cruise forex presentation

Or…

How I Learned To Stop Worrying And Love

The Pip

First…

A little inspiration.

Learning to trade is a lot like learning to drive a race car…

Both are powerful vehicles that demand knowledge and respect.

Some essential features of a race car and driver:

Some essential features of a race car and driver:

1. Driver’s Education

Some essential features of a race car and driver:

1. Driver’s Education2. Steering

Some essential features of a race car and driver:

1. Driver’s Education2. Steering3. Brakes / Seat Belt

Some essential features of a race car and driver:

1. Driver’s Education2. Steering3. Brakes / Seat Belt4. Accelerator

Some essential features of a race car and driver:

1. Driver’s Education2. Steering3. Brakes / Seat Belt4. Accelerator5. Confidence

The essential elements for successful trading:

The essential elements for successful trading:

1. Training & Education (Driver’s Education)

The essential elements for successful trading:

1. Training & Education (Driver’s Education)

2. Technique / Strategy (Steering)

The essential elements for successful trading:

1. Training & Education (Driver’s Education)

2. Technique / Strategy (Steering)3. Stop Loss & Risk/Reward Ratios

(Brakes / Safety Belt)

The essential elements for successful trading:

1. Training & Education (Driver’s Education)

2. Technique / Strategy (Steering)3. Stop Loss & Risk/Reward Ratios

(Brakes / Safety Belt)4. Money Management (Accelerator)

The essential elements for successful trading:1. Training & Education (Driver’s Education)2. Technique / Strategy (Steering)3. Stop Loss & Risk/Reward Ratios (Brakes /

Safety Belt)4. Money Management (Accelerator)5. Psychology (Confidence)

Some food for thought…

“Opportunity is missed by most people because it is dressed in overalls and looks like work.”

- Thomas Edison

Element #1:

Training and Education

“Formal education will make you a living. Self-education will make you a fortune.”

-- James Rohn

FX Trainer is an amazing educational resource.

Use every resource afforded to you (O.T.R.’s, classes, I.L.C. etc…).

But don’t stop there.

A thorough understanding of these elements will create the foundation for success:

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance2. Fibonacci Theory

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance2. Fibonacci Theory3. Moving Averages (FX Lines)

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance2. Fibonacci Theory3. Moving Averages (FX Lines)4. Indicators

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance2. Fibonacci Theory3. Moving Averages (FX Lines)4. Indicators5. Chart Patterns

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance2. Fibonacci Theory3. Moving Averages (FX Lines)4. Indicators5. Chart Patterns6. Pivot Points

A thorough understanding of these elements will create the foundation for success:

1. Support and Resistance2. Fibonacci Theory3. Moving Averages (FX Lines)4. Indicators5. Chart Patterns6. Pivot Points7. Elliott Wave Theory

Not every trade will utilize all these elements at once, but the seasoned trader will know and understand each of these elements.

Not every trade will utilize all these elements at once, but the seasoned trader will know and understand each of these elements.

In doing so, each market move can be placed in its proper CONTEXT, understood, and then an appropriate strategy applied to it.

Element #2:

Technique / Strategy

Understanding HOW markets move is the first key…

All markets move in one of 2 ways:

1. Range-bound2. Trending

Trading strategies can thus be split into 2 schools of thought:

1. Range Trading2. Trend Trading

- Trend following- Counter-trend

Range traders look to identify a range, and then trade within it.

The strategy can be easily summarized in 6 words:

BUY THE BOTTOM, SELL THE TOP.

Both Trend-following and Counter-trend traders wait for a breakout from a trading range, and for a trend to emerge.

Trend-following traders look to define a trend and trade WITH it.

Counter-trend traders look to define a trend, and then trade AGAINST it.

All are viable styles of trading, but each style requires a unique entry technique, risk/reward ratio and money management principles.

What do technical-based Day Traders, Swing Traders and Position Traders have in common?

What do technical-based Day Traders, Swing Traders and Position Traders all have in common?

They all employ either Range-Trading or Trending techniques.

The only real difference is the size of the numbers involved.

“A Jack-Of-All-Trades, but an expert in none…”

Don’t worry about capturing EVERY pip of EVERY move. Rather, focus on being consistent in a technique that works for you, even if that means leaving some pips “on the table”.

“The best way to predict the future is to create it.”

- Peter F. Drucker

Element # 3:

Stop Loss & Risk / Reward Ratios

When it comes to Stop Losses, most traders look like this:

That makes larger and/or experienced traders think and look like this:

Most small and/or inexperienced traders are far too concerned with “Not Losing” as opposed to finding good trades.

They think stop losses are there to protect them from financial loss (and that’s partly true) but in so doing, they miss the point of the stop loss entirely.

