see price touching right off of
76.4 at the black arrow.
What else do you see? Price

closing below 76.4 and then
going back the other way at the
green arrow? Doesn’t this
contradict what I’m telling you?
No. First of all, few things work
100% of the time. The answer
is “context.” At that green arrow, that long red candle is created by HID at 4:30AM ET
coming out of the UK. So at that time, the information would be less reliable, to say the
least. Now I want to bring you back to the first picture to show you something useful.
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Stop Orders Can Move Price Significantly
You will often hear me talk about where stops are. I’ll come back to this again in the book.
But this is a good spot to show you. Notice that I put a rectangle beside the black arrow.
Imagine you are a buyer at
this time. You must have
your stops somewhere,
right? Sure some of the
buyers have stops higher.
But that area just under 76.4
is where you will find those
orders. This is what causes
this rapid movement flying
by the rectangle. It looks
like a pile of sellers, but the
reality is that part of that fast
movement is stops being hit.
In order to close buy
positions, stop (sell) orders are placed. So you can get good at seeing where these orders
are and where price is likely to move a little more quickly, and potentially farther.
Backing up a bit, if you have drawn the Fib correctly, a close of the Fib beyond the 76.4
level is likely signaling or confirming a trend reversal.
The important part of my telling you about the HID at 4:30 AM is that you want to be using
all of your tools. If you are in tune with the daily/weekly story, you would know in real time
that a move over 76.4 at that time doesn’t have the impact on your decision it would at
another time.
The more experience you have, the more effective you will be at reading the context. But
keep in mind that there will be times when you just don’t know, or when even the best read
doesn’t work out. That’s just part of trading. Just get in the habit of reading when there is
increased risk. For example, HID coming up could be part of it. An hour before London
could be a factor. Coming up on London close. It may sound like a lot, but at a point, you
will realize there are not that many factors, and this can get boring for many people.
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Level 3 - Chapter 11: More on Stops
A little earlier I touched on some catastrophic risk. There is something that you must learn,
beyond the question of doubt at some point. NEVER exceed your maximum risk. This
rule takes for granted that you never trade without a stop loss. Come to think about it,
maximum risk takes on a new meaning when trading without a stop loss.
Now some traders can accept this fact. Others have to learn the painful way. You are just
going to get hurt enough until you learn this or the pain forces you completely out of the
market. You cannot succeed without limiting your risk. You just can’t. And even if you are
the one in a million that makes millions doing it, you are probably not the rare “one of
those” who can keep it.
If you find yourself constantly chasing this idea, and you can’t break away from it, you are in
the wrong game. Try the World Poker Tour instead.
ALWAYS TRADE WITH A STOP LOSS, ALWAYS Stay at or below your MAXIMUM
RISK.
Okay… I’ll move on.
Since we are on the subject of stop loss, I might as well talk about a couple of other stop
loss ideas.
Moving Stop Loss to Break Even
This is probably a level 4 topic, but it could be a later level 3 topic. I’m going to stop short
(he) of saying that you should not move your stop to break even. Maybe it will work for you.
I get it. I did it for quite a while. The idea is that you are in profit, and you don’t want a
winning trade to turn into a losing trade. Or maybe you are in a small profit and just want to
eliminate the risk.
If you are in a small profit (say a few PIPS) and move your stop to break even (BE), you are
going to be sorely disappointed by how often your stop gets hit. In fact you might find
yourself trading for hours in many trades only to make nothing. Price fluctuates a lot in this
market. So that makes no sense at all. Not to mention that your risk to reward ratio gets
tilted. If you are moving your stop before you match your risk, you are violating a principle.
This leads to smaller gain and bigger losses, and that hits your bottom line.
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Okay now you could move your stop to BE once you reach .75:1 or 1:1. How does that
work out in time? Your experience might be different, but here was my experience: I’d
make money, and then move the stop to BE trying to get more money, and then half the
time or more, price would come back and hit my BE for zero. So instead of making money
each time I hit .75:1 or 1:1, I would just make zero.
So for me, in the end, I just became someone who would prefer to bank the money and look
for another trade, instead of trying to get more and end up getting nothing.
That said, I can see there could be times you might move your stop to BE. Perhaps you are
coming up on HID (not hyper volatile), and instead of closing the trade, you set it to BE.
One time, I was half way to my target, and price stalled in a tiny range for a while. I didn’t
want to close the trade, but I didn’t want to leave my desk with my trade at risk. So I moved
it to BE. At least I wasn’t wondering if I was going to lose money while I was away. But
these types of things really need to be defined into your plan. You don’t want to be making
decisions “on the fly.” Remember that you can always “document” trades separately from
your trading plan and try out anything you like.
Trailing Stop Loss
Trailing stops are sort of the same thing for me. Would I rather take the profit I have and
look for another place to enter, or lock in some profit, and potentially lose some of what I
already made? I can usually tell when price is getting exhausted and more likely to correct.
Why not just close my position, wait for the pullback, and then get in again?
Then some traders like to close a portion of their position. So maybe you hit your first target
and close half of the trade. Then you move your stop forward and see if you can let the
profits run. If you are interested, you will just have to try it out and see how you like it. But I
suggest you do this AFTER you reach your first goal, which is consistent profit
making.
Stops Hit by Variable Spreads
I touched on this before, but if you are using a broker like Oanda, the price on your chart
might not move at all, and you can get stopped out. Or… price reaches your target, and
does not close the trade. The likely culprit? Variable spreads.
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Consider price is at 1.2200, you are in a sell with your stop at 1.2215. Some important
HID is about to come out. Price is only moving a couple of PIPs up and down on your chart,
and suddenly your trade closes. That’s because buyers with the dealing desk started
pulling their buy orders, until the buy price of available buyers hit your stop. Personally I
think this is ridiculous. But the mainstream culture is so uneducated, they aren’t really
noticing that much.
You’d be surprised by some of what I have seen. About 18 months ago, we were trying out
a big broker (I won’t name), and after a few days, we noticed that their candles were closing
2 minutes after everyone else’s were closing. This changes the timing of trends. This
changes buyer/seller resolution levels. It changes A LOT – and much more so if you are
relying on any indicators (which we are not). Anyhow, I was so surprised to see this
happening that I asked a friend to double check. I thought I might be imagining it. Even
then, we got someone else to check, too. By the third check, we were sure it was
happening and called the broker. The customer service rep had no idea what we are
talking about. They put me on with a supervisor who also had no idea what we were
saying. I searched the Internet and found not a single reference. Keep in mind that this is
one of the five largest brokers in the US. So not one of their 13,000 clients were aware of
it. Really?
My point is this: don’t assume anything.
We just moved on to another broker.
Slippage
Slippage has not been a big problem for us, but it does happen. It’s the difference between
the price you want and the price you get. Perhaps you thought you were gaining 14 PIPs,
but when the trade closed, you only got 13. Sometimes price moves that fast. But it’s all
part of the industry. If this happens a lot to you, then you need to probably change brokers.
The slippage we don’t like is when price is moving fast and our stop orders cannot be filled.
This tends to be more likely around events deemed likely to produce hyper volatility.
But whenever you have a question about execution or anything really about your trading
platform, be sure to ask the broker to explain what happened so you can learn from the
experience.
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In this section, I just wanted to cover more information related to your stop loss, or the
execution of your exits in general.
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Chapter 12: London Sentiment, Price & Story Context
I want to talk next about a pattern I have observed for a long time.
London Sentiment and GBP/USD Traders
I have been observing the Pound traders for over a decade. I can tell you that those who
trade the GU (GBP/USD) tend to be speculators. The GU tends to fluctuate more than
the EU, and when it trends, it moves farther. When I say that GU traders tend to be
speculators, I’m saying that they are like you and me. They are looking to anticipate which
way price is likely to go. How is that different from the EU, you ask?
Well, both the Euro and US Dollar are both reserve currencies. So a large amount of
volume moves in and out of those currencies for different reasons. Imagine for example, in
August of 2014 that you were worth one billion USD, and your money was in Euros. Well, if
you still had all of those Euros in the bank, you would not be a billionaire anymore. Only in
words. In buying power, you lost 25% of your fortune. So part of what is going on is that
those with a lot of money are taking steps to not lose money. There are other reasons,
obviously, but you get the idea.
The GU traders tend to pick the direction of the market before anyone else. Sometime they
even go it alone, thinking their time has come for a big Pound bullish rally.
I’ve also noticed for years that

whatever direction price is trending
from the start of London open
(3AM ET) to the start of the US
session (8:30AM ET), price tends
to continue to move in that
direction. I call this London Price
Sentiment. London Sentiment,
for short. Notice the big money is
UP on the left. Then look at what
happens from 3AM-8:30AM. Then
what follows in another move in
that direction. If price is back almost in the same place it started by the time the US opens,
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this will be a strong indication that GU traders cannot make up their minds. I would
encourage you to follow this each day, and gain some experience with it.
Is the Story the Same?
This is definitely an idea that you will need some experience with, and not an idea for the
trader who pops in once a week to see what is happening. But it is also a simple idea.
People ask me all of the time: “does this barrier in the past matter?”
It happened again just this

morning. One of our team
members asked about this
barrier right here.
It is rare that one piece of

information means anything
without more information.
We call this context. What
is the story? What is the EU
doing? How big is this trend
for the day so far? What is London sentiment? What time of the day is it? Do we have any
HID coming up? What day of the week is it?
What is the story? What I really want to know is this: At those black arrows, what was the
story that was driving the market at the time, and is the story today a different story from 5-
10 days earlier? If you were here with us, you would know that the fourth black arrow from
the left was the point in time that the Fed came out with a slight change in tone with respect
to their monetary policy. There are three main stories on this timeline. In the time from the
far left, to that fourth black arrow, this was the market showing some apprehension about
what the Fed might decide to do. So price fell into a range during this period.
When the Fed released the data (6/17/15), it was interpreted as bearish for the US Dollar.
That is a good sized run up of 225 PIPs. Over time, we got more information about the
story. Greece with no solution to a possible default, US economy coming on very strong.
More talk about a stronger US economy. So let’s answer the question. When price was
coming into this barrier this morning, does that barrier matter?
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First off, any obvious barrier is going is going to invite orders, no matter what. But in this
case, the story that created those four black arrows have nothing to do with what is
happening today. Knowing this could give you an increased advantage. Not only in terms
of price direction, but knowing you will get buyers in that area and could get a better price as
they push back.
You will notice that I put two

green rectangles in this
picture. How come I’m paying
no attention at all to these
areas? Well, at the big green
rectangle, at that exact time
(4:30AM ET), HID was
released for the Pound. That
was a period of heightened
speculation. Price moved
down, and then back up into that range by the time the US opened. What about the tail to
the left of the first arrow? I rarely pay attention to a single tail or wick. What about the small
rectangle?
It’s not very much movement. But what is clear taking all of that away is that the area in the
black arrows creates a strong area of 50/50 buyer/seller interest. That’s what great
barriers really are. The are areas of 50/50
interest. It is near these areas we are likely to
find the most orders sitting.
Advanced Reads and Timing
I’ll be talking more about this idea. Let’s follow

what happened just a little later in our story. In our
picture above, at the black arrow on the far right,
price was hitting that barrier at 7:30AM. The
picture to the left is zoomed in. You can see that
the 8:00, 30 minute candle is closed out of that
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range. So that candle was created between 8-8:30AM. So we know price was dropping
during that time. Remember that.
Now let’s shift to a Pound chart. First

notice the 8AM candle on the GU 30
(black arrow left). It is trailing the EU,
right? But wait! I thought the GU
speculators led the pack? Usually. But
in our story, they have been wanting
to buy buy buy. So what is happening
is that the EU (USD) is dragging them
down.
What is the London sentiment? Well, if

you go back 10 candles (5 hours) to
3AM, price is DOWN 45 PIPs since
London opened. This is pointing to a
sell.
But there’s more! At 8:30, the market is watching for Core Durable Goods (HID).
Let’s zoom to a 5 minute chart to see what that looked like.
So you can see price making a move up between

