Category Archives: Forex Books

The 2 Most Important Keys to Successful Trading

Examples from Whole Foods Market and Reynolds American, Inc show you what to do (or not) to trade successfully with Elliott Wave

By Elliott Wave International

After 20 years of experience applying the Elliott Wave Principle, Senior Analyst Jeffrey Kennedy says that it remains the one tool that will tell him — down to the tick, to the pip, even to the penny – when his forecast is no longer viable.

That, according to Kennedy, is one of the two most important keys to successful trading:

“Know where you are wrong.”

In his May 8 Elliott Wave Junctures educational video, Kennedy shows subscribers how to acquire that knowledge when revisiting an earlier forecast that didn’t work out. This lesson was adapted from our EWJ service, and also explores the second of Kennedy’s Keys to Successful Trading:

“Don’t pick tops and bottoms.”

See the logic behind Kennedy’s wisdom by reviewing his analysis of Whole Foods Market, Inc. (WFM) and Reynolds American, Inc. (RAI).

My outlook for Whole Foods Market was right and my outlook for Reynolds American was wrong. While price evidence was compelling for both issues, the forecast in WFM was in the direction of the trend and RAI’s incorporated top picking. Here’s what happened:

On May 1, price evidence called for new highs in Whole Foods Market. We had a clearly defined uptrend, a three wave move in the direction opposite the primary trend, and the move to the downside was contained within parallel lines:

Additionally, we had a double closed-key reversal when the low was made, as well as some bullish divergence on the smaller timeframes. Price evidence was very strong that this market would continue to new all-time highs, so my outlook was bullish.

The bullish outlook in WFM required the April low of $81.39 to hold. The trend was clearly up from 2009 into 2013. From an Elliott Wave perspective we knew that this was a countertrend move with an A-B-C structure (a corrective wave pattern within a larger trending market). We had the wind at our back and were not “picking a top.” We simply looked at the price evidence in support of a further rally.

Conversely, the following example in Reynolds America, Inc. did not work out.

On March 22, I anticipated a move to the downside in Reynolds American, Inc. as we had a five-wave decline and a subsequent advance that was a three-wave move. I was looking for a tradable selloff to the downside in wave (C) or wave (3):

Unlike the successful WFA example, I was not trading with the trend. Instead, I was looking for a “top.”

Yet I was able to prevent a losing trade from becoming a devastating trade because I could use the Elliott Wave Principle to “know where I was wrong.”

This bearish wave pattern was viable only as long as prices held below the February high of $45.17.

Once prices exceeded this critical resistance, I knew not to look to the downside – that my outlook was no longer viable:

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This article was syndicated by Elliott Wave International and was originally published under the headline The 2 Most Important Keys to Successful Trading. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Trade the news with ZuluTrade

Do you like trading the news but don’t know how? ZuluTrade now gives you the opportunity to select a Signal Provider that trades the news!

ZuluTrade’s newest performance feature evaluates the behavior of each Signal Provider based on an economic calendar release and then displays the results.

Signal Providers that trade the news, have a small calendar icon displayed on their trading history tab next to the news trade. Here is how this new feature looks in action:

This seems like a spiffy new feature to me, however, I’m not sure that I’ll find myself using this feature. I prefer to stick with signal providers that do not trade the news – scalpers, swing traders, etc.

Anyways, I wish you all the best and I hope you make tons of pips with ZuluTrade.



Bird Watching in Lion Country – Forex Trading Explained

Bird Watching in Lion Country - Forex Trading Explained

The solution to the problem you don’t know you have?

It is common wisdom that a very large percentage of forex traders lose all their money rather quickly in the forex market.

It is not so common wisdom that the majority of these losers follow very much the same approach to forex trading. (See below)

Anyone with some experience of investigating the world of forex trading via the Internet knows there is a common message, spread by what I call “marketing wizards”.

This message says that forex trading is easy, you can make huge wads of cash with specific technical analysis tools to time the market perfectly (usually on an intra-day basis), and you must not risk more than 2% of your account on any one trade (also called ‘money management’).

It seems like a lot of people simply don’t get it that there is a huge gap between losing most of your money very quickly and being a successful trader over a sustained period of time. It is as if people simply dismiss it. “Won’t happen to me!” If you are saying this right now – you better watch out.

The main challenge facing new entrants to this market (struggling traders) who are caught in the web of the marketing wizards is to see through the illusions created by marketing wizards.

Unlike businesses providing products, services or information in the forex market a trader only has profitable trading as a source of income. If you do not understand this you will probably spend a lot of good money on all sorts of “systems”. You will probably have a mindset that there is lots of good stuff out there which will help you bridge that gap and prevent you from losing. Hell, you’ll think you can make more money by spending more on these things.

I want to leave you with one message today – a message from BWILC:

Do not believe the marketing wizards. The lure of money is very strong and many marketing wizards have no scruples – they will twist, distort or ignore certain facts that will be devastating for you as a trader.

What I am going to say now is impossible for most people to accept, but it is provable by means of a simple experiment like tossing a coin. Try it, toss a coin twenty times, then try use a five / fifteen / thirty / sixty minute graphs to predict the next market move. Now compare results. Frightening huh? Not what you thought? Why? Because in the short term this market moves entirely randomly with respect to direction, duration and extent.

Yet, marketing wizards promote literally hundreds if not thousands of systems which supposedly can determine the next movement in this randomness. I shake my head in amazement. People are so gullible. Luck is confused with skill. But in time all these systems are found out for what they really are. None of the systems of only a few years ago which promised wealth in no time by following a few simply steps are around anymore. They have been replaced by others, promoted by yet more sophisticated marketing wizardry. They will also be gone in a few months or a year or two. In the trash where they belong.