A quick review:

A quick review:

All financial markets are Support and Resistance hunters.

A quick review:

All financial markets are Support and Resistance hunters.

Markets live to challenge the next level of Support or Resistance.

A quick review:

All financial markets are Support and Resistance hunters.

Markets live to challenge the next level of Support or Resistance.

If/when a level of Support or Resistance is broken, it takes on the opposite role.ie. Support becomes Resistance and vice versa.

The placement of stop losses has nothing to do with a number (15 pips, 25 pips, 50 pips etc…)

In a BUY trade, the stop should be placed below the nearest major SUPPORT level.

In a SELL trade, the stop should be placed above the nearest major RESISTANCE level.

The whole purpose of a stop loss is not to protect a certain dollar amount, but rather to protect you from a major change in market direction or sentiment.

Let’s look at an actual trade…

In this example, the stop loss would have been around 15 pips +/-

An arbitrary number like 25 pips would have given the market too much room.

Once that level of support was broken, the sentiment turns down, and we wouldn’t (or perhaps more accurately, SHOULDN’T) want to remain in that buy trade.

In summary:

In summary:Stop loss placement should be based on Support and

Resistance levels, not dollar figures.

In summary:Stop loss placement should be based on Support and

Resistance levels, not dollar figures.

Where you place the stop will depend on what style of trade you are doing (Range-bound, Trend-Following, Counter-Trend).

In summary:Stop loss placement should be based on Support and

Resistance levels, not dollar figures.

Where you place the stop will depend on what style of trade you are doing (Range-bound, Trend-Following, Counter-Trend).

Range-bound and Counter-Trend traders generally use small, tight stops, Trend-Following traders typically use larger stops.

Another little known (or practiced) fact:

Identifying a trading opportunity is only the first step. Whether you decide to take a particular signal or not shouldn’t depend on any indicator, chart pattern, advice or intuition…

It should depend on the RISK/REWARD ratio.

What is RISK/REWARD ratio?

What is RISK/REWARD ratio?

A) What you calculate every time you bail on your wife to watch the game with the guys.

What is RISK/REWARD ratio?

A) What you calculate every time you bail on your wife to watch the game with the guys.

B) Something that applies mostly to short-term trades.

What is RISK/REWARD ratio?

A) What you calculate every time you bail on your wife to watch the game with the guys.

B) Something that applies mostly to short-term trades.C) A simple calculation based on pips risked versus

possible pips gained.

What is RISK/REWARD ratio?

A) What you calculate every time you bail on your wife to watch the game with the guys.

B) Something that applies mostly to short-term trades.C) A simple calculation based on pips risked versus

possible pips gained.D) What I pay my Money Manager to calculate for me.

Risk/Reward ratios are critical to long-term success in trading.

Experienced traders will typically look for a 1:2 risk/reward ratio if not 1:3 or higher.

(1:2 ratio = 1 pip risked for every 2 earned)

Here’s why…

With a 1:3 Risk/Reward ratio, and only a 50% success rate…

# of trades Loss Win1 $1,0002 $3,0003 $1,0004 $3,0005 $1,0006 $3,0007 $1,0008 $3,0009 $1,00010 _____ $3,000

$5,000 loss + $15,000 gain = $10,000

profit

This is a simplified example, but the bottom line is obvious.

The higher the risk/reward ratio, the less often you need to be correct in order to be profitable.

And obviously, if you can have high risk/reward ratios AND high success rates, all the better.

Element #4:

Money Managementa.k.a. Zoltan’s favorite topic

(I’d better make this good)

Money Management is one of the most critical elements to a long-term successful trading career.

Unfortunately, it is also one of the least understood.

The calculation for Money Management is quite simple, but the understanding of it is somewhat more tricky…

The term Money Management refers to the total amount of dollars at risk in the market at any given time.

Number of pips being riskedXNumber of lots being traded=Total positional risk (usually expressed as a % of total

capital ie. 5%, 10% etc…)

And most traders actually work backwards:

Available equityX0.05 (for 5% risk… 2% risk would be 0.02 etc…)=Dollar amount

Then…

Dollar amount / Stop loss used per lot=Number of lots to trade

“ So what?”, You may be asking.“Seems easy enough.”

Bear with me…

PSSSSSST!!!!

Here’s a secret…

The money in your account is not really MONEY in your account.

HUH?!?

“ Money” doesn’t exist. It’s a figment of everyone’s imagination. The dollars in your wallet are worthless, they only have a value because everyone agrees they do.

(Betcha didn’t see that one coming!)

And one more thing…

The “zeroes” in your trading account don’t represent your hard-earned after-tax dollars anymore.