8:30AM and 8:35AM.
Do you recall what I told you before? “One piece

of data almost never changes a trend (or
sentiment).”
I want to remind you that I’m sharing ideas with

you. I have a lot of years of experience doing this.
You don’t need to know all of this to make
consistent profit. In my one-on-one training, I
would tend to share this when the time was right for the trader. Here I just want to get the
knowledge put down in words. Notice where the 8:30AM candle closes. It is up high in the
range. Let’s look at the EU 5 minute and see what we see.
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The 8:35 is the blue doji.* Look at how the sellers reject any move into the range, and look
how low the candle closes.
If you put all of that together, and there is

nothing unusual happening with the
Pound, this is the USD moving the market,
and the Pound is trailing. You would have
also seen this happening on the AU and
NU.
Again, do not attempt to imitate me. I’m

going to share a lot of with you. If you do
not SEE this with experience, it will not be
something you do in your own trading
style. Before I show you my entry, I want
to show you something else.
Earlier I mentioned that the GU speculators had been buying, and were getting “dragged”
down. In this next picture, you see all of the buying. What I was looking for was this:
Where are there likely to be stops?
They had been “holding

onto” the range before this
drop. So I decided that the
majority of the stops were
just below that (red
rectangle). That was at
1.5749. So it was likely
there that price would pick
up some selling momentum
as those stops were hit.
My plan? After entering,
*A doji is a candle formation where the open and close price are very close to one another.
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my plan would be to allow price to hit that area, and then when the momentum slowed, exit
the trade.
I entered when the 8:35AM candle

closed. I exited just before 8:45
when momentum slowed at 1.5743.
The reality was that stops began

being hit about 7 PIPs higher, but
the strategy was sound. The total
move was about 30 PIPs, risking
about 13.
Once again, don’t push yourself to

do all of this. Not much has
changed about what I see in a
long time. This would cause me to conclude that I have pretty much arrived at the best
information I can access.
I need to come back to our other questions from earlier. I was asked if this barrier
mattered.
In reply I asked these

questions: What is the
story? What is the EU
doing? How big is this
trend for the day so far?
What is London sentiment?
What time of the day is it?
Do we have any HID
coming up? What day of
the week is it?
We covered the story. We covered what the EU was doing. We covered London
Sentiment. We were trading during prime hours. If price was coming into this area around
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London close, it would be a great excuse to close out positions for the day, driving price up.
We discussed HID and used it to our advantage.
We even talked about how far price had moved for the day, which was about 45 PIPs, since
London open. Why is that
significant? I encourage
you to looking back in time a
bit at this. How much does
the GU or the EU move in a
day when trending? The
answer is certainly more
than 45 PIPs. In fact,
anything all the way up to
100 in a day for the GU is
okay. I’m not going to spell out any specific numbers beyond that. You need to follow it.
The exception would be if price moved into a range.
During some weeks price is trending more, some weeks less. What you want to know is
this: within the current story, what is the average daily movement? Even if you use an
indicator on a short period of time, it will never account for the story happening. So don’t
get too excited about something that tells you average daily PIP movement.
To give you more insight into this, if it is 10:30 AM ET, and the GU has moved 180 PIPs, it’s
probably not a good time at all to enter a trade. I call extended trends “long in the tooth.”
Does the GU “usually” move over 180 PIPs a day? No. Again, focus on what is “usually”
going on. Does the GU usually move more than 45 PIPs? You bet it does.
This chapter is definitely one of the more advanced chapters. After you have traded for a
few months in Level 3, review this chapter again. After a few more months, review it again,
is my suggestion. The more experience you gain, the more you will see what I see.
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Chapter 13 Part 1: More on Trends Part 1
I’ve already been talking about nuances, but I wanted to write a chapter that was specifically
focused on nuances that might be associated with your entry and exit prices.
One of the most common questions I get once a traders gets a little experience is this:
“which is a better entry, 38.2 or 50% ?”
You already know what I’m going to say. It depends on the context.
Young Trends
Remember that there are many moving parts, all of which can impact one another. But
that’s okay because you are going to use “experience,” not knowledge, right? Okay.
The general idea is that when there is a new or young trend, there is going to be increased
opposition. Why? Because typically you have the opposition still wanting price to move the
other way (previous trend).
Naturally this works a whole lot better if you know “the story.” For example, if the GU
traders are thinking “buy,” and it’s a new trend down, there is more likely to be buyers in that
area.
We define the trend starting point

from the point where the moving
averages cross. Remember that
we are asking the question: “do I
get in at 38.2 or wait for a better
price?”
This is a GU 30 minute chart,

which we must look at first. You
can see that the trend confirms a
cross at 6:30AM. This is
important to know because when
we drop to the 5 minute, we need
to know WHEN we can enter.
162

This is the GU 5 minute. As you can
see, from the price of the MAs cross
to 6:30, we have about 51 PIPs of
movement. This IS NOT a young
trend.
There are other nuances to this, but

I’ll give you some guidelines. Under
40 PIPs is young – opposition is
more likely. Over 50 is less likely
to have opposition. As you can
see, at around 50 PIPs into the trend,
the sellers get moving on the second
push just shy of a 50% pullback.
And keep in mind that on younger

trends, since there is more opposition at the beginning, you are less likely to get a
New Wave ROA that meets the minimum distance of 18.
Let’s look at another one. I’m not picturing the 30 minute, but I have a horizontal line
showing you the price of the cross, and then a vertical line show you the time of the cross at
3:30. So after that time, it is okay to enter. The trend is “young.” There are only 34 PIPs
since the cross to the end of the
New Wave.
As you can see price pulls back

just a little more than 50%. This
makes sense.
Remember that what you are

learning to do is see the
buyer or seller advantages,
see the strength of that
advantage, and how you can
best manage the risk.
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If you can imagine, there are many nuances to this. For example, even a very young trend
that has just broken a strong range is less likely to have opposition. A trend 60 PIPs in
maturity, if approaching an obvious barrier, is more likely to have opposition.
I’ve come to think of everything as energy and waves. But more importantly, I am looking
at the interaction of the waves. The better you can see the relevant waves, the more
easily you can calculate their influence. Always remember that you are already a master
of probabilities. If the computer between your ears knows the variables and their values,
the answer will come easy to you.
You saw me walk through many of these in Chapter 11.
Here is an example of price

coming into an obvious barrier.
If you look closely, you will see

a strong blue candle hitting into
it, showing that price was
VERY bullish as it approach the
barrier. But this example
shows you that a new risk
factor (or probability factor) has
entered the picture. Risk is increased, probability is decreased. But this “could” be offset
by better prices for your entry and exit points. There were obviously “other” factors that
caused the sharp drop, following the brief stall at the barrier.
While we are looking at this range top, I want to point something out to you.
Notice that at the green arrow

the MAs cross. This brings up
a question. “Can we trade in
this range?”
You will see better with

experience, but the answer is
“maybe.” It is about 65 PIPs
from the top of the range to
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the black arrow. It is 30 PIPs more to the bottom of the range. If you can get a setup and
“get in and out” before reaching the range bottom, the answer is yes. You could. Just
getting to that decision point, without additional considerations would involve a trend
advance with sufficient ROA that meets the parameters of your plan. But if a new wave hits
the bottom of the range and
then pulls back, you are back
to the same scenario you were
in when price hit the top of the
range.
How small of a range can you

trade? That will be defined by
your setup requirements. Are
the MAs confirmed crossed?
Is the trend advancing? Do you have the minimum ROA? Do you still have room to get in
and out before price reaches the bottom? Notice that the MAs in this picture are closer to
the top of the range. This would make it easier to catch a sell trade in this range than it
would a buy trade. But if price were to go sideways right where price is for a long time, the
MAs would cross lower, making the reverse true. The main point is that you do not need
to define a minimum range. Your plan will define that for you.
I’m often asked, “When is a trend too long?” I really look at things in terms of daily
movement.
If the market is not waiting for

something, the GU will likely move 90+
PIPs in a direction.
The GU move this morning, in a climate

of slightly increased uncertainty, was
134 PIPs.
Prior to London close (the barrier), it

was 97. So the rest, that followed was a
bit unusual.
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I’ll discuss when we might avoid “big” trends when I discuss what other traders call
“overbought.”
I realize this is a lot of information to absorb, but again, this information is intended to
compliment your experience, NOT teach you what to do. But most of you are sure to
consider some of the ideas in this chapter as you gain more experience.
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Chapter 14: More on Trends Part 2
In this section I’m going to focus on the idea of when a currency pair might be
overbought/oversold, or showing trend weakness.
What is Overbought or Oversold?
If you have been in the mainstream culture for a while, you might think that
overbought/oversold is when the RSI goes above 70 or below 30. That’s fine for beginners.
It’s just that if the RSI is very high (say 90), and London closes, price is more likely to go
sideways for a while. Your RSI reading is determined by the number of candle bodies you
choose. So if you are choosing 9, for example, when the market goes sideways for just six
hours, price returns to 50 (neutral). And yet there was not much buying or selling. There
was a bunch of buying and then a lot of people went home.
My point is that the indicator cannot tell you an accurate story in that context. And this is the
problem with just about all indicators.
In this picture, notice in the

blue rectangle on the chart,
price is really not moving at
all. But RSI climbs from 30
to neutral during that time.
Notice at the long black

arrow on the left, how
much money and
movement it took to drive
that RSI below 30. Then
look at the black arrow on
the right and see how
much less money is driving
RSI over 70. Why? The
key word is “relative.” It’s a “relative” strength indicator. I like that. In fact, I think we should
have relative stochastics, relative Bollinger bands, and so on. Anyhow…
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The idea of overbought or oversold is worth touching on. I’ll just use the word overbought
from here forward. What is overbought? For me, this is just the market running out of gas.
All of the money that is usually available to move has been expended. This is not
usually one brief and strong move (like repositioned money), but rather very strong trending.
But at some point, a trend is so strong that everyone who can get in, is in. This is
overbought.
Consolidation vs. Range
To get back into the

trend, traders must
take some profit and
wait for a pullback.
In this picture, to the

left, you can see that
price has moved 222
PIPs. Then you can
see a period of
“consolidation.”
Consolidation is a little different from “ranging.” Ranging is usually the result of periods of
heightened uncertainty or simply because both markets the pair represents are closed.
Consolidation is when no one wants to pull out of the trend, but they don’t have money to
put into the trend. Think of it like taking profit and then going back in, taking profit and going
back in, in that range. They are “gaining energy” for another move. Eventually, if a trend
gets very big, a change will occur in the market that causes a correction, just as we see on
the EUR/USD chart in the middle of March 2015.
Divergence
Divergence is also touted by some to be quite magical, and oddly enough is often read
using an RSI. The first question, I think, is what is it? Strictly speaking, the definition is
simple: weaker advance.
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On an Elliot wave diagram, divergence occurs when wave 5 breaks the wave 3 price level.
The idea of divergence comes from the trend getting longer, but the strength growing
weaker. So traditionally, when wave 5 beaks the wave 3 low, you have divergence.
Please note that I consider it

the same wave IF price has
not retraced to 38.2 or higher.
That’s why I’m not using those
smaller pullbacks. They only
moved back to 23.6. Okay so
that’s what divergence is. But
what do they use it for? They
use it to determine when the
trend is becoming more
exhausted. Well if that’s the
case, there is a flaw in the idea
of divergence. As I explained in
an earlier part of the book, sellers often lose conviction as they get near the former wave 3
low. This being the case, often wave 5 does not break the wave 3 low. Let me give you a
much, much simpler way of looking at this and you don’t need any indicators. You can tell if
it took more money to create
the 3 wave, or more money to
create the 5 wave. If price is
near the 3 wave low, then you
can call it divergence for all
practical purposes. It’s trend
weakness.
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Here is one way I like to see trends weakening. This is called a diagonal triangle.
I actually picked this up from

Elliot Wave Principal years
ago. But when you think
about it, it’s really the same
idea as my buyer/seller
resolution levels. You
connect the most prominent
areas on the top and bottom.
In my own work I have
experienced that you need 3
touches on the top and the
bottom. I prefer the most
relevant price points I can
find, as illustrated here. You
might recognize this chart from before. There is also a similar pattern they call an “ending”
diagonal triangle. The difference is that in an uptrend like this, the last touch at the top
would have a blue candle body closed above, and then a red candle body closed back
inside.
I used to see more of them. Since they are so rare now, I didn’t find one in the little bit of
time I allocated for looking around.
So what do we take away from all of this? Well, I like images like the diagonal triangle best
to show a trend weakening. I would use the 3 4 and 5 waves, and the pattern potential as
your guide instead of anything you read on divergence. After all, once you see that a
weaker pattern is advancing the trend, then you see it all of the time. Sometimes price
corrects after this, but I’ve already shown you how to access better information. My main
intention was to bring some clarity to popular ideas you are going to run into.
170

