Table Of ContentThe ideas presented in this manual are for information purposes only. Foreign Exchange and all futures trading are inherently
risky financial instruments that should be bought and sold only by individuals that are capable of sustaining financial liability.
Reproduction of any portion of the contents of this manual is strictly prohibited unless written permission is given by the
publishers. Copyright © 2008, 2009.
Table of Contents
[1] Introduction ...................................................................................................................................... 2
[2] First Things First: The Pre-Golden Rules ...................................................................................... 5
[3] The Confidential Golden Rules of Forex Trading ......................................................................... 9
[4] Understanding Forex Truisms ....................................................................................................... 13
[5] Money Management ...................................................................................................................... 19
[6] The Trading Game .......................................................................................................................... 29
[7] The Bid and Ask/Offer Spread ...................................................................................................... 33
[8] Technical Analysis Part One: Anatomy of a Bar Chart .............................................................. 43
[9] Technical Analysis Part Two: How to Draw Trend Lines ........................................................... 46
[10] Technical Analysis Part Three: Fibonacci Price Projection ..................................................... 55
[11] The Secret Formula: W.D. Gann‟s Overbought/Oversold Indicator ...................................... 72
[12] The Confidential Codex Timing Strategy .................................................................................. 77
[13] Final Thoughts and the Complete Codex Reference .............................................................. 95
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[1] Introduction
Fellow Traders,
This is a book I never thought I would write; how many times have you read that before?
However, I never imagined myself doing this project. I resisted it and looked the other way.
But every time I turned around, there it was again: the friggin' hype. You've seen it. It's
gumming up your email box every day. I'm sick and tired of seeing Forex Trading being
touted as some kind of easy get-rich-quick scheme. Forex trading sure can be quick. It is a
market with the volatility of a striking rattlesnake. Forex usually is a very quick and easy way
to lose everything. Push a button, go to the poor farm.
The emails all claim: No brains required. No knowledge of the markets required. And these
“gurus” all scream about the unbelievable 99.9% guaranteed sure fire success rate of their
“students”! Or your money back. They hawk their questionable wares for something like $77
or $97 or if the creator is really a bold toad: $197. A one-time payment, nothing else to buy
with lifetime support and updates fully included. Hell, it‟s better than stealing; it's a friggin'
license to print money like the phony Federal Reserve.
Yet, if any one of these “systems” really worked the way the sales letter claimed, you can bet
your farm with confidence that such a system would fetch millions on the open market. Not a
mere $77 bucks with a bonus E-book thrown in to boot. Every major bank on the planet
would employ these foolproof EA systems instead of human traders. You don't have to pay a
piece of software a salary. Just set it and forget it.
I, as a Chief Dealer for many of the world's major banks, would have loved to deal with
computers instead of people any day.
Computers don't slither into the office with attitudes like Darth Vader, nor do they come to
work hung over or bleary eyed with true love for the pole dancing stripper they just met the
night before. Nope. Computers just do what they're programmed to do. No lip. No sass. No
ego to bruise, no chit-chat at the coffee machine to make.
With any luck, this miracle piece of AI trading genius in a box will never be invented.
Tom Sez: “The Forex market needs human interaction for its living, breathing, chaotic volatility. The
market is a living thing due to the very fact that human beings are living, unpredictable bags of
volatile emotions: the Forex Market is the sum of all the human participants fear and greed.
The Forex Market is always thinking. It is alive. It is you and I and everybody else who
ponies up to take this ride. Forex is TRILLIONS large.”
For these reasons and more that I haven't even considered yet are why no computer program
will ever be able to trade the Forex market like a seasoned professional trader can trade it.
Forex trading can't be boiled down into a precise mathematical model that predicts market
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behavior with godlike precognition. Raw, unpredictable human emotions move the markets.
There are no computers that can gauge the constant shifts in the way the money flows into
and out of the market. Mathematical models have been around since the late 1970s. And I
have yet to see one to date that can outperform a well-trained trader.
