Preface

You can’t afford to ignore forex anymore.

This is an urgent message I carry everywhere I go. It really doesn’t matter who we are or what stage in life we’re at. You could be in school and you can’t seem to figure out the rules of global finance. You could be holding down a job but you desire to make a decent second income in your spare time.

You could already be involved in the financial markets as a retail trader or investor, but with low yields and depressed growth all around the world, you are searching for an asset class that offers unparalleled returns. You might even be a fund manager who holds an international portfolio in different