Chapter 15: Price Resolution, Orders, and Anomalies Part 1
Price resolution is an important idea. I follow price resolution usually on the 30 minute, the
5 minute, and once in a while on the daily chart. It answers the question: “in this period
(candle time frame), where did price
close (resolve).”
On this 30 minute chart, at the black

arrow, price closes below the key
level. A key level is a price, if
crossed, indicates a change in
advantage for buyers or sellers.
In this case, I always prefer candle

closes. However, if price comes out of
barrier with enough strength, it could
indicate an advantage for the sellers
(in this case). Usually you will see this
on the 5 minute chart. What is a “strong move” prior to a 30 minute candle close? You
can start with 15 PIPs, and adjust based on your experience and other observed nuances. I
also want you to notice something. When that 30 minute candle closes (at the black arrow),
the body of the candle is bigger than the tail or wick. A good portion of the candle body is
closed out. The more it is closed out, the
more “weight” we would give it as a factor.
You could call “weight,” “value.”
Look at this example. At the first black

arrow (30 minute chart), you can see that
blue candle has a very weak close above
the barrier with a long wick. The most
important thing for you to see is not the
body of the closing point, or the wick. The
most important thing to see is that there
are SELLERS in that area. Buyers lose
conviction, and price pulls back
171

considerably. At the second black arrow, price closes above decisively and this is followed
by very little selling, and more buying.
But also take a look at the lower arrow. Do you see a pin bar or hammer candle pattern? If
you do, you are not seeing what is really there. What that pattern “represents” is buyers.
You see that there are even more buyers (the tail) just below that barrier than there are
sellers above the barrier (wick top left arrow).
And “more” is not the best word to

use. It is better to say that the buy
orders outnumber the sell orders.
Why? Because volume is relative.
It could be 10 million pushing down,
and 11 million pushing up. Price
will move up. Or it could be 20
million pushing down and 22 million
pushing up. Price will move up
about the same amount when the
numbers were 10 and 11. This
you could call “relative volume.”
Note: I almost always draw barriers on the 30 minute. The reason for this is because
closes on the 30 minute have more weight/value than closes on the 5 minute.
Does that mean a 4 hour or daily chart has more meaning than a 30 minute? That depends
on the story. I’m following the daily/weekly story, and secondarily the longer term story. If
you were using 4 hour or daily charts, you would be considering the longer term story first.
One of the things I’ve noticed about people: Their lives are driven by their stories. So it
is a very reliable place to go when you are wanting to predict behavior. Will someone vote
republican or democrat? Let me get to know just a little about one of their stories, and the
prediction will be easy. Are rich people greedy and riding on the backs of the poor? Are
liberals making more and more people dependent on government? Are they passionate
about social justice? Are they proud to be a gun owner? Do they believe that life begins at
conception? Or are they more passionate about a woman’s right to choose what to do with
her own body?
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I’m not saying one is right or wrong. I’m just saying that if I know their story, the answer
will be easy to predict. What about Independents? Well, you can be independent in your
views, but you cannot have representation in America as an Independent. When it comes
to real power, there are only two choices at this time.
What does this have to do with trading? Know the story. Predict the outcome. Sentiment is
that potential leaning one way or the other.
Now first let’s look for buy or sell orders. Where are they? And you can look for this on the
30 minute or the 5 minute.
This is a 5 minute chart, and granted, this is a range. It doesn’t matter. You can see where
the orders are. On the top rectangles you can see where the sell orders are located. On
the bottom rectangles, you can see where the buy orders are located.
Again, these are areas where it

is easy to see where the orders
already are. And yes, you are
looking at tails and wicks. Can
you use it?
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Look at this. This is a 30 minute
chart. Notice the buyers at the two
black arrows. Then notice what
happens later when price reaches that
area again (black arrow on right).
Price does not go lower until sellers
“eat up” the orders sitting in that area.
Here’s another example. On the left, price

“resolves” with a candle body close. The
sellers see this, and they don’t even try to
push lower at the black arrow. Why would
you sell into those orders if you knew they
were there? You need a pretext. You
need new information. You need
something to happen to change what is happening.
Now you might say, “Vance, the market was probably closed, and that’s why price is higher
on the right.” It’s true, this is probably when the markets for this currency pair were closed.
But that still doesn’t change the fact that there are more buy orders in that area than sell
orders.
Where there are the likely to be orders is sometimes call supply and demand areas. That
simply means that there were likely buyers or sellers in a particular area.
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Take a look at this (30 minute). You
can see at the black arrow that sellers
gained a big advantage. The red
arrow shows where orders are likely
to be. Why? Because the sellers
know that buyers will have to fight to
get back into that range.
Let’s take a look about 5 hours later

when price comes back to that level.
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Price comes in strong where the red arrow is pointing. But then the buyers run out of
orders, and the sell orders in that area just keep getting executed.
Likewise, if you look at the very

bottom of the chart (black
horizontal), you will see that there
are not enough sellers to overtake
the buyers at that level. I think it
is very helpful for you to see
where these 50/50 areas are.
This is defined now by the upper
barrier (gray), and the lower
candle body closes (black)
Technically speaking (slang), time periods should not define this balance. But my
experience is that they usually do. And you could use other time frames. These are just the
tools I use.
Hours later the sellers take more

ground (black arrow). For a little
while, the buyers fight back (green
arrow), but that 30 minute candle
closing below the level got the
sellers excited. You might
remember this previous example.
That move at the green arrow was
the area I traded in Chapter 11.
That big move by the buyers was
based on some HID. I didn’t buy
that Core Durable Goods was
going to change anything. So I
got a great price. I should also
point out that usually risk is increased when you enter the trade in the range it broke out of.
I’ll be touching on that.
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Try to pay attention when wicks, tails, or even candle bodies are created by HID. It may be
something that you ultimately take into consideration in your decisions. At times of HID,
there can be heightened confusion and speculation. They can change their minds just as
fast as they made their minds up, or more slowly. Nonetheless, often this period must be
discounted. These moves, I often consider anomalies. They are just individual events that
don’t have much to do with the story. Let’s talk about some of those.
Anomalies
What I am illustrating here are the lack of “gaps.” Gaps occur when price moves a little bit
faster than the broker’s system can keep up with. There can be big gaps and small gaps.
Gaps you can see and gaps you don’t see. And gaps you see that don’t actually exist.
This is an FXCM data feed. They

are obviously telling the system to
open the next candle at the price
the previous candle closed at.
Blue candles close on top, red
candles open on top. Red
candles close on the bottom, and
blue candles open on the bottom.
I know they are “fudging” this
because I used a couple of
different brokers who didn’t do it.
It looks pretty this way, but does
not tell you what actually
happened. If this were really quoting price, there would be gaps (small ones usually)
following the open and close prices. I don’t really care that much. I just wanted you to know
that they are changing this in the interest of appearance.
So that’s an example of little gaps you might not see.
177

This is a larger gap that you would
see during very rapid price
movement, but most common on
Sunday when your dealer opens.
You need to know that the Forex

market NEVER closes. Banks
that have direct feeds can move
money around whenever they
want.
Back in 2005 I used to monitor an

S & P provider, and you could
watch the Forex market move all
weekend. I couldn’t execute
trades, but I could watch it move.
What you need to know is that the “gap” you see on Sunday is not really a gap like
other gaps. It’s just that your dealer closes on Friday. Price keeps moving over the
weekend, and then when they turn their systems on Sunday, if the price is different, there is
a gap (with most brokers). I think this is an example of a gap which does not exist.
Since our team has members in many parts of the world, some traders have gaps when
none of us do. It means their particular broker was not able to monitor price for that period.
And yes, some of them have had to change brokers because of poor system or data feeds.
For me, gaps mean nothing more than that the broker did not or was unable to quote the
price in the space that creates the gap. While I am aware of many gap trading strategies
and on what they are based, none of that means anything to me. So I’m not telling you
about gaps so that you can use them. I’m telling you about them to suggest you ignore
them. I would like to see the small gaps between candles. I’d rather see what is there.
But the rest? I don’t care.
Because the Forex market is open over the weekend, and your dealer is closed, it is critical
in real accounts that you do not hold a position over the weekend. I’ll come back to that in
level 4.
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We’ve already talked about
some other anomalies. You
might remember this example
in the bigger green rectangle.
In terms of the main story,
that area was a period of time
that shot down during HID. It
can be disregarded. It is
unique information that
doesn’t fit with the bigger
story.
Repositioned Money
This is a technique that our traders often use. I call it repositioned money. On occasion,
some data is released that is significant for a currency. On the far left, price makes a rapid
move down 186
PIPs without any
meaningful retrace.
Not even 23.6.
Banks or major
investors basically
shift (in this case)
money from Pounds
to US Dollars, hence
“reposition.” There
is no speculation
involved about
anything short term. They are just changing directions in a big way. It’s not easy to teach,
but from watching, you will recognize when this happens. When it does happen, we tend to
ignore everything in the green rectangle and start measuring our New Waves from the next
advance of the trend, as seen at the 3 black arrows on the right.
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What is all of this about? Getting in the habit of seeing what is “usual” vs. what is “unusual.”
This takes some time and experience. But anomalies in general are just events that show
up in patterns that have nothing to do with the “prevailing story” in the markets.
180

Chapter 16: Price Resolution and Orders Part 2
In this section I’m going to do more on price resolution and orders, and mainly focus on
trend lines. I think it is important to understand where they are useful and where they are
not.
Trend Lines
There was a time when I took trend lines to an extreme. In fact, at one point, I had so many
lines on my chart, I published the picture as a work of art. There were so many lines, the
image looked 3 dimensional. The most attractive thing about trend lines is that it feels
sometimes like they are telling us what is likely to happen, but they usually aren’t. I’ll
explain it this way: trend lines are created by the price resolution levels of buyer and
sellers.
There are basically a few types
 Supply and Demand (TD points)

 Picking the lows or highs of tails and wicks
 Freehand on most relevant areas
Saying it a different way, trend lines are created by connecting the points where
buyers/sellers reached a 50/50 level of interest. You might have noticed that I tend to
refer to “price resolution” using candle body closes. I think this is best because I think you
need a little bit of time for the buyer and sellers to execute back and forth to determine
where that 50/50 level is likely to be. That said, sometimes the wicks and tails can be quite
relevant. In my experience, you can use either. You will see me connecting wicks/tails for
TD points, and everything else I tend to use candle bodies – unless there are a lot of
wicks/tails in an area.
Don’t worry too much about soaking this all in. You will find your way if you simply follow
the program. On a scale of 1-10, I’m going to give trend lines a 5 in value. And really it has
little value when it comes to your first goal of consistent profit making. But I know some of
you are going to gravitate to trend lines and fall in love with them. Some people just do. So
I’ll share some of my experience.
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Supply and Demand points, which I renamed from TD points are very interesting creatures.
These were introduced by a man named Thomas DeMark (TD). It’s really the one thing I
took away from his book, “The New Science of Technical Analysis” when I read it in 2004. I
wouldn’t discourage you from buying it, but know that Mr. DeMark has created new words
and new terms, and without defining them. So to decipher TD points completely I had to
read many times, how words and terms were being used to home in on a reasonable
definition. Anyhow, you’ve been told, lol. If you love to read, and love a challenge, his book
might be something you would be interested in.
Though I call them Supply and Demand points, I always make it a point to give him credit for
the information.
Here are the rules, which are not really subjective at all (which is interesting).
Rule #1: A TD point can never be one of the last two candles on your chart.
Rule #2: You use the first two points which qualify
Rule #3: Supply points must have a price equal to or less then on either side.
Demand points must have a price equal to or greater on either side.
Rule #4: (I added) you must have a least two candles between TD points
Rule #5: Lines above price must be horizontal or descending. I call these supply
lines because they represent selling pressure pushing down. Lines below price must
be horizontal or ascending. I named these demand lines because they represent
buying pressure pushing up.
Naturally if you want to learn these, practice in your forum and ask others in your forum if
you have it correct.
In the video series (community area), you will see me showing these rules step by step.
Here, I will show you at least one example, but focus on how we might use the information.
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If you want to learn this, you will need to go over each of the rules and see how each of the
rules determined the points at each of the black arrows.
Please note that 95% of the time I

