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The Currency

Traders Handbook(Confessions of a Currency Nerd)

By Rob Booker, 2002-2006

This softcover book (that you can actually hold inyour hands) will be available on Lulu.com for$9.95 starting January 1, 2006. After January31, the price of the book will go up to $19.95. Or$1,393,000. I just have not decided yet. This is a

free preview chapter that you can share with yourfriends, keep for yourself, eat, or burn for kin-dling. Enjoy!


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Disclaimer

Usually, I write ebooks and distribute themfree. But I finally realized that I had a lot ofebooks and that some people might want toread them in a book form. So thats what thisis. Its a collection of revised and updatedebooks that you can hold in your hands. Or

hand, if you only have one.

I have absolutely no idea who you are, whatyou do for a living, if you trade only currency,or futures, or livestock, beanie babies, coldcereal, your best friends vinyl Rush collection(please, does anyone else think that Getty Leesounds like a dying cow?), or your wifes fine

china.

I do know that if you have traded currencies,that you have probably lost some money hereand there, and I hope this handbook is ofsome help to you. If you have never lostmoney trading currencies, then I want you toclose this book, open your trading account,

produce last months report, and then shootyourself.

Okay, I didnt mean that.

P.S. For a free trial of my nightly forex report,point your browser to:

http://www.robbooker.com

P.S.S. To read my blog, which is full of proofthat I am a currency nerd, point your Webbrower to:


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3

The question people ask me most often is,not surprisingly, Can I be successful atthis? Mostly, they ask me the question aftera devastating loss. Its a natural time to ask

the question, but its a horrible time to answer ityourself.

Why? Because you can be successful, and

every time you start to feel depressed about losing,you stop believing in yourself. If you stop believingin yourself, you stop working as hard, and if youstop working as hard, you start to make more mis-takes, and a vicious cycle begins. Losses bring de-pression which brings more losses, and then beforeyou know it youve lost your entire first account.

You dont have to trade that way. There is abetter way to trade.

I trade currency for a living, and so can you.Maybe it will take you more than a year to becomesuccessful. Maybe more. But you can do it. Youdont have to be better than most people at math. You dont have to score high on an IQ test. Youdont have to be the smartest person you know.

You just have to be disciplined.This book is includes:1. Revised editions of ebooks that I have writ-

ten over the years. Each of them has been

I N T R O D U C T I O N

You can trade for aliving. Really.


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4 THECURRENCYTRADERSHANDBOOK

downloaded from my website tens of thousands oftimes. Ive dusted them off, re-written them, added

new material all with the intent to share with youwhat has helped me to become a successful trader.

2. New material that has never been pub-lished before, including the chapter on testing; thechapter with trader Forbes Hanen, who helps MaxFox and I manage money; and the picture of thesmoking monkey, which has no purpose at all but it

made me laugh.3. A new edition ofThe Miracle of Discipline.This section is larger than all the other chapters ofthis book combined. Youre going to hear me saythis a million times, and I will say it here to start itoff: in trading, discipline matters more than anythingelse. Period.

I hope that you will share with me your suc-

cesses and your failures. You can contact me by vis-iting my website: http://www.robbooker.com or byemail:

[email protected]

I answer every email I receive. Sometimes ittakes me a while to answer them all, but I do. Onthe website, I try to place as much free content aspossible. Stop by sometime.

Rob BookerWheeling, W.Va.September 2005


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5

Table of Contents

Introduction 5

Come Into My Trading Bathroom 9

Strategy:10 17

The Woodchuck & The Possum 31

The Trading Plan 45

My Fairy God Trader 65

Why I Train Others 87

The Miracle of Discipline 91


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IMPORTANT MESSAGE

Names of forex dealersthat would never work.

1. Pip Thieves2. FXTradeAgainstU3. InterLiesFX4. StopRunnersFX5. AlQaedaFX


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7

Strategy:10 was the first ebook I ever wrote.And its still the most popular. I wrote it be-cause I was worried that too many traderswere trying to find too many 100-pip trades.