In the Forex market, you will find yourself up against some of the biggest, brightest, most
greedy minds in the world. The biggest of these fish have literal control of the world's
bankroll. They have the ability to stay in the game when you cannot. They are the smartest
financial sharks in the ocean of investments. These predators are the International Banks. I
have had the pleasure to trade with and against them. Names like Deutsche Bank (I started
my career there), Credit Suisse, Citi Bank, Harris Trust Chicago, JP Morgan, Chase Bank,
Union Bank of Switzerland, Credito Italiano, Swiss Volksbank, Banca CRT, Sakura Bank, Tokai
Bank, Yasuda Trust of Tokyo, Barclays Bank...the list goes on and on.
So...how can you expect to buy a system for $79 bucks and the proof of purchase off a box
of Cracker Jacks to beat the world's most cunning and viciously successful professional
investment bank traders? These Agents of the Financial Matrix hold ALL your orders. They
SEE where all your stop losses are set to stop you out. They know where you plan to
automatically take your profits.
You, as a trader, have to think like they think. You
know what they say: if you can't beat them, join
them. It is my intention to give you the insights
necessary to be proactive in your trading, and how
to think like the bank guys (and gals) think.
It might be a bit difficult to get your brain wrapped
around this way of thinking, however, I am going to
show you how to engage the markets the way that
the market maker does. You will learn to buy when
everybody else is selling, and sell when everyone
else is buying (at predetermined levels). You can
only win in this game if your head is in the game.
A picture of a few friends in Bahrain.
The way the market makers heads are in the game.
They're in the game to win. Take no prisoners and walk away from the field of combat with
all the booty.
I have developed these skills and tested them against some of the greatest traders in the
world (George Soros of the Quantum Fund for one example). Take a peek below: THIS is
what those $79.00 systems are up against.
This is the Union Bank of Switzerland Trading floor – 1500 traders strong. One of the largest
dealing rooms in the world, if not the largest. JP Morgan Chase in NY is pretty large as well.
It is about the size of a U.S. Football field. Keep in mind that they have branches all over the
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world which are not as large as the World Headquarters.
Monster Room at UBS
The rooms I worked in were about one-quarter that size –
which is still pretty large. I can remember times when I
would say to myself: “I have a bunch of rocks and a quiver
full of arrows and I'm up against these guys who have
nuclear weapons.”
Next, let's have a look at Citi Bank London's trading room. I
can remember trading from one of these huge trading rooms
while I sit trading from my small home office now and I
laugh to myself as I enter trades for one-tenth the size I
used to trade when I worked for one of the big banks.
I can still see and hear with vivid detail in my mind's eye how
this very room would react to the different price levels. As a
member of the Elite Forex Club ACI (Associate Cambiste
International) I can recall the slogan: “Once a dealer
always a dealer.”
It holds true. Forex gets into your blood. It becomes a part of you. I do enjoy trading from
my home as much as I did trading for the big banks, even perhaps a bit more so, and you will
as well with the techniques I am about to teach you.
Citi Bank in London’s Trading Room
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[2] First Things First: The Pre-Golden Rules
As you begin your adventure in Forex trading, you have to understand that there is no easy
road to profits. As a matter of fact, it is going to be more difficult to teach those of you who
have had a taste of some fast profits. I have been in charge of a large currency desk, and
had the most difficult time hiring and training other “seasoned” traders.
The institution that I worked for was not one that allowed the desk to use customer orders
against their trading P/L. In other words, the easy cream profits went to the bank. You had to
trade just as if it was your own account. Many traders from other banks were not accustomed
to this. They quickly lost the money allotted to them and washed out. In my bank, you were
judged on your own profits. You were required to make 8x your salary. If you did not, you
were like the villain riding shotgun in the James Bond ejector seat. If you reached your Global
Stop Loss, you were out.