use these S/D points on a 30 minute
chart.
In addition, more often near a place

where the trend is potentially
reversing. It makes sense because
it is more of a precision tool to
measure the balance between
buyer/sellers.
I’ve talked about the importance of

the key level (50/50) which is
defined here by the gray rectangle.
It is true. This is an important area

for the sellers to get below. Particularly if they can resolve price below in a 30 minute
period. You can see at the candle close in the green circle, they are pushing for it. Then
the next candle shows buyers pushing back hard with them closing out “some.” But do
these demand lines gives us clues about the balance of buyers and sellers early?
Yes, they can. Look at the black arrows on the lower right. They are pointing to lows
of tails, showing us that as the first tail and then the second tail are telling us that
there are an increasing number of buy orders occurring in the market.
The break and close under the demand line is showing us that there has been a
change to more sell orders. Personally I like to use this information as a “heads up,” but
still prefer sellers to move below the gray area, showing a real advantage over the longer
period of time in that range. What would be sweet is to have that candle in the green circle
on the right close below the demand line and the gray area. You won’t see that happen a
lot, because most of the patterns you see are being created by this struggle between the
buyers and sellers. But when price reaches a supply or demand line, you will most often
see a 50/50 struggle right at that point, usually down to the fraction of a PIP. So what is
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most important? What the supply or demand lines can tell us about the buying/selling
pressure/balance.
Again you don’t need to really know this, but you might be interested.
This is really the same

chart. First I used the
most recent two tail lows
to create the lower line.
Then I copied that line
and looked for what I
thought was a price
resolution area and
dragged the line up to the
green arrows.
Then I duplicated the

same line and took it to
the next level of price resolution. This can be subjective, which is why you need to be
careful not to give too much weight to the technique. What can I learn from this?
Well, when the low is made at the black arrow on the right, I can see that when price moves
up, it could run into more sellers at the middle black line on the top right, with another batch
of sellers around the upper black line if price were to climb up there. That’s pretty much it.
184
I’ve made a slight

change here based on
my own experience. I
prefer the candle
bodies (longer period of
resolution). But all the
explanation remains
the same.
My picture here clearly

shows that there is
more selling interest in
the area of the middle
line than there is at the
upper line.
But one thing I should point out is that the sideways movement near the top right was
because this currency pair’s markets were closed. Two things 1. The sideways information
can be meaningless. 2. When London opens at the top right of this chart, the “story” that is
driving the market might change.
This is a good time to remind you that ANY system must always be subject to changing
market conditions, something traders who use (symbolic) systems seldom account for.
How do I use this information?
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Usually I will use this
information tell help me
see what is developing.
Notice that the trend line
is almost redundant.
But if I see a close below

the upper green demand
line, this would tell me
two things
1. There is more risk to

buy now. 2. The trend
could be correcting or
reversing. At the lower green demand line, a close below is telling me that the sellers may
be getting ready to break that key level (gray). I potentially have a trade coming.
I could say more about trend lines. This is a wedge,

illustrating that the market is grinding into a smaller
and smaller range, but even if you had never seen a
wedge before, you would eventually draw one all on
your own using this information I’ve given you. And
you would know that buyer conviction and seller
conviction are both getting weaker. Then when it
breaks one way or another as it did here, you would
recognize that something had changed. In this
picture, the sellers showed more pressure.
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Chapter 17: More on ROA
There are nuances to ROA. For example, the ROA may be getting smaller or bigger. The
ROA might be mostly inside of the range, mostly out, or in the middle.
Here’s an example of that. You

see price is breaking the lower
range with a pretty good ROA.
But in order to take the setup, you
must enter back inside the range.
It is lower risk if you have the
entry point outside of the
range. But you might say,
“There’s no way to do that.” Yup,
you are right.
Don’t get me wrong. Team

members do it. I’m giving you the
guideline. What you later see and
understand will be unique to you.
And an obvious exception would
be the trade I took yesterday where I entered inside of the range because of the HID and
the USD moving up across the board.
Now you might be perfectly fine with this setup in the future in certain contexts that you have
observed. But we have to start somewhere. At this point, follow your trading plan and
“observe.” But I can tell you, in a general sense, that your trade will be more at risk if
you enter inside the range.
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This picture suggests that if the
ROA is sufficiently “outside” of the
range (say 50% out and 50% in,
you have room to get in the trade
outside of the range. Again, context
in the market is a factor, but I’m only
asking you to observe your own
trades. Look at every setup that
comes along. See the context in
the market, and then look to see
how much of the ROA was inside of
the range (or former
support/resistance).
This is a GU 5 minute chart (above). I have placed a horizontal line on the candle bodies,
showing where the area of price resolution is for buyer and sellers. Yes, the former high
(two candles to the left of vertical line) is higher than the horizontal line, but this is what I do
most often. And you can see that the horizontal line represents about half of the ROA,
giving you an opportunity to get in the trade, secure your stop below that that former price
level, and get an optimal target. It is no coincidence that the pullback occurs right to my
horizontal line. Again, this is where buyer and sellers reach a 50/50 level.
This is another common look you will see. Notice that the ROA is mostly outside of the
range, and is 58. It’s common
to see, but nonetheless falls into
the category of “unusual” when
you take into account the ROA.
I suggest in Level 2 that you set
a maximum ROA of 55. But
also observe the relationship
between the ROA and the
percentage of the ROA which is
inside of the previous range. It
would seem that the more the
ROA is outside of the former
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trend high/low, the better it would be, but this has not proven to be the case. But
there’s something there, so keep your eye on it. In general, the larger the percentage
outside of the range, the less likely you are to have a pullback once it gets going and
reaches your max ROA. These are great times to watch for HID (non-hyper-volatile) which
can temporarily push price back your way and let you in. Even a stall at that point leading
up to HID can get you in. What? No HID on the horizon? You might have to call it a day.
Ultimately this is not about whether the ROA is half way out of the range, or 25% out. This
is about your experience, and the overall context of what is happening.
I want you to see this, since you are going to looking for your trend advance and ROA. It is
quite common to be stopped out by pre-London moves (before 3AM ET)
Most of the “head fakes” happen between European open and London open (one hour).
This is an example here. It’s a
little earlier than that, of course.
It goes without saying that in

Asia, people are different, so
they are going to have different
behavior. This will result in
false readings with your logic.
But I wanted to show you a
really common setup that gets
the stop hit as much as it wins.
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I want you to notice these two New Waves on this trend up. They look about the same, but
the first was is ROA 33. The second wave was an ROA 31. Because of the ability of the
New Wave technique to read the
strength of moves, you can easily
see that the second wave is
weaker (having fewer buy $$) than
the first wave.
This is also something you can

watch in real time, and looking
back in time. The “general” idea is
that if the new waves are getting
bigger, the trend is getting
stronger. If the new waves are
getting smaller, the trend is getting
weaker. Trend = buyer/seller
advantage in a given time frame. In our case, 30 minutes, looking at the daily/weekly story.
It stands to reason that younger trends will tend to have ROAs getting bigger. More mature
trends will have ROAs getting smaller.
That said, I wouldn’t put too much of your focus on this. This is not going to be something
that helps you every day in terms of predicting if there will be a stronger or weaker wave
that follows. If you could just wait for a bigger wave, everyone would be doing that. But
watching this behavior will cause you to get “in the flow” of the movement.
I have a lot of infrequent patterns I could show you, but I could not get comfortable saying
“use this once in a great while.” The main thing is to trade and learn all you can from each
series of trades. You will find that you are doing things, and only later you become aware
that you have been seeing an awesome nuance in your method.
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Chapter 18: Community Application
A big part of the volume of information in Level 3 has been about application.
Keep in mind that this book is packed full of great trading knowledge, however, the real
value of the book is in what you “do” with the knowledge. This is actually a training program
more than an educational program. So while the book can be read in hours, you are looking
at weeks and months to complete the training program. Training requires that you take
action, get feedback, and act on that feedback, just like anything else in life.
You will find that you will be able to use the ideas in this program to accomplish some of the
most difficult tasks in life. How do I eat better? How do I sleep better? How do I exercise
more? No longer do you need to subscribe to a program. You are unique. You need to
get to know yourself, create a training program, and begin. And the first training program
you create is not likely to succeed. You will need to make notes and review, and find a way
to achieve your goals. But if you don’t have a plan, you don’t write anything down, and you
aren’t at least consistent in your efforts, you aren’t likely to change anything.
Now that you are in level 3, you are going to have more time. Instead of trading any setup
you see that looks good, you are defining what you are looking for. This is going to free up a
lot of time for you. Naturally some will have interests. I have included a lot of knowledge in
level 3 for you to consider and follow on your charts.
The first step is to simply execute your plan. If the trade fits your plan, take the trade. If it
does not fit your plan, do not take the trade. This will probably take you up to three series to
get right. Some will get eager, taking trades with their sight slightly distorted by emotion.
Some will not take a trade for the same reason. Again, go line by line through your plan and
see if the trade fits your plan. If it does, take the trade.
Let’s imagine for the next 5 months, you feel very strongly that you have your plan clearly in
your mind, and also feel there is no need to look at it. I believe that you just wasted 5
months. Remember you are building a new neural network for decision making.
Recalling a single memory is not at all reinforcing this network. Go line by line each time,
and just get this done, is my suggestion.
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If you see a trade you like, but it doesn’t fit your rules, feel free to take it, but observe the
procedure of writing “documented” at the top of your comments, and describe what you see.
This could give you some good practice with nuances.
If you are just plain eager to trade all of the time, then do what I suggested and take up
online poker, or a video game like Destiny. This is just an emotional need you have, and
trying to get it fed in Forex is just going to be counter-productive.
Remember that half of the battle is getting to know yourself. Okay 90% of the battle is
getting to know yourself, lol.
Level 3 is about defining your plan, executing that plan, gaining experience, becoming
aware of nuances in your method. The process I have explained in Level 3 is designed to
help you get a good plan, execute that plan, and learn from your experience. In this way,
your ability to execute and your ability to assess probabilities and risk go way up, and you
end up finding a balance. This will happen naturally if you follow the program.
If you find you are sitting for a few weeks without taking a trade, you need to share this with
someone and see if your plan is too rigid.
When is the right time to move to level 4? This is easy for me as a mentor because I have
followed a trader through the entire process. Some take longer, and some are faster.
What do I look for?
Well, traders will begin seeing different nuances. Maybe they see that they need a different
entry rule in a context. But the trader does this based on their own experience. This will
show up in their comments. “I think I need a rule about not trading during Non-Farm.”
They were trading, following their plan, and got stopped out in one minute on the release of
that HID.
The best thing that I can tell you as you are doing this self-study/community supported
program is this: make sure that you make changes to your plan based only on your
experience, not something you learned from someone else.
This was “your baby” the moment you created your level 3 trading plan. No one can teach
you how to trade, just as no one can ride a bicycle for you. There is the logic, and then you
practicing and learning from the experience.
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When to move to level 4? Some traders are seeing nuances by the third series. Some
don’t even begin thinking about nuances until 7 series.
Remember that 8 hours a day of focus time will not get you completed faster than 2 hours.
In fact, with the imbalance you will experience with family and health, it is very likely to take
you much longer to become successful. When we do not attend to all of the values that
are important in life, we unconsciously self-sabotage.
I’m just trying to cover some of the bases here. The more you work on yourself personally,
the faster you will reach your goal in Forex trading. I have suggested The Four
Agreements. I also suggest The Power of Now. It’s probably one of the best books I have
ever read on being present, with far less of the spiritual mumbo jumbo you usually get with
that subject. I’m not meaning to offend anyone. I just think that if you are unconsciously
biting your fingernails and you become conscious that you are doing it, you now
have more consciousness. If you are more conscious, you will know when you can bend
or break a rule, such as walking under a ladder.
Always remember that everyone thought the world was flat not that long ago. Take counsel,
but remember that you are your own authority. It might be good to also keep in mind that
with all our advancements in the field of nuclear energy, all they are really doing is
boiling water with those nuclear rods. And that’s probably a good place to stop.
Because the final level is called You Are in Command, I’m not going to say not to read level
4, but I can tell you that it simply doesn’t apply to you right now. But I think most will read
ahead anyhow. I probably would, lol.
Naturally any feedback is welcomed and appreciated. Did you find errors? Did I miss an
important idea? Just let me know!
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Level 4: YOU ARE IN COMMAND, Forex Art of War