You might have noticed this already, but in case youhavent, Ill repeat it: there are not many 100-piptrades just waiting for you.

When I realized that many traders were look-ing for huge wins, but ending up with huge losses, Idecided to share something that helped me enor-mously when I first started out.

I simply looked for 10 pip trades. Getting inand out of the trade after 10 pips was a lot easierthan looking for the big winner. It was less stressful.And I was able to find far more methods for grab-

bing 10 pips than I was for getting 100. Over time, Ihave altered the strategy to fit different market con-ditions and different currency pairs.

For example, its no longer enough just to gofor 10 pips and get out. The market is too volatile.Whats better is if you go for 10 pips and then:

1. Some of the time move your stop to breakeven.

2. Some of the time get out with 10 pips.

C H A P T E R T W O

Strategy:10


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If you do this when you are first starting out,you are going to get a good mix of 10 pip winners,

15-30 pip losers, break evens, and 20-100 pip win-ners. But where do you set your stop? How do youknow when to take your profit?

I can hear the wheels spinning in your brain.So lets get down to business.


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9

Strategy:10

Lower-risk forex trading

The information contained in this chapter, althoughhighly entertaining and quite instructive, might lead youto believe that tomorrow youre going to be a million-aire. You are not going to be a millionaire tomorrow.Wellthats technically not correct. Because you couldbe a millionaire already, in which case tomorrow youre

guaranteed to be one. Unless you lose all of yourmoney today.


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Abear chased two hikers. One hiker, whilebeing chased, stopped to put on runningshoes. As he was changing out of his hik-ing boots, his companion looked at him in

horror and exclaimed, What in the world are youdoing? Youll never outrun the bear if you stopnow! Calmly, the other hiker said, I dont have to

outrun the bear. I just have to outrun you.Currency trading can be like running away from

the bear. Trading forex offers more opportunity forfast financial success and financial ruin than al-most any other market. The get-rich crowd has al-ways been attracted to it. This crowd includesspeculators, trading novices, me 6 years ago, retirees,

and professionals looking for a way to get out ofdebt, increase the excitement in their lives, or simplyget rich really fast.

Up until now, this group might have also in-cluded you.

From now on, you will be taking money awayfrom these people. These are the people who willbe eaten by the bear. You dont have to outrun the

bear (the entire market). In fact, thats impossible.You cant beat the entire market. But you can tradedefensively and by so doing, position yourself toprofit consistently.


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11STRATEGY:10

THEFOURGROUPS

There are four types of participants in currencytrading. There are the novice traders the green-ies, the ones who try to outrun the bear and loseevery time. We all start here.

In addition to the novice traders, there are threeother levels of participation: the dealers, the institu-tional traders, and the advanced retail traders.

In all of your trading, the dealers are the mostpowerful and they make the market, setting pricesand putting together deals. Although institutionaltraders move more money around than dealers, it isstill the case that your dealer either accepts or rejectsyour orders every time you trade.

The institutional traders work in banks, wirefirms, or government agencies. They trade huge

amounts of money at a time, and the size of theirtrades gives them enormous power. Some of thesetraders are moving $1 billion in currency or moreevery hour. Some are trading tens of billions of dol-lars every minute.

Next, there are the advanced retail traders.This group is comprised of people from all acrossthe world, sitting in smaller investment firms, offices,or even their homes. Eventually, you want to be apart of this group. In some cases, the advancedtraders are the smartest group trade for trade than any other group. Because they dont move alot of money on each trade, they dont have as muchpower as the institutional players. Because theirtrades are brokered by the dealers, theyll never have

absolute price-setting power. But, because there areso many novice traders, the advanced traders haveplenty of people that they can outrun. Your goal asa currency trader is to aggressively take money out


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of the pockets of the novice traders.Dont feel bad about that. Someones going to

take your money along the way, and its going toteach you, very quickly, lessons that can only belearned through failure. So, every time you takemoney from a novice trader, just remember: youreteaching him a valuable lesson. After a while, youmight even enjoy watching your hiking companionbeing eaten by the bear.