Most people can’t accept this fact that the market is dominated by randomness exactly in the ‘space’ they would like to trade (very very short term), for obvious reasons: It is terrifying. What now? If I can’t predict, how can I trade?

But what I know, and what I teach, what makes me different from most of the marketing wizard crowd, is that I know and accept this one simple fact – randomness exists – and I use it to make money. There is a solution to the most pressing problem you have – handling randomness. You might have thought your biggest problem was to find the “right system” for you to predict the next price move due to your preferred “time frame” or other bogus parameters pressed on you by marketing wizards creating illusions to disguise the fact that they sell crap.

Just as it is for everybody else, the solution for you is not to deny the overwhelming role of randomness, but to embrace it. I do not believe in the illusion created by the marketing wizards that some historical patterns (which will indeed recur without a doubt), can be used reliably to pinpoint the very next directional move on an intra day or even intra week level.

This common denial of the impact of randomness on price behaviour is the sole reason why most traders fail. They use systems that deny this reality in every aspect of the system. That is why not only the simplistic “perfect entries and exits” systems are problematic but also why the more sophisticated “perfect entry plus money management” systems eventually crash under the weight of random price behaviour.

Let me make an important point here: randomness is not random like the movement of hot air in a balloon. It is random with respect to the direction, the duration and the extent of the very next move from any price point in time.

Not accepting randomness has profound implications for how you trade. You will probably design a system based on your ability to use technical analysis to pinpoint entries and exits, supported by some “money management” system.

I have had literally hundreds of discussions, questions and interactions with my readers, mentor students and others and by far the majority of them that struggle have one thing in common, a belief in, and an obsession with, timing the market. In other words, they can’t accept the fact of randomness, that this market can do anything just after you have entered your trade. So they cling to short-term graphs, and technical analysis and indicators invented for trading stocks, and they continue to lose money.

You have to break that wrong view of the market!

You have to walk away from that!

You have to get out of the losing herd!

You have to cross the rubicon!

Accept the statistical fact of very short term randomness in currency market price behaviour!

Accepting randomness has profound implications for how you trade.

My approach, and I am not saying it is the only working approach, but it has in common with all successful approaches to trading this one thing: I know what I don’t know, and what I don’t know is what the market is going to do next. But I do know how I can overcome that. Not by futile attempts to do the impossible by trying to time the market, but by using time as one of a few small edges that take the sharp edge of the problems posed by randomness.

What my growing community of bird watchers know is that forex trading is like bird watching in lion country. If you don’t know what you are doing you end up being someone else’s meal. That is what happens to 90% of participants, and that statistic was and remains the original inspiration behind this book – I am obsessed with getting this message across: forget the lies, forget the nonsense peddled to you by forex brokers and the marketing wizard cabal supporting them. Everything they tell has one purpose: to get you to trade short-term with high leverage and that is exactly the same thing as them saying, it is possible to predict what this market is going to do next. In fact, it is so easy to predict this reliably that you can make huge bets, up to 100 or 200 times your capital on those predictions. (As long as you place a stop and just lose your money 2% at a time …)

I hope a picture is starting to emerge. Everything you need to know about forex trading is contained in forex brokers’ marketing material. All you need to do is do exactly the opposite of what these marketing wizards are telling you. That is why I deal comprehensively with a largely ignored topic: the difference between the market wizards (the traders who make money) and marketing wizards (the institutions who take money – the forex brokers). As a trader you sit at the bottom of the forex gravy train. You feed the system with your money. Everybody else siphons money from the system based on some service they provide, not trading only like you! You are really at risk if you willy nilly believe everything they say, especially about how to trade! They have a vested interest that they want you to incorporate in your trading that is beneficial to them!

Do you even know this, how this system is set up to mislead you, to lure you in, and make a fool of you?

Let me tell you a little bit about what BWILC 2010 contains.

BWILC is a book both for absolute newcomers to this market and for those who have some experience, mainly a terrible experience due to being fooled by the marketing wizards to believe the illusions they created is reality.

Bird Watching is divided into five parts:

Part 1 – How to build a bomb (Who is this book for, and why?)
Do you understand why you want to trade, what the aha! experience is, and the most common fatal mistakes traders make?

Part 2 – Understanding the edge (Why is it even possible to make money?)
There are certain advantages you take in with you when you open a trade, and edge which you have. If you are wrong about what your edge is, your lion food.

Part 3 – And all that jazz… (Forex basics, everything you wanted to know)
This explains the nuts and bolts of trading currencies, the trading day, the market participants, the necessary but geeky technical stuff.

Part 4 – Identifying the edges (Putting it into practice)
Pre-trading edges and trading edges. Why trading is a business, setting proper goals, real time analysis, negating negative effects, technical analysis – the fun and the flaws, fundamental analysis.

Part 5 – Applying your edges
Knowing your edge is not enough, you have to know how to use it. Setting up a median grid, my 4×1 strategy (one currency, one lot, one direction, one percent), risk management (by using 4×1), and relational analysis (price-event-time, the daily soap opera)

Get this: understand that the direction the market moves the period immediately after you have entered your trade is unimportant. Get this and you will be on the way to extracting money from the forex gravy train. And that, in a nutshell, is what my book is about.

I hope you enjoy reading it.

Dirk du Toit

Buy BWILC 2010 now and learn to embrace randomness

Visit the Bird Watching in Lion Country Website here