The “zeroes” in your trading account represent your ability to take positions in the market and (hopefully) profit.

The “zeroes” in your trading account represent your ability to take positions in the market and (hopefully) profit.

No more zeroes = no more profits.

The “zeroes” in your trading account represent your ability to take positions in the market and (hopefully) profit.

No more zeroes = no more profits.

No more profits = back to the 9-to-5.

In other words…

Treasure those zeroes!!

Look for FEWER, BETTER trades, and PROTECT YOUR CAPITAL!!

Here’s why…

Loss of capital % return on remainingcapital required to get back to breakeven

10% 11% 20% 25% 30% 43% 40% 67% 50% 100% 60% 150% 70% 233% 80% 400% 90% 900% (!)

As you can see, the further “behind the 8 ball” you get, the harder you have to work just to get back to where you were!!

That’s why you’ll always hear Zoltan say, “Less is More!!”

Yes, we should be confident enough in our trades to risk 100% of our account…

But just for giggles, let’s risk a little less.

2.5 - 5% is a good place to start, if not less.

We all want to make that million…

It just might not come in one trade, that’s all.

Some trades are 10% trades, others are 1% trades.

A thorough understanding of theory and technique will tell you which is appropriate for any given situation.

Remember…

There will always be another trade.The next day…The next week…The next month…The next year.

But if you’re gone (broke), it won’t matter.

Element #5:

Psychology

You will often hear successful traders say things like,

“Success in trading is 10% system, 90% psychological.”

(The percentages may vary, but the theme is constant.)

What they mean is, assuming you have a system (technique) that works, your success will be largely dependant on your psychology (confidence).

And what a painful realization it is, to know that you are the thing that stands in the way of your success.

What do we mean by psychology?

What do we mean by psychology?

Those irritating thoughts that run through our heads each time we take a trade.

Do any of these seem familiar?

Do any of these seem familiar?

“Oh, I hope I’m right this time.”

Do any of these seem familiar?

“Oh, I hope I’m right this time.”“I sure hope I don’t screw up like last time.”

Do any of these seem familiar?

“Oh, I hope I’m right this time.”“I sure hope I don’t screw up like last time.”“I’m gonna make a killing on this trade!!”

Do any of these seem familiar?

“Oh, I hope I’m right this time.”“I sure hope I don’t screw up like last time.”“I’m gonna make a killing on this trade!!”“I’m gonna make this market pay for stopping me out

last time.”

(Your personal dialogue might be slightly different, but you get the point.)

These are the types of thoughts that lead to our downfall as traders.

They make us do irrational things.They make us overlook the obvious.They cause us to do things we know we

shouldn’t (like cut winning trades short and let losing trades run.)

Now here’s the good news:

Now here’s the good news:

WE ARE NOT OUR THOUGHTS!!!

Thoughts are usually the result of some “programming” you received many, many years ago, probably with the best of intentions, by someone who loved you very much.

“Gee thanks, (insert person of influence here)!”

Once you realize that these thoughts maybe aren’t yours at all, but actually the thoughts of someone else, it becomes a lot easier to let them go.

Here are some ideas and techniques that may help:

- Study. Ask questions. Practice. Study some more. Be sure of your technique and logic.

- Study. Ask questions. Practice. Study some more. Be sure of your technique and logic.

- Keep a trading journal. Be CONSCIOUS of your thoughts, then try to work beyond them.

- Study. Ask questions. Practice. Study some more. Be sure of your technique and logic.

- Keep a trading journal. Be CONSCIOUS of your thoughts, then try to work beyond them.

- Read. There are plenty of books on overcoming negative or detrimental psychology. Read them.

- Study. Ask questions. Practice. Study some more. Be sure of your technique and logic.

- Keep a trading journal. Be CONSCIOUS of your thoughts, then try to work beyond them.

- Read. There are plenty of books on overcoming negative or detrimental psychology. Read them.

- Talk to other successful traders. If you don’t know any, expand your horizons. There is nothing worse than getting advice from someone who is struggling more than you are.

- Study. Ask questions. Practice. Study some more. Be sure of your technique and logic.

- Keep a trading diary. Be CONSCIOUS of your thoughts, then try to work beyond them.

- Read. There are plenty of books on overcoming negative or detrimental psychology. Read them.

- Talk to other successful traders. If you don’t know any, expand your horizons. There is nothing worse than getting advice from someone who is struggling more than you are.

- Practice, practice, practice. Demo trading is a powerful tool that most traders do not make enough use of. If you can’t be consistent in your demo account, you won’t be consistent in a real account either.

And above all, remember this…

And above all, remember this…

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better.

The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.

- Theodore Roosevelt

In closing, a little Cruise-spiration…

See you at the finish line.