Well, you might not enjoy it. But you will de-serve every pip you earn.

CANYOULIVEOFFOF 10 PIPSPERTRADE?

Remember our earlier discussion (see ChapterOne) about the value of a pip? If you trade1,000,000 worth of currency, each movement would

be equal to $100. So if you bought at 1.1445 andsold at 1.1545, you would make 100 x $100, or$10,000. Now, I don't know about you, but I couldlive off of that much.

That's not saying, however, that you can make$10,000 per day. Of course it's possible, but there area lot of factors that make it very difficult. Consider

the questions below, that you might ask yourself be-fore trading:

When should I get in a trade?Where should I place my stop loss?What happens if something goes wrong?Even more importantly, can you deal with the

emotions of forex trading? Alan Farley, a trading ex-

pert, rightly observes that mastering the emotions oftrading is more difficult than mastering the technicalskills. Youll soon find out what he means by that.


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13STRATEGY:10

GREED

Most traders in the forex market try to make azillion dollars on every trade.

They're greedy. This leads them to stay in agood trade, hoping to get more money out of it.This can lead to disaster the trade can moveagainst them and they get creamed. This happensall the time, and it still happens to me from time to

time. It's the single greatest threat in trading. But you can already understand why that's probablytrue. But how do you overcome greed when trad-ing?

REVENGE

This is the other big one. A lot of traders flush

some pips down the toilet and then want to strikeback. So they double their last order and go forbroke. Its like, well its like reaching down intoyour toilet. Thats gross. And it does not make youany richer.

The impulse to get revenge is natural, and I stilldeal with this emotion often.

Do not underestimate this emotion. Many tradershave not only reached into the toilet of revenge, buthave dived into it head-first. Remember: the marketis not your friend. The market is so much morepowerful than you are. You cannot get back at themarket. Trading when angry or vengeful will be atotal disaster. If you take a big loss, then stop, takea deep breath, and talk to a mentor or your mirror,

or your favorite stuffed animal. Re-read the charts.Take a break. Chew on your toe if you have to.Even if you think you see the best opportunity in theworld after you get blasted make sure you take a


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deep breath and pause before you do anything.

ADEFENSIVEAPPROACH

Its as simple as this: When I am day trading, Idon't try to make a ton of money on each trade, andI never try to get revenge.

Instead, I set up good trades, that have a lot ofpotential, and then I shoot for 10 pips as an initial

target. Just 10 pips. Thats it. I dont let myself losea lot of money. I only try to get 10 pips at first, andif thats all I get, then Im out for the day. Well talkabout how I try for more than 10 pips in a moment.

For now, consider that it's easy enough to get 10pips and, if that is all you can get, it's okay to getout. When you know that you can turn turn $10,000into $130,000 in one year on 10 pips a day, it's no

longer important to strike back at the market or getgreedy on one day of trading.

And you can learn to turn $10,000 into $130,000in one year on just 10 pips a day. I am not promis-ing that you can do that. I am saying that it is possi-ble and I have taught traders who have done it.

If you started with $10,000 on January 1st, and

earned 10 pips per day, and only traded 17 days ofthe month, then you would end the year 2,000 pipsUP, and with about $130,000. For a spreadsheet thatdetails this system, write me at [email protected], with the word 10 pip spreadsheet in the subjectline.

Why is this innovative, different, or revolutionary?Because you are going to not only take money from

novices with this strategy, youre going to takemoney from other advanced traders. Advanced trad-ers want big money. They didnt spend years learn-ing to trade so that they could make $100 a day.