Introduction to Level 4
In the introduction in level 2, I mentioned that one of the core 3 Art of War principles is this:
You are in Command.
Independence
Over the years, I have noticed a pattern in life. I noticed that whether it is a parent/child or
student/mentor relationship, there comes a point in time. In my experience, it appears
biological. We see it in a relationship with our kids. As they enter their teens, they can
become rebellious, even seeing the parent as someone who does not care, and this can
eventually cause both the parent and the young person to be quite at odds with one
another.
Years ago, I was training a trader – a man who I had a great deal of respect for. He was
quite talented, had a PHD, and was independently wealthy. I want to be clear that this was
not a person who went to school, got a PHD, and went out into the world. This was
someone who became very successful, and pursued a PHD in the field of psychology later,
to learn more insights about life and himself. We had a wonderful time working together,
and he contributed to several important ideas that you benefit from today in this book. I
never name him, because he asked me not to. But we worked together for about a year.
Then one day, he told me he was going to be away for a while, going off to do some things
on his own. I didn’t think a lot about it. I thought maybe he was talking about a month or
something like that. Well I didn’t hear from him for just over a year. Then out of the blue, I
my phone rang, and it was him. He said, “Vance I have been meaning to call you for a
while and share something with you.”
I was very happy to hear from him and had no idea what he was about to tell me.
He said, “You may not know this, but when I left a year ago, I was very angry at you.”
I replied, “No I didn’t know that.”
He chuckled happily and continued, “Yes I was. I came to the conclusion that you had not
taught me how to trade, and I was angry. So I decided to do it my own way. I came up with
my own system, and posted my live trades in a public forum for a year, in real time, to hold
myself accountable. I made it work and became successful. The reason why I started out
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laughing is because when I did become successful, I realized that I had done what you told
me I needed to do, and not only that, much of my trading method is based on what you
taught me in the early parts of the program. But more importantly I came to see that it
wasn’t the information that was the issue. I saw that I was blaming you for not being
successful. I was not taking personal responsibility. This was apparent in my words and
actions.
He paused, and I thought about what he said. My mind went right to “I was not taking
responsibility.” You see, I had assumed that someone so accomplished in so many areas
of life would have been doing so.
As my daughter, Jordan hit 16, 17 and 18 years of age, I realized that there was a pattern in
these types of relationships. At some point in the teacher/student relationship, the student
needs to break away. If no one is breaking away, life will break you apart. I then looked
back on my own life and saw the same pattern with two of my teachers I loved the most. I
realized that prior to the unfortunate events that separated us, I was, in a way, dependent
upon them.
When I began with the Forex Art of War teaching program years back, I kept this in mind. I
knew that I would need for traders to maintain as much independence as possible, always
pushing for their autonomy. Largely this has been successful. There was one incidence
where I had a total falling out. I saw it coming, I recognized what was happening, but there
was little I could do. Maybe I’ll get that phone call one day. In the case of that trader,
they found themselves “pressured to produce,” something you want to avoid
completely.
Like many of the most important moments in our lives, we don’t tend to see these things
coming. They usually catch us by surprise. Level 4 is not just about trading a live account.
Level 4 is also about fully taking ownership of your Forex trading. Absolutely no one else
can tell you how to do it, what to think, or how to succeed at this point. If you don’t make
this shift, part of you will always be waiting for “that next idea” that is going to make
it all work. And the truth is that you don’t need any more ideas. You need to rise or fall
completely on your own.
You still have a few things to learn, which I’ll be discussing. Just remember that as you go
forward, you are still likely to fall, learn, and get up again a few times – especially when you
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push outside of your current comfort zone. You just have to be willing to do it. This is
why it is important that you limit the size of your account right now. You want to have flesh
in the game, so to speak, but nothing that would harm you or your family’s lifestyle if you
were to lose it.
You want to begin making the transition from learning, to creating. You have always been
creating your future, but your future in Forex is completely in your hands. Do not think of
people in Forex (including me) as your teacher. We are people on equal ground. The best
thing that myself or anyone can do for you now, is be a sounding board. Most of the time
we will not even need to tell you anything at all. Most of the time you just need to
express what you are experiencing.
Did I teach you how to trade in this program? No. I taught you the variables that affect your
probability of winning a trade. I taught you where to look for the best information for your
decisions. I taught you how to retrain your mind to make decisions in a different way. That
was a small part. You did everything else. Does a great racecar driver imagine that his
teacher is responsible for his victory? No.
Does an Olympic athlete standing on a podium say, “I cannot accept this gold medal, my
coach is really responsible.” No.
If you look at anything great, the coach plays an important role in the success, but in the
end, it is really YOU.
I taught you WHAT and HOW, but YOU did it. And now there is not much I can teach you.
You need to rely on your experience and your tools. So I’m saying that now, this is your
baby.
By now you are used to me going right to the psychology, and you understand that there is
nothing more important than how you use your mind, when it comes to getting the results
we want in life.
This next point is VERY IMPORTANT: It is really important that you are under no
pressure to produce results. It works in competitive situations, and where rewards are
linked to straight forward objectives, but it is well known that there are two situations it does
not work well for as an incentive.
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1. * Improve skills and encourage innovation
2. *Foster competence
Hmm.. isn’t that what you are doing here?
But the more obvious problem is that if we are pressured to produce, we tend to narrow our
focus, and the first thing to go is holistic thinking. “You don’t have time for the best path.
You have to get this done now.”
The best place to be is to have no time limit at all. Hopefully you are building this skill while
not needing to rely on the skill in the foreseeable future. And this is not about time. It’s
about having the right mindset.
You’ll notice that level 4 does not have very much content compared to the previous two
levels. The reality is that there is not much I can teach you about trading a live account that
I haven’t already shared with you. That said, let’s finish up.
* Trevor Warden, head of reward strategies, Hay Group
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Chapter 1: Choosing a Broker and Starting Small
I know some traders are going to be looking to this section to find out which broker I
recommend, but I’m not really going to recommend anyone. Instead I’m going to give you
some ideas that will help you to choose. I am not in the broker business. Neither I nor my
company makes any money from a broker when anyone trades a live account.
When choosing a broker, most new traders consider the size of the spread to be the most
important factor, but this isn’t even close. Spreads are a factor up to a point.
The first issue is that there are countless marketers who are ultimately being paid by the
brokers to post information on the net and in popular forums. This makes it difficult to tell
who to listen to and who not to.
My best advice to start with is this: Take a little time and choose who you want to open
a live account with. Your first account should be a small amount of money that you
can afford to lose. This gives you a minimum of a few months to learn more about
who you will ultimately use as a broker. So for at least a few months, it doesn’t matter
who you use, as long as you like them.
There are going to be some limitations. The best execution and safety is usually going to
require a bigger deposit. Probably a minimum of $10k USD. So as I mentioned in an
earlier chapter, many smaller retail traders will need to work their way up.
There are several types of brokers to choose from. You have an ECN (electronic
communication network), you have the dealing desk, and then you have these hybrid types.
You might be thinking, “Vance, just tell me where to start.” Well I have, for the most part.
But understand my hesitancy. You might be in the US or in Singapore, or in Malaysia,
China, or Estonia. There’s just no way for me to give you any concrete recommendations.
The best place to start is with team members. Some of your fellow members have done a
lot of research about brokers, and can save you a lot of time. I don’t mind who they
recommend, as long as they (themselves) are not introducing brokers (IB’s), making money
from the broker.
That will give you a place to begin. Ultimately you need good execution at good prices,
and you need to feel comfortable with the management.
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About a year and half ago, my partner and I were deciding where to make a sizeable
deposit for a trading project we were embarking on together. We looked at execution and
costs. Both the dealing desk we liked and a more ECN-like broker were in the running for
the account. In the end, we felt more comfortable with the latter just because they had
stronger management and were not taking the other side of trades.
We must have felt very strongly because we went with a broker where it is anything but
simple to operate their software – nothing like the simple button pushing you are
accustomed to with the dealing desks. It was really just a matter of a learning curve, which
took a couple of weeks to gain confidence using.
So my best suggestion is to take a little time each week and learn about brokers. Try out
their platforms, ask questions, and before long, you will not only know what your choices
are, you will arrive at your best choice for you.
How Much Money to Begin With
I’m often asked about how much to begin with. I always refer to money that “you can afford
to do without.” But if you are looking for something solid, begin with a maximum of 2% of
net worth. If $300 is more than 2% of your net worth, then begin with $300. If you are in an
area of the world like Asia Pacific or other developing economies, then start with much less.
There are definitely some lessons you “can” encounter moving to a live account. One
example I have seen a lot is that the trader has some success early on. Perhaps his/her
first two series they make 10-20% per month. This can create a cycle that begins with the
vindication of shame. Here’s how that works (and you can look back on ordinary life to
confirm):
You have some validated success (like the earnings). Others congratulate you on that
success. You know that very few traders actually make it to where you are. This makes
you very happy. You have proven yourself (oops). It’s that one moment that changes
everything. You have proven yourself? It may be difficult to see, but you had nothing to
prove. Or did you? Did you fall short in the past? Were you not good enough? Does this
event prove that you “measure up?”
When this happens, the happiness moves into euphoria and pride (shame vindicated). It is
here that we have a problem, and one of our most obvious examples of how feelings distort
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what we see. You begin to exude great confidence. There’s only one problem. You feel
more confident about everything.
You feel like you understand the world much better, and even feel you can talk confidently
about subjects you really aren’t that familiar with. But on a practical trading note, the issue
is that you now believe you see MORE on the charts than ever before. And perhaps you
do. The problem is that what you see is not part of your trading plan. It’s not part of your
experience.
But it sure feels like you know what you are doing, and this is the problem. My first teacher
said about this, “When you feel invincible, it is the beginning of the end.”
Not everyone experiences this of course. I’m just providing an example of why you need to
start small. Others might get cold feet, and be overly cautious. We have not seen this
much in our program because of the daily focus on execution.
In addition, you may not have had a significant draw down experience yet. Intellectually you
understand it, but if you have not experienced it yet, it can be very painful. And you don’t
want to have that experience for the first time with any significant amount of money on the
line.
Remember that losing half of your account is actually worse than you first imagine. Not only
do you lose half of your account, you lose half of your earning power. So simplistically
speaking, you lose half your money, but must do twice the work to get it back. Your total
risk is now half of what it was when you began, which means your earning potential per
trade is now half. So limiting your losses contributes greatly to your earning power.
The idea situation is for you to trade a few series of trades with a small amount and
examine that experience.
In 2005, I bought a brand new Hayabusa. If you don’t know what that is, at the time, it was
the fastest production motorcycle in the world (top speed 207 MPH). I had experience with
fast bikes, but from the moment I said down on this bike and accelerated a bit for the first
time, I felt fear.
Part of me knew that I was just one wrong move away from death. My trading experience
helped me to be safe on this bike. I made a couple of rules that I didn’t have before. Not
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only could I not drink any alcohol and ride this bike, I could not ride it if had been drinking
the night before.
But the point I want to make is that this cannot be your first motorcycle. It just can’t. There
are too many lessons to learn on smaller bikes that would be unforgiving on a bike with this
amount of power. We are talking about a significant increase in risk. Ride the smaller bike
for a while, and work your way up. Make mistakes when mistakes are not so costly.
Bottom line? Choose a broker soon, get to trading live, and begin your own extensive
education about brokers. You have time to find out what your questions really are, and the
answers.
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Chapter 2: Be More Stealth
Post trades after the outcome is known.
Up to this point, I have encouraged you to post all trades in real time. As someone in level
4, I’m going to ask you to stop doing that. You don’t know who is watching you trade, and
you certainly don’t want someone reading the newsfeed (or your community forum) and
trying to copy what you are doing. That’s fine for other sites. There are lots of EAs people
can follow. But our program is about being fully skilled, and there is no room for that.
Also do not post your Level 4 plan in your community. At this point in time, your plan
is your plan. Again I am suggesting this for the same reason. Just so you know, everyone
who has tried to share their system point by point, in my experience, has caused not only
the other trader to fail, but the trader who shared fail as well. Why? Who really knows? But
here’s what I have observed – not just in Forex, but in life. A winner + a loser = two losers.
Why? I have theories about that. Some that are based in quantum mechanics. But they
are just theories. What I really fall back on is this: if you want more in life, you must
become more. As so many of my teachers taught me growing up, “there is no growth
without suffering.” This is no different from growing a muscle. To get more muscle, you
must tear the existing muscle. Who are these guys who want to be big and strong
without lifting any of the weight?
Careful Answering the Wrong Questions
As a level 4 trader, you are going to get questions from less experienced traders. I’ll keep
this really simple: you did the work. If their question has to do with their current objectives
in the program, answer away. If it doesn’t, don’t. But I leave that to you. My mentors have
said that “we do not have the right to deny people their opportunities for growth.” Are
you really helping them by giving them information that has nothing to do with what they are
currently working on?
Try to keep in mind that anything which is proven to work, which requires a change in
behavior, we find these numbers: 80/15/3/2
Whether it is weight loss or home based business, 80% will not get any results. 15% will
get some results. 3% will reach their goal. 2% will shine and exceed all objectives. The
same will be true here. I’m not talking about you. You are already positioned in the top 5.
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You just have a little more work to do. I’m referring to the 80. But make no mistake, many
of the 80 do not fail for lack of effort. How do you know them? They cannot focus on their
current objectives. And of course, they keep eating the marshmallow.
To summarize, post your trades after the outcome is known. Keep your level 4 trading plan
to yourself. Be prudent when answering questions from less experienced traders.
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Chapter 3: Live Trading Risk
In this section I’ll just talk generally about other risks and ideas.
Allow Three Series of Trades
As you begin trading your live account, it is likely to feel a little different. It is very common
to feel fear from the risk. Up to now, it has all been demo trading. Even though you didn’t
always feel great when you lost trades, now if you lose, it could mean that you are not
successful. Perhaps more than the money, you could lose face? I understand this, but if
this happens to you, it is coming too soon. You have never traded a live account before
with your method and plan and the work you have put in. You need to give yourself at
least three series of trades without evaluating yourself at all. Remember, there are
still lessons to learn and grow from.
Accept the Risk
I can remember first trading real money. I struggled a little with it. Then someone gave me
a tool, and shortly after, I realized that I do what they showed me in ordinary life. They said,
“Accept the loss in advance.” I didn’t understand it at first. “Are you okay if you lose $X?
Can you accept that?”
My answer was “yes, I can accept that.” And when I did that, I was far less affected by the
developing and unfolding trade. It may be that you will use this tool later as you increase
the account size, but most traders will find this tool useful even now. Besides, it is a good
habit to get into. All you can do is your best, and your best is always good enough.
Do not Celebrate Wins or Mourn Losses
This goes right with everything I’m telling you. If you do celebrate your wins, you must also
mourn your losses. My suggestion is to practice doing neither. You might have to go to this
rodeo a couple of times, but you’ll get it. A big win? Move on. Do not celebrate it. Why?
Because you are reinforcing it in your brain that winning is good and losing is bad. You
need to get in the habit of looking at your results over weeks and months, not hours and
days.