So my trading systems and rules were adopted to keep my job. I was fortunate enough to
work as a position clerk for one of the best European traders in the world. His name was Aldo
Pizzoferrato. He was ½ French and ½ Italian. He was raised in Europe and spoke 7
languages. He taught me…fire and brimstone style. He expected only the best from me at all
times and was always challenging me to become better. I was exposed to the trading of every
major and minor currency pair in existence. Aldo was the Treasurer of the bank and I was his
water boy for 5 years.
It was here that I learned my skills. I would take his trading notes out of the garbage at
night, read them to get insight. I clawed my way up and fought my way into the position of
Chief Dealer. I had to outperform many a seasoned gent and one woman.
I did it and that‟s when the real challenges began. I had to consistently make the most
money in order to keep my position and the respect of the desk. On top of that, I was
responsible for 15 other guys and ladies – one lady in particular. It was from her I took the
job of Chief Trader and we had a rocky relationship as a result of that. But we respected each
other. I was responsible for all of them. And all of their losses were my losses.
So you could bet your ass that I fine tuned my trading techniques (and stayed on top of
everybody else‟s). What I need to stress to you is that I realize that many of you buying this
course will attempt these trades with a limited bankroll. When that‟s the case, you won‟t have
a lot of room to maneuver. One small or medium loss in a day and you will probably be licking
your wounds for some time to come.
The Forex markets are very volatile. If you have traded before, forget what you think you
know. You must look at this material with a mind that is like a clean slate.
What we are going to go over is a game plan. Ways to pick your spots in the market that
have lower risk profiles. You will learn to plan your trades, and in doing so, you will be more
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fluid in your trading. I like to refer to it as aerodynamic trading. When you have a plan,
you can think through and execute your positions with ease. You will fly through the market
with ease. You will not get whip-sawed: buying at the top of a run or selling at the bottom,
getting frustrated and doing it all over again.
IF YOU FAIL TO PLAN, YOU PLAN TO FAIL!!!
Let‟s get into the preliminaries behind the Golden Rules….
Your success in the Forex Market is dependent upon your unique psychological make-up, your
discipline (or lack thereof), and your experience level. Now let‟s deal with the idea that there
are universal rules which must never be disregarded. The universal rules are universally
dependent upon your own unique psychological make-up, tolerance of risk, discipline, etc. So
that set of much vaulted Universal Rules Which Must Never Be Disregarded are not static and
written in stone. You are the variable that makes the Universal Rules your own set. Your rules
might work very well for you but will be a complete disaster for your brother Dan who has all
the steely-eyed resolve of a French surrender monkey. Since your rules REQUIRE the traits of
steely-eyed resolve, your Universal Rules aren‟t much use to Dan. Dan needs to understand
his own psychological make-up, tolerance of risk, discipline, etc. before he can design his own
version of the Universal Rules Which Must Never Be Disregarded.
However, there are some Universal Guidelines that must be followed or you will end up losing
your trading capital. Sooner or later, if you don‟t heed these baseline guides, you‟ll blow up
your account and when you do, don‟t come crying to me that my system doesn‟t work. No,
your complete disregard for managing risk is the final epitaph in your short-lived trading
career.
These are my rules and these rules have helped me to survive in a world that is straight-razor
dangerous to the unwary. I had to think long and hard to isolate a set of rules that will fit into
most everyone‟s trading style and psychological make-up.
What I have formulated here is a framework that all intelligent speculators must adhere to at
a minimum in order to survive and thrive in these explosive markets.
What are these rules? How is one to master the Rules? Are there Exceptions to the Rules?
Let‟s answer these questions top to bottom, first to last.
What are the Rules?
The Rules will be laid out in the next two chapters.
How does one approach Mastery of the Rules?
You master the Rules by Study and then Adoption, and thereby making the Rules your own.
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Are there Exceptions?
NO.
The Rules have been designed with capital preservation as the foremost objective of
importance to the currency speculator. The Rules will keep you from blowing up your account.