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15STRATEGY:10

They want big, big returns. They go for 40, 50, 100pips at a minimum. Jimmy Young, an accomplished

currency trader and a friend of mine, only trades afew times per month and goes for 100 pips or moreevery time. I also teach and take these types oftrades myself. But its only one way of approachingthe market, and its not easy.

Advanced traders are conservative with their trad-ing capital because the market can take BIG swings

against them when theyre waiting for 100+ pips.Some advanced traders will think youre nuts for get-ting out of a trade at 10 pips. What if it goes to 100pips? Or 200? Wont I be upset that I missed out?

Not at all. Ill show you later how I can stillmake 40, 50, or 100+ pips on these trades. But Imnever displeased with 10.

Let me repeat that:

I am never displeased with 10 pips of profit.You should be grateful for any profit the market

gives you. Dont spend any time crying about how you didnt get the maximum profit, or how youcould have gotten so much more profit if you juststayed in the trade longer. If you want to do any-thing about it, then stay in the damn trader longernext time. Ill tell you how you can do that.

GETTINGMORETHAN 10 PIPS

Lets say that I find a great opportunity to gofor 10 pips on a trade. I submit a market order, tobuy the EUR/USD at 1.2900. I set a stop at 1.2880(20 pips) and I do not set a limit order.

I am now long (because I bought) the EUR/USD at 1.2900. When the price that I can sell at reaches

1.2910, I have earned 10 pips. I can either exit the


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trade with my profit, or stay in the trade longer.Here is how I stay in the trade:

I move my stop to break even. If my initialstop was 20 pips (or, on this trade, at 1.2880), then Imove my stop to 1.2900. That means that if theprice falls back to 1.2900 my trade automaticallycloses and I have lost nothing. I have gained noth-ing. I have traded defensively.

But if the trade goes to 1.2920, and 1.2930,

and beyond, I am prepared to get more money. Ican lose nothing I am in a 100% risk free trade.Now I can let my profit run and I dont have toworry about anything.

Many traders ask me why I would do some-thing like that. Why would I accept a break eventrade? My answer is a question:

Out of 10 trades, would you accept 5 break

even trades, 2 losers of 20 pips, and 2 winners of 50each? I would. Thats trading defensively, and itswhat I want you to do.

How do you know when to just get out with 10 pips? I say, get out with 10 pips any timeyou want. Its ok to just take 10 pips.

How can you make money if your stoploss is at 20 or 30 pips and your gain is only 10pips? Youre not going to take 10 pips every time.This is not going to be your only trading strategy.This is one part of your trading toolbox. Other typesof trades that you will take will get you more than10. Lastly, remember that you are going to moveyour stop to break even sometimes and go for morethan just 10 pips.

That said, I have taught traders who havelearned to trade for 10 pips of profit more than90% of the time. They have made a lot of moneygoing for small gains.


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17STRATEGY:10

If you earned 10 pips every day for the next 12months, and you started next year with over

$100,000 in your trading accont, you would be mak-ing between $10,000 and $17,000 per month trading(depending on your risk tolerance). Can you dothis? Absolutely. Can you do this today? Maybe,maybe not. You have to dedicate yourself 100% tolearning how to trade intelligently.

HOWDO

YOU

FIND

10-PIP

TRADES

?

Here are seven principles of 10-pip trading.

1. Buy and sell on breakouts of support and re-sistance. Or, sell when a currency pair hitsresistance and buy when it hits support. Iteach this in the 1 on 1 training, and this is my

major trading strategy.

2. Stop trying to make $8 million on every trade.

3. Set a 10-pip limit only. Exit the trade at 10.Exit the trade at 10. Stops are set based onmarket conditions, but are always set.

4. Goal: + 10 pips every time you trade. Youdont have to trade every single day. Onlytrade when the market shows you an opportu-nity.

5. If I earn more than 10 pips on a trade becausethe trade moves so fast in my direction, I can

set my stop to protect the 10 and then go formore.