In ordinary life, this is what we do, so this is what our brain is programmed for and seeks
out. You need to get used to losing 3-4 in a row from time to time.
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How Fear is Created
In the 90’s, one of my mentors (Jim Britt) explained to me how fear is created. He said that
we experience fear in the present by taking a painful event in the past and projecting it into
the future, anticipating that we might repeat it again. The process of doing this creates fear.
This is the kind of fear we choose through our learned processes.
In our culture, this is totally normal. But that doesn’t mean it is smart. I mean if you are
doing something that you have control over to create something you don’t want,
perhaps you might think about changing that. But like all habits we have engaged in for
a lifetime, they take time to change. The best solution is to be present. But that’s like
saying that the best way to lose weight is to eat less and exercise more. You know WHAT
to do, but not HOW. And the solution is always learning about yourself, and retraining.
What does it mean to be present? It means that you are not in the past or the future. You
are here, now, using the best information you have to make your decisions. And until you
push that button and execute the trade, nothing real is happening. So there are two things.
1. The fear leading up to the trade. 2. The fear that you can experience when in the trade.
I have had the uncanny knack of being able to avoid the first. When I climbed onto a zip
line platform and prepared to cross a gorge, 300 feet off the ground, traveling at 70 mph, for
700 meters, it wasn’t real to me until the moment I left the platform. So I wasn’t scared at
all. But the moment I left the platform, I spontaneously yelled “ohhhh mmmyyyy
Goddddddd!”
I just want to point out that I executed the decision flawlessly. As far as being on that line
flying through the air at that height, at that speed… well.. the deed was done. There was
nothing left to do but wait until the end. And trading is like that. Once you enter the trade,
your work is done. Sure, you may define moves during a trade later, but that will come.
I did the exact same thing on the Scream that lifts you up 21 stories and drops you. The
result was exactly the same, including the words I chose to scream, lol.
I would also add that we experience fear when we are confronted with a situation that is
new for us. The simple reason? Not to sound dramatic, but one of your brains primary jobs
is to keep you alive. So it is natural to feel fear in a new situation. If you are making the
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conscious decision to do something new that you think is good for you, fear tells you
that you are on track, one of my mentors says.
Not everyone feels the same. But to whatever degree you are experiencing these
emotions, remember that the key is to execute. Do not judge yourself. Only evaluate
your execution after a series of trades. Make notes, but do not analyze during a series, just
as before.
Risk Tolerance
I mentioned this once before in the book. Now I need to talk about it more. To me, risk
tolerance is about that moment that your emotions change your behavior. We all
have it. At least everyone I have met. It’s not the moment you become afraid. It’s the
moment your behavior changes.
I can’t count the number of times that traders have had success, and then when they
increased the size of their account, suddenly they began to lose.
Sometimes it is obvious that they changed something. But usually the emotions are
distorting things so much that the trader cannot even identify what they are doing differently.
This is why it is great to have a record of what you have been doing in the past (your
forum).
Let me give you a simple, real life example. I’ve never been a fan of heights as you might
have gathered. I just don’t have much experience in high places. Two summers ago, I was
happily painting my house. My house is very high on two sides. Well I was going along,
happy as you please painting, standing on my ladder. I was balancing on my feet, paint
brush in my right hand, and paint bucket in my left hand. I was doing just great until I
reached some magical height off the ground. From eye level, it was about 15 feet. Drop
down one rung on the ladder and I was fine. Step up to that next rung, and my brain
decided we were in mortal danger. The only way to minimize the fear was to stop
balancing on my feet and wrap the arm that held the paint bucket around the ladder. Even
then I was not comfortable, but I was well enough to continue.
I guess my brain had worked out that 14 feet was okay, but 15 feet was pretty serious. The
only thing I want to point out is that at 15 feet, my behavior changed, and so did my
results. I was much slower. I moved slower and reached less far with the brush. That’s
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what I’m talking about. When the emotion gets strong enough to change your
behavior. That’s when you reach your risk tolerance level.
At some point you are going to find this level. When you do, you need to trade near or
under it. How do we get over it? You could get a good mentor that can coach you on this,
but while you are working on that, just know that your brain has to get used to the idea that
you are not really doing anything different.
So let’s go back to my analogy. It was about 30 feet across that wall of my house. So on
the rung of the ladder that put me at 15 feet, once I spent all of that time going from one
side of the house to the other, I was much more comfortable. So the answer is: you get
used to it. You will notice again that it is not any different from anything else in life.
You can play around with this a little, too. For example, risking 2% of $50,000 is the same
risk tolerance level of risking 1% with $100,000.
So if you find that you are over your risk tolerance level, instead of taking money out
of the account, you can lower your risk to equity. More than one way to skin a cat, as
they say.
NOTE: This is beyond the scope and goal of this program, which is “consistent profit
making.” As of Sept 2015, I am providing life coaching, which deals very effectively
with these issues. You can look for me on Facebook. Search “Vance Williams Life
Coaching.”
Capital Management
Also, if you get to the point that you are trading more money, with lower max risk (like 1%), if
your funds are not secure with the broker (they usually are not), you can leave half of your
money in an insured bank, and trade your brokerage account as though all of the money is
in the trading account. As far as how low your stop can go (smaller stop, more contracts,
less useable margin), that’s going to depend on the broker. But you should be fine at 1%
max risk, trading 2%. But work out the numbers so you only have what you really need in
the brokerage account. Remember, when you CAN eliminate risk, do it.
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Chapter 4 – Live Trading Plan
Live trading also comes with a few new rules.
Close Positions for Weekend
You need to know when your broker closes on Friday, and you need to make a rule to close
any open positions. You already know that your stops and limits cannot be executed over
the weekend because your broker is likely closed. So you are at great risk here if you hold
a position over the weekend. The market could open on Sunday with a 100+ PIP gap, and
regardless of having a stop loss of 22 PIPs (or whatever), you will lose the full 100, almost
5X the risk. So this is just not a risk we ever take. So make a rule in your plan that will
not allow you to have an open position when your broker closes for the weekend.
As most of you know, I don’t even trade on Friday. It’s a day that has less consistent
behavior than Monday-Thursday. On that note, be sure to go back through your trading and
look at the Friday and Sunday trades. I stopped trading on Fridays for two reasons. 1.
Investors and traders are closing out and taking different positions before the weekend.
This happens throughout the day on Friday. In addition, the last Friday of the month can be
exceptionally different, and the first Friday of the month, we have Non-Farm Employment
data. 2. When I stopped trading on Fridays years ago, I noticed that I was much more
tired on Friday, and that my sharpness wasn’t what it usually is. By taking off Fridays, it
made me even that much sharper on the four days I trade.
With respect to Sundays, since the main currencies are the Euro, US Dollar and Great
British Pound, and those markets are closed on Sunday, this is no different from trading at
“off” hours during the week. In addition, sometimes Sunday gaps can play with the market
psychology as well. Bottom line? I really enjoy three days off 
If You Discover a Mistake, Close the Trade
If you enter a trade, and discover that you made a mistake of any kind, make a rule to
immediately close the trade. This seems obvious, but sometimes if you are winning, that
little voice in your head can tell you to stay in. But your trading is about good execution, not
luck. Perhaps the flip side is true. Perhaps you made a mistake, and now you are in a
loss, but “hoping” to get back to zero. Again, close the trade. You made the mistake when
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you executed the trade in the first place. Don’t be in denial. Just accept the mistake make
a few notes, and move on to the next setup.
Be Careful About Bank Holidays
For most traders, this is not an issue. For example, this is not likely to be an issue if you are
trading with a dealing desk. But if you are trading with Interactive Brokers, for example, and
the Eurozone is having a bank holiday, if you are in a EUR/USD trade, your orders cannot
be executed. So double check with your broker. If they do operate like IB, then you need to
have a list of holidays for the entire year as part of your plan. Being in a trade for a holiday
in this circumstance is probably much worse than being in a trade for the weekend. Why?
Because price is much more likely to move significantly before you can execute your orders.
Again, this won’t apply to most traders.
Immediately Close any Windfall
At some point, you are going to enter a trade, and find you have made much more suddenly
than you expected. Perhaps the market makes a rapid move before you put in your profit
target. When this happens, my suggestion is this: WHEN you discover a windfall, close the
trade. More often than not, we feel like staying in the position. More often than not, we lose
some or all of that position. Again, this was just luck. Get luck off of the table, and get back
to skill. Be grateful and don’t play with it.
Records of Trading Platform
On a procedural note, you are probably already doing this, but if not, it is critical that you
take a picture of your orders each time you open and each time you close a trade. I’m
referring to the trading window where you see the orders, not the orders on the chart. As I
wrote in in a previous section, you don’t want to find a big loss and not be able to tell exactly
what happened. From time to time, it is natural to become a little careless. It’s part of the
learning process and emotional challenges. This usually happens when you are doing very
well. You feel like you can afford to slack off a bit. But the truth is that you should always
follow whatever procedures you have. If you can’t, you might want to think about closing
the trade or not entering in the first place.
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Accounting for Spreads
There are two parts to this. First, in a previous section, I explained how to deal with the
spreads. If you are trading with small stops and targeting .75:1, it is important to account for
your spreads. In a sell trade, or a pending buy trade, this is a factor.
In addition, fractional PIPs can be a factor. You have to decide how much. Sometimes they
are stretched apart, for example. If your target ends in a 9, and your entry ends in 1, you
are actually a whole PIP off, almost.
You can make this simple by using the fractions in the calculator and you are done. When
your trade is complete, just divide your gain by the pre-trade equity. It will tell you how
much you made. So if the account is $10k, and your max risk is 2.5% or $250, and your
reward is .75:1 (1.87%), that sum is 187.50.
If you made $173.20, divide that by the starting amount (10k) and that would give you 1.7%.
If this is happening, you need to make adjustments. You need to be closer to that balancing
point of .75:1 (1.87%). The exception is contract inefficiencies which I’ll talk about next.
If your stops are not that tight, your R/R is closer to 1:1 or higher, and your cost to execute
trades is low, this is not as much of a factor. This will tend to be the case as you increase
your experience and the amount of equity you can trade. In another chapter (Mastering
Market Behavior), I show you an example of what I’m referring to.
Contract Inefficiencies
There is going to be an element most traders are going to be dealing with at the beginning
of Level 4. Most will be starting with under $1000 to get their feet wet. Many are going to
start with $300 or $500. But I want to demonstrate where the inefficiency occurs that throws
off your bottom line at lower equity levels.
Let’s say your equity is $500. If your stop loss is 14, with a max risk of 2.5%, you can trade
8.9 1k contracts. The only problem is that you can’t trade fractional contracts. Your 1k
contract represents the smallest increment. And you can’t round up because this exceed
your maximum risk rule of 2.5%. So you have to round down. Now you could change your
stop loss to 15, giving you 8.3 lots, but I suggest you do not do this. I don’t think you want
to change your setup (risk and rewards) to manipulate the inefficiency. You want to trade
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your best, and live with the inefficiency for a while. Yes, the bottom line will be off right
now, but it is something that will be rectified as you trade more money. For example, if your
equity is up to $2200 and you are trading 10k contracts, instead of trading 3.6 10k contracts,
you can trade 36 1k contracts.
When your equity is much bigger, this is even less of an issue. In addition, as you gain
experience, and begin to master market behavior, this probably won’t matter at all. Again,
I’ll touch on that in a later chapter.
Closing Trades Early
At some point you are going to run into circumstances where you feel you should close the
trade. Perhaps price goes for a period without hitting your stop. London closes, price is
now in a range. Whatever was going to move the market was already brought to bear.
Should you close out? That’s something you need to decide.
What if you are in a great setup, it has almost reached your profit target, but price has
stalled a bit waiting for some HID? This is something that you also need to take great care
in deciding. But be sure you know this: decisions need to be made in advance, not “on
the fly.” When you are in the thick of it, you just can’t rely on your mind the same way.
Emotions, can alter what we think is happening, and cause us to make serious mistakes.
In summary, trading live is a little different. Pay attention and be careful to do what you
have learned how to do.
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Chapter 5: Mastering Market Behavior Part 1
Adding New Setups
I am asked frequently why I don’t teach some of the advanced methods. In other words,
setups that I know are pretty good. The answer is that I did this for years. It simply does
not work. A fully skilled and experienced trader can trade just about any method with
success, it seems, and someone who doesn’t fit that description can’t make money no
matter what you show them. By now you should be quite convinced of this reality. And I
confess that I have a desire to show you how the Fibonacci sequence lays out on a 30
minute chart. It is fascinating. It is so compelling that you might be convinced in one
viewing that you can do it. But you can’t. I tried teaching it over and over again for years.
So I’m going to stick with what I know works.
In the next chapter, I’m going to explain how this is more likely to unfold in the long run. But
there is no question that most traders are going to want to experiment with other setups.
You see something well, and you want to try it or incorporate it into your trading plan.
The bad news is that you can’t just add it to your plan. You’ll see what I mean if you try it.
Since you don’t have experience with the setup, it won’t take more than 2-3 losses in a row,
and you will abandon the idea. And yet it might be a good idea. The issue is one of
confidence, and that requires experience and that comes from validation. If you don’t have
confidence the pain will change your mind.
The good news is that you already know how to do it. During level 2 and level 3, you
learned a skill for doing this. First, what are the variables involved in your setups? Trade it
for a while (minimum 10-20 trades). What are you seeing well? Is the logic complete?
If you find that you like the setup, the next step is to pick the best examples, and begin to
define it, just as you did at the beginning of level 3. The final step is to begin documenting
that setup. Maybe trade it a minimum of 30 times. If you have traded it for a while, and
defined it well, then you will have a very good idea if you want to add it your trading plan.
Letting Profits Run?
Changes might not be all about a new setup. There might be circumstances where you
want to pull your stop loss to break even coming into HID or some other logical reason. Be
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careful you aren’t just doing this to make yourself feel better. There must be a point of logic
in play that you have experience with.
What about getting more out of your trades? At a point in time, when you have enough
experience with your method, you are going to see the potential (more on this in the next
chapter) of a setup. But to help your eyes tune into this, I suggest following all of your
trades after they close. If you closed at .75:1, did they go farther? Study the variables and
the context when you can. Your mind will begin to identify when these moves have greater
potential. But in the end, the variables themselves will determined the potential of every
setup.
What if Conditions Change During a Trade?
Again, if it is within the boundaries of your experience, you have possibility. What am I
referring to? Well, let’s say that you are in a trade, going in the direction of the US Dollar,
and suddenly everything is pointing towards a stronger USD, and price is moving across the
board that way. You still have 10 PIPs to go to reach your target. Do you extend your
target? You can only know from experience. Me? I rarely do this. I like getting in, sticking
with my plan, and getting out, regardless of what is happening. There is ALWAYS another
trade around the corner.
That said, you do what you think you should do, and when doing it, be careful not to
increase your risk to your live trading account. Keep your testing separate from the hard
work you have done.
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Chapter 6: Mastering Market Behavior Part 2
It’s natural to want “more,” I think.
A new trader is going to think about expanding into more setups, but this is not really how it
unfolds in the end.
I talked about pattern potential earlier in the book. Once you have mastered market
behavior, it’s no longer about risk to reward ratios or any of that. There is an optimal stop,
an optimal entry point, and an optimal target. The buyers or sellers have an advantage, and
you can measure that advantage. This might mean that the stop loss is 13 and the target is
15. Or maybe the stop is 14 and the target is 14. Or maybe the stop is 9 and the target is
17.
You see the variables, the strength of the advantage, and the optimal entry and exit points.
I’ll give you one
example, but you will
find countless
examples in the live
sessions.
What was the story?