The Rules will also keep your self-esteem in check. You won‟t have to be demoralized by
setbacks to your trading plan. The Rules will scale you back to absorb the inevitable loss, and
ramp you up to extend your wins. The perfect system can‟t work if you can‟t pull the trigger.
I have compiled some ideas that I would like to review with you before I introduce you to the
rules of the game. One of the most important pre-trading rules is “don‟t trade with scared
money!” You have made the decision to trade. You have set aside the money to trade with
(hopefully, you‟re not risking the rent money). This money has to be money that you can
afford to lose. Understand that by making the decision to trade that you are now risking
those funds.
What I am saying is never, never think about the money. If your mental focus is on the
money, you will be a basket case. You will be gun shy and not enter the market at the correct
time, or worse, you won‟t enter the market at all. You will find yourself pulling the trigger
late, chasing losses, missing your profit goals, your stops, while the market locks onto you as
an easy target.
When you are focused on the money, you are thinking of your position in the market purely in
terms of profits or losses. This flaw in your thinking leads to major market mistakes. Fatal
ones. You will enter positions like a bouncing ping-pong ball on crack. Then the head games
will begin. You begin to beat yourself up. Self-sabotage is a trader‟s worst enemy. You will
second guess yourself. Your mind will become like some screaming chorus right out of the
bowels of Hell: “I can’t get in NOW! The market already MOVED!” So you get in late
and as the market suddenly turns and moves away from you like some evil nitrous powered
dart, rocketing deeper down into the black hole of financial doom, you‟ll hold out because “I
can’t get out NOW! I’ve already lost too much MONEY!” Then your broker stops you
out because you no longer have the funds in your account to cover the margin requirements.
That‟s how you blow up a trading account.
This is the trader‟s mind on high-resolution money focus. The natural tendency of any rational
person will be to try and regain heavy losses. It will turn into an ego issue.
Ego issues are certain death for any trading account. The market is bigger than you and your
trading account by about a dozen zeros. The market has the uncanny ability to kill you and
your account deader than a hammer if you‟re not careful. At best, the market will demoralize
and bamboozle you and that, in itself, will lead to loss after loss. You will lose your courage
and ability to trade well. It is a negative pattern and a place you don‟t want to trade from.
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The market doesn‟t give a high-octane rat‟s ass about you or your position. It will laugh at
you as you are short 8 standard lots now and the price is 80 pips above your entry and you‟re
bleeding your retirement funds out your backside like a hemorrhaging hemorrhoid. Cackling
at you like some satanic ferret as you HOPE (HOPE is a four-letter word in trading) to see a
correction in your favor.
The fact that you are holding onto a losing position that should have been cut suggests that
you are being a stubborn, pig-headed mule and that you are breaking the RULES. If you
break the RULES, the market will be more than happy to hand you your ass in a
brown paper bag.
Why attempt to fight the market? It‟s like going to a gunfight armed with a toothpick. Too
many traders (when they break the RULES) base their decisions on the irrelevant issue of
an outstanding position. The time for counting money is AFTER the trading is done. Your
execution of the position is what‟s important. It‟s HOW your position is monitored and
CLOSED that matters. Concentrate on those skills and the money will take care of itself.
Become aerodynamic. And being Teflon-coated doesn‟t hurt while you‟re at it. Check out the
chart below; print it out and blow it up. Put it where you see it. Tape it next to your trade
station. Remind yourself that you have a trade with your name on it that can
DESTROY you.
That trade is out there, waiting for you to break the
RULES. If you don‟t have RULES or the correct
psychological make-up, you‟re just asking for the market
to surgically remove your wallet. Don‟t let a loss become
so big that you can‟t take it. Then make up a story why
the market is wrong. The market is never wrong! Only
idiots are. If you don‟t heed this advice, I promise that it
will be YOU that ends up being the big loser!
The FX market is not kind. It is where GREED and
FEAR rule the streets like hordes of cannibal
zombies in a B-grade horror flick. This is REAL
MONEY we’re trading here! (Think about that.