6. There is no makeup strategy. If I take a loss,


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then Im just trying to end up with a 10 pipgain for the day. If I cant get it, then I dont

try for 20 the next day, or whatever. I cankeep trying for the 10 pips gain as long as Ihavent lost more than 5% of my capital.

7. Time: I can trade for a set number of hoursper day, meaning I can have the trading plat-forms open and sit at my computer for a max

of, say, 5 hours per day. If I cant earn my 10pips during that time, then I can set my stopsand limits and walk away, but I cant activelywatch the market any longer.

So, what kind of daily routine does it take to be a10-pip trader? Heres one example.

Heres a daily routine that Ive used in the Strat-egy:10 system. Some of the most successful monthsof my trading career happened when I followed thisplan.

Up at 3:00 am Eastern Standard Time (when the mar-ket is most active). Check the charts.

Ask the following questions:

Where did the USD close (5pm EST) yesterdayagainst the majors?

What effect will todays economic reportshave, if any, on the forex market?

Are we at an all time high or low on any cur-

rency pair?What one pair am I going to focus on today?Where are the major areas of support and re-

sistance on this pair?


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19STRATEGY:10

What are some good breakout entries? Somegood entries when a pair fails to break out?

Following this set of questions does not en-sure that you are going to earn 10 pips every trade.But it certainly helps you. The most important ques-tion you can ask isWhat is the major trend in thecurrency pair that I am watching? If you tradewith the trend, you are more likely to be able to find

some 10 pip trading opportunities.


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IMPORTANT MESSAGE

Stages of your beginningforex trading career asdescribed by actual Def

1. Let Me the One2. Promises3. Rock Rock (Till You Drop)4. Now5. Unbelievable6. Everyday7. Pour Some Sugar On Me8. Lets Get Rocked9. Scar10. It Dont Matter11. Hysteria12. Cry13. Wasted

14. Bringin On the Heartbreak15. Four Letter Word16. Disintegrate


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21THEWOODCHUCK& THEPOSSUM

Afriend of mine volunteers on a regular ba-sis to rid his neighborhood of rodents and

animal riff-raff: the woodchucks, ground-hogs, and possums that eat up gardens, at-

tack family pets, and so on. He sets a trap with ripefruit or tuna fish. The animal enters the trap for thefood. If the animal cant find its way out, it is even-tually shot and buried.

In currency trading, sometimes you get thefruit.Sometimes you get trapped and shot. Why?

Possums are relatively easy to catch. They go forthe fruit, they get caught, and then, when the trapperapproaches the trap, the possum simply plays dead.It plays dead because thats the best defense mecha-

nism that it has. A woodchuck is tougher to trap. A big one

might enter the trap, eat the fruit, and then rip thetrap apart, exit, and wander off looking for morefood. Or it might roll the trap along the ground, setit off, and then eat the fruit from the outside.

There is a fundamental characteristic of unsuc-cessful forex traders: they trade because its exciting,cool, or for fun. The mystery behind the charts, thenotion that profits (although elusive) do really exist,and that money can be made quickly (but not pre-dictably) all add up to create a romantic fantasy thatis too appealing to avoid. When they start to losemoney, they leave their positions open, close theireyes, and hope that the trap will be miraculously

opened so they can be free again.Then they are shot.This group the Possums is the largest block

of forex traders. These are the novice traders that


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About Rob

I trade for a living. There is no better way to

make a living. I am a currency nerd. This iswhat I love.

I also train others to trade for a living. I haveworked with traders on nearly every continent,in nearly every country that we learn about inschool. Im training live in Las Vegas in 2006,and if you want to come, Id love to meet you.

At my Web sites (robbooker.com, pipto-pia.com) there is a lot of free stuff for traders.If theres any way that I can help you, fromtraining, to building a system, to just answer-ing questions, let me know. I answer everyemail I receive. It might take me a few days,but I really try. As much of what I can offer, Ioffer for free. Some of my services costmoney. I hope to hear from you.


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