The Greece solution
was in the hands of
parliament, which
would vote the next
day. A yes vote for
changes seemed
unlikely. London had
been selling since
the open. GU traders had been buying, optimistic about a future rate hike on the heels of
remarks from their central bank recently. The USD was gaining strength across the board
(GU chart down). Only the GU traders were resisting the drop. After they failed to push
price up over and over again, and were slowly losing ground, I sold. I put the stop at the
most recent swing high. That’s the highest blue candle wick below the red stop loss line. I
targeted just above 50%, knowing that the buyers who had been stopped earlier would be
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adding more contracts at that 50% and just above, getting an early start on another move
up. Price hit my target almost to the PIP, filling the target orders, and then buyers made
another strong move up. This is not an unusual example of me doing this. Those who have
watched me for years will tell you that I do this very often. I rarely trade counter trend. But
here I read the story, the market variables, and identified the optimal entry and exit points.
In this example, you see me targeting 31 with a risk of 19. Usually my risk is closer to 13
and my target closer to 15. But as I said, I’m making the decision based on the information
the market is giving
me “right now.”
So there can come a

point in time where
you define your
setup a little
differently. I’m not
so much trading
“different setups,”
but rather the
same setup in
different ways. In
the end, there is
really only one type
of setup: Either the buyers or sellers have an advantage, you can measure the
strength of that advantage, market conditions are congruent, and you can see the
optimal entry and exit points based on where orders are likely to be. Let’s go over that
point by point in the picture.
I determined that the “story” was leaning towards sellers (market conditions), and so was
London sentiment. The USD was moving significantly for the other pairs I watch. The GU
was trailing that movement due to buyer optimism. GU was showing more and more selling
and then began dropping through range levels (I entered). The optimal stop was
determined by how high the buyers had been able to push price in the previous 2.5 hours
(previous swing high). There was no question about the strength of the USD pushing price
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down. The question
was about when the
buyers would be
pushing back
strongly again,
which I determined
was just above 50%
of the entire move
up.
As I was taking this

trade, I explained
that this was a tad
aggressive. There
was no reason to
target so much. A 1:1 target of 19 (instead of 31) would work even better, making a good
profit and be more likely to be reached.
All of that said, keep in mind that no one can teach you to do this. This will evolve in time
from your experience. I want to point out that I am not making decisions on the fly. I still
do once in a great while. This is a mistake I freely admit. But when you are new to doing
this, you need to be even more careful. When you find you are able to read the market very
well, be conscious of what the potential of the move is, and don’t attempt to get all of it (as I
did here). And most importantly, always define your decisions into your plan, let your plan
be the decision maker.
Different Profit Style
At some point, you might be trading enough money so that the picture changes slightly.
This is mostly likely when you reach your risk tolerance level, in addition to gaining enough
experience that you begin to master behavior. Now you see all of the variables, you get a
good read, you can see the advantage, the strength of that advantage, and the optimal
ways to manage the risk in that circumstance.
Let’s say for example that you like trading the GU. You have $66,000 in equity (or
whatever). Your maximum risk is $1650 at 2.5% MR (max risk).
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Perhaps you can get a 13 PIP stop and target 15 PIPs in the setup. This makes your
potential risk $1650 and your reward about $2016.
But what if you are happy with $800 in a trade? If you can get two of these trades a week at
$800 per, for you, that might be good. That means you can do a couple of things. First of
all, you don’t have to worry about maximum risk that much. Secondly, you can move at
least half of your money into an insured bank account.
This is just an example of how your trading can evolve. I want to share somethings else,
but also caution you at the same time.
A Word of Caution
There is another type of person who is learning to trade specifically so that they can trade
other peoples’ money and share in bigger rewards. There is a lot I can say about this, but
this almost always fails. In fact, I don’t know of an example personally where it worked.
Probably the most significant reason is because the person is not trading their own money.
If they were, they probably would not have moved so quickly to increase the size of the
account. So those who want to trade others’ money likely tend to pull the trigger on that plan
too soon.
That aside, when you are successful, even in a smaller account, people know it without
you telling them. They can see it in your confidence and how you talk, even if they don’t
know how.
I have been approached countless times with a request to trade other peoples’ money. This
is millions of dollars. Tens of millions really. I have always said no. Why? I don’t have any
experience trading other peoples’ money. Is there a difference? I have seen more than one
great trader doing extraordinary, and when he opened up to the idea of trading other
peoples’ money, eventually, it all imploded. In fact, one of them is thought by many to have
been setting people up for the long con. Personally I don’t think this is the case, and I
guess we’ll never know.
I think the dynamics of trading other peoples’ money are different. I’m willing to bet that a
good percentage of the criminals featured on the show American Greed didn’t start out as
criminals. There must be pressure to produce and create greater returns, generated by
those who are marketing the fund. Investors are likely to be asking questions about the
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returns. Expectations are created. It’s not difficult to imagine you are doing extraordinary
and have a new lifestyle. Then a change in the market happens, and you lose a significant
amount. You know you can get it back in time, but if you report the loss, you will lose
investors, making it more difficult to make up. This would be even more so the case if you
have been showing good returns, I think. Whether you wait to report for a while, or skew
the report in some way, the moment you do that, you are on the path to prison.
I’m just sharing a thought. What I have told others is this: if you want to trade others’
money, then make sure you get some training from someone who knows how to do that
well. I am only helping you prepare with skills to trade your own money.
But I want to emphasize that when you do well, you will be asked to trade significant money.
You need to be prepared with your answer. If you do want to pursue a future as a fund
manager, then you should begin your education in that area right away.
I’m not intending to create a negative mood here, I just want you to be safe. I’m not saying
not to do it. I’m saying to be sure that you know what you are getting yourself into.
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Chapter 7: The Final Chapter
I’ve taken a break for a few hours before writing this last chapter. I wanted to think about
what else I wanted to include that I did not already put in my notes. I’m pretty sure I’ll need
to edit once or twice and that will give me the opportunity to fill in a few blanks if needed.
With that in mind, I’ll close out with some final thoughts.
Trading is Not a Team Sport
There are many advantages to being a part of a team while you are learning, but when it
comes to making these decisions, you are completely on your own. There was a time when
we imagined we could be on Skype together, share our conclusions, and have an
advantage. But in the end, every time this was tried, it turned out to be counter-productive.
In addition, if you jump on Skype during the learning process, the content of discussions are
lost, unlike your forum where it is captures specifically for one of those reasons.
But it is good to stay connected to a team. From time to time data feeds can get corrupted
and you see that much more quickly if you are interacting some with other traders. But you
don’t interact with them so they can help you with your trading. It’s really just moral
support, and more importantly, if you are inclined to do so, you can help others.
You can encourage them to keep going and share your experience with them. So while
your trading decisions are yours alone, you can still be part of a community that values your
contributions, and validates some information that you see. Perhaps they even fill in some
blanks. And we do often compare notes on how the “story” is shaping up.
This morning the whole FX world was focused on Yellen. Every information source I read
had nothing relevant to say about Greece. And yet for the first time in two years, that
story had actually changed. The parliament voted for austerity measures. Something, on
the previous day, no one thought was even possible. Up to then, it had been an old
fashioned Mexican standoff.
Something didn’t feel right, so I did my own search and found the vote. I was trading the
wrong story! Now it was too late for me, but I sounded the trumpet at that moment, and
others did benefit. What was thought to be a dropping market never dropped again, but
rose by 44 PIPs before going sideways.
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The story had changed. Something fundamental about the story had changed. For
moments like these, it is good to be part of a community like ours or one you developed
working with your own team.
But other traders cannot help you make decisions now. The best thing you can do is to
have someone who is a good sounding board for you. I’ve done that for all of the
traders up to this point. What is a good sounding board? Simple. They are PRESENT and
listening to you talk about your thoughts and feelings. If they are only listening for you,
and not for themselves, if there is anything they can tell you, they will be inspired to
tell you.
This really doesn’t have to be a trader. I have someone like this, and they know little or
nothing about trading. The bottom line is that you know what you need to do.
Sometimes having someone to be your sounding board just helps you to be clear
about what that is.
The Most Difficult Part of Trading
There is no question that the most difficult part of trading is getting past the experience of
losing 3 or 4 trades in a row. This is why it is important that you fall back on your logic and
your trading plan. As long as you rely on what is in your head, you can have no confidence
in what you are doing.
Your experience will likely be similar to that of other traders. You will find yourself feeling
like you are doing very well, and then you lose 3-5 trades. As each subsequent loss occurs,
you feel more pain and doubt. This is only natural. It will be like flying a plane and going
into a cloud bank. You just can’t see anything. All you can see is the information on the
panel in front of you (or what is going on in your imagination). You must to LEARN to trust
that information in front of you. That takes practice.
Accept the loss before you take the trade. Accept ten losses, and just keep moving forward
with the conclusion of each trade. It’s the most difficult thing in trading to do, but you
have to do it. This is also why I strongly encourage you to begin with a small account. The
process is painful enough without it being a financial disaster, too.
Be careful not to have a knee jerk reaction to this process. Yes you can cut some of those
losses with filters (criteria that voids a trade), but this will limit your frequency. Be slow to do
220