Violent moves are caused by FEAR of losing
MONEY! That is the ONLY reason; other traders are
piling on for FEAR of missing the MOVE.) I want to
take your money and so does every other
professional trader worth his salt.
So please don‟t actually USE what I teach you in this
eBook. I will have less chance to profit if you really
become disciplined and continue with this journey. You
will also become a top predator. You will no longer be PREY.
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[3] The Confidential Golden Rules of Forex Trading
Rule 1:
Once a position is built the golden rule is NEVER, ever, under any
circumstances should you add onto a losing position…NOT EVER!
Tom Sez: “Averaging down into a losing trade will assuredly take you out of the trading business.
Don‟t believe me? Just go visit Nick Leeson (in a Singapore jail somewhere, I believe). He single-
handedly bankrupted the 100+ year old Baring Brother Bank. A top-tier bank.”
Rule 2:
Don’t Fall in love with your positions!
Tom Sez: “Learn to trade from the strong side. This is the side it is easy to be on. You must be
willing to be flexible and change sides immediately when you find yourself on the weak side. You‟ll
instantly know what this side is; it is the side that feels like shit and elicits mucho ass pain. Don’t
marry your positions. Just date them.
Rule 3:
Don’t hold onto losing trades. Cut your losses short!
Tom Sez: “Aside from taking your capital away at warp speeds, holding onto a loser has huge
negative psychological effects. It will cause you to become stuck. And as the trade becomes a bigger
loss, you will start to HOPE. Hope that the market will reverse, hope that you will break even or just
come out of this with the win you were…hoping for. Don‟t be a dumb ass. Hanging onto losers will
just make you gun shy in the future, unable to pull the trigger on profitable trades.”
Rule 4:
Stick to your exit rules!
Tom Sez: “In order to prevent the sinking of your financial battleship, you must stay sharp and exit
the trade at your stop-loss points. And on the flipside of that – you must exit at your
predetermined profit points! (Don‟t second guess yourself, you greedy bastard – remember, the
Greedy become the Needy.) There is nothing worse than your profit target materializing and then
reversing because you didn‟t pull the trigger. Exit at stop losses and take profits.”
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Rule 5:
Many Market Moves Are Meaningless!
Tom Sez: “Markets trend approximately 15% of the time. Keep in mind that markets are moving
within a tight trading range about 85% of the time. Thus short term violent movements to the upside
or downside are meaningless most of the time. Keyword being „most’.”
Rule 6:
Know your longer term Trend Lines!
Tom Sez: “Make sure you take time to chart where the markets long term trend lines are for support
and resistance. (Monthly and yearly time frames.) This will help you understand where you are on the
market map. For example, if you want to trade the hourly chart patterns (the minimum chart time
frame I trade), know where the daily support and resistance lies. If you trade daily charts, then know
where the weekly support and resistance is – put it on your charts. Always know where these greater
levels are located.”
Bonus 6a: The larger the time frame you trade from, the stronger the signal will be
for support or resistance. A weekly support or resistance level is stronger than trend
lines on a daily chart. Likewise, monthly lines will be honored by the market much
more than weekly lines. Look for when these lines on different time frames line
up to take advantage of the novices.
Rule 7:
Keep Your System Simple. Remember KISS – Keep It Simple, Stupid!
Tom Sez: “Keep your trading system simple...so that a monkey and two chimpanzees could trade it.
Take what you learn from me and apply what makes sense to you. However, don‟t over complicate
your trading system. Leave the rocket science for rocket scientists.”
Rule 8:
Enjoy the party, but dance near the door!
Tom Sez: “Enter the markets swiftly at your levels – like a dangerous bird of prey. Exit just as
swiftly, taking your profits or hitting your stop losses. Always enjoy the party. Just be the first one to
exit stage left with the hottest chick ($$MONEY$$). Get the hell out before she gets all drunk and
sloppy on you. Get her out of the party while she can still stand and your trading vehicle still has
wheels to roll away on.”
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