this. It’s not the right move. Some losses are part of trading. If you are going to win 72 out
of 100, there are going to be 28 losses.
Be slow to change your plan. Get feedback from someone you trust. Always evaluate in a
series, using hindsight. If you do, that will turn into more foresight.
How to Gain Confidence
If you are ever going to make any meaningful money, you are going to have to gain
confidence in your plan and in yourself to execute.
I think of gaining confidence just like gaining trust in a new relationship. You have to
respect the other person, don’t get in a rush, and don’t make assumptions. You have to
really care (treat trading with that same level of importance).
So gaining confidence in trading is a little like that in my mind. You need experience with
your plan. You can’t judge your plan or yourself by a few experiences. You need a
long series of experiences not only to see what is happening, and how you can
improve, but also to actually see that you have made improvements.
If you trade too much money, too quickly, the fear will undermine your confidence building.
If you get away from your trading plan, you can destroy your confidence. After all, you don’t
have any experience doing something else. You might feel like you do, but you don’t.
You need to be careful (not careless) to do a good job. Stay on track. Execute, make notes,
and keep a brief journal about your experience. You might be fascinated by what you read
that was happening a month ago. You might even find that what you remember
happening, and what was actually happening were two different things.
When it is time to review, go over your trades, over and over again. Now that you are in
Level 4, each time you review a series of trades, review several other (prior) series at the
same time.
More than You Bargained For
I have been told over and over again that what traders have learned on this journey helped
in many other areas of life. I’m not surprised. If Forex trading had not given me so much
insight about life, I don’t think I would have been captivated for so long. But it has,
221

especially after incorporating the Art of War principles, and making the breakthroughs in
psychology.
Forex trading made me learn to see myself as I am, others as they are, and the market as it
is. It taught me that I don’t know what will happen. It taught me that the greatest victories
come from struggle, no different from a seed breaking out of the darkness of the ground, or
a new baby chick hatching from its egg.
This experience taught me that it was not knowledge, but consciousness that made me
excel. And it made me remember that in the most difficult tasks, to break them into the
smallest steps possible, and execution would become easy.
I was finally taught not to celebrate my wins or mourn my losses. Life is great just the way it
is, and there is always more potential to grow if that is what you want. I could go on, but
you get the idea. Forex challenged me to be the best I can be in this life.
I was trading Forex when almost no one knew what it was, and platforms were barely
stable. In fact, if you can imagine, the day I entered Forex, I did a Google search for Forex
training and it returned only 500 links! I was here before there was an ounce of regulation in
the US. It was probably a little like the Wild West, or the days of the Gold Rush.
I was here when Refco went belly up and everyone lost their accounts. They were the
largest retail Forex broker in the world. I was here in 2008 when the global financial
markets almost collapsed, and in 2010, when we became heavily regulated by Dodd/Frank.
I was here when Fukushima was on fire, with six nuclear reactors built on an earthquake
fault.
I traded the long years from 2008 to 2014 when the world markets were on life support from
the central banks. I was here in September 2014 when the patient began to breathe again.
It’s been an incredible journey, and I have only one thing to tell you, and I mean this
sincerely. There has never been a better time to trade Forex. If you are really
skilled, you have an incredible advantage, and the systems are safer than they have ever
been, in my opinion. I think it is just a matter of time before the accounts in the US are fully
insured. They are already that way in the UK, as I understand it.
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I hope you have a great experience, too. It won’t be easy. Nothing worthwhile ever is. But
if you follow the steps I have outlined for you, even if you decide not to be a Forex trader,
my prediction is that the experience will lead to a richer, fuller life, no matter what!
Remember that no one really knows anything for sure in this world. I think like me, you
have permission to be whatever you want to be. I take that permission freely from the
knowledge that everyone in authority thought the world was flat just a few hundred
years ago. The king. The church. The sciences.
I will continue to work with traders for the foreseeable future, even though I decided to stop
“personally” coaching traders (one-on-one) in March of 2015.
I know my work has been cost prohibitive to so many in developing parts of the world. I
truly hope this book helps you at least in some small way with your goals.
To each reader, I leave you with this: I hope you reach all that you aspire for. I am inspired
by you. As my mentor said so well, as we aspire, we inspire others. Thank you for that. In
the next section, you will find instructions for laying out your own community, or plugging
into the one that I created.
Best wishes,
Vance Williams
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How to Set Up Your Own Training Community
After this section, you will see me describe the community I created, which also include
hundreds of hours of recorded videos, tools, and oversight from skilled traders with this
material. I did not write this book to sell memberships to my community. I wrote this book
to leave behind a path for you to follow as I transitioned into my true passion, which is Life
Coaching.
You will need the functionality of a forum where each of you can create your own topics.
You will title the topic by our name or a moniker. So instead seeing a topic for EUR/USD or
something like that, the topic will be Vance Williams L1 (for level 1).
This is what I call your form desk. It’s where you do your work, and the information yourself
and others will access for feedback and future reviews. So when you search this particular
forum, all of the “topics” are names of individuals. As someone makes a post, the most
recent appears at the top. My community was custom programmed, so it is a combination
of special pages, forums, topics, and is a social network with a news feed.
But you don’t need to get that complicated.
If you have a team of people who can do this with you, all you really need is one forum and
the topics under that forum. I would suggest that you limit the number of topics. If you get
too many topics, then the group loses focus.
I suggest having a topic for “team fundamentals” where everyone can share their
conclusions. I also suggest having a “team update” topic where anyone can post any
developments or updates they have. It might seem good to have topics for each level of my
book, but my experience is that it is best to keep all of that flowing in the topic of the
individual doing the work.
When you move to level 2, change the title of your forum to Vance Williams (your name) L2.
This way, those who can provide you feedback see your new post and the level you are
working on.
You can probably do this with as few as two people, but the more you have, the more
feedback you will get, which is very important. Everything else, I included in this book
already.
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My Community
If you don’t have a team to work with, you can find my community at www.forexartofwar.com
The community existed before this book. I personally trained everyone one-on-one in the
community setting. So traders worked together but I guided each of them.
In addition to a personal forum and the community to trade and work with, you will also find
100’s of hours of my live sessions that were recorded, step by step sessions going through
this book, and can even access current live trading sessions Monday-Thursday. Since the
current members have been with me for a year or more, you are likely to get excellent
feedback on your journey to success.
Please know that there is a small free per month (under $10) to provide your forum and help
cover costs.
Best wishes!
Vance Williams
PS: If you are going to start your own group. That’s great. Just do your best to follow what I
outlined in this book. Encourage each other and do your best. You’ll get there if you give it
time.
225

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Level 1: THE FIRST BATTLE, Forex Art of War

“Learn to make good decisions regardless of the emotions you experience.”

Those are your two choices.

If you are a member of my community, be sure to access the sessions I recorded,

Whether you are in my community or part of another, make it a habit to ask a

For now, just practice the basics.

Here are the specific learning goals of Level 1:

 Tools such as charts and trading platform

There are patterns (logic) for all of these decisions.

You don’t really need to know that to trade, though (ha).

 Tools such as charts and trading platform

To accomplish this, I’m going to give you something to practice.

 More trading opportunities

So let’s think about some of that. If

The most repeated pattern on the charts is what we call a “trend.” In

So far we have explored “trend".

In the beginning of this book, I

You start the Fib where the trend

23.6% and 38.2% are natural profit

I suppose I could write a book on

 Proficiency with Charts and Trading Platform

1. Learn the elements involved in any high probability trade

Stick with Your Plan

Beginner Psychology: Self-Discipline (the ability to delay immediate gratification)

Remember to write any questions, any time in your personal forum.

Here I have highlighted the (345) pattern that we want.

Former Support or Resistance, Former Trend High/Low

So it is important to recognize that in order to have a “new wave,” price must be

In this next step, I have

There are three important things going on in Level 3.

 Develop Trading Plan

Welcome to the Top 1%

The Importance of Your Words

The Power of a Good Plan

Here’s how I did it.

First I looked at the most recent five

The main thing is that this picture

 Trading in the direction of the trend

The “top” of your trading plan will look like this.

Golden Rule: Follow Your Rules

 If you discover a mistake let your stop or limit hit

Validate that you have it Right

Building a New Neural Network

Okay on to the next chapter on procedures!

Accounting for Spreads

Using a Trade Calculator

Okay what are we looking for?

 For the first section of this, the trader remains silent.

Keep these ideas in mind.

Always look to encourage and build others up in the your community.

Review Multiple Times – Glean All You Can

Don’t Take Anything Personally

I’m going to go into a little bit of psychology to wrap up this section.

I can almost hear some people thinking that this is “gobbledygook.”

It means seeing that other peoples’ “stuff” is THEIR stuff.

It means showing up, being HERE, NOW.

You get the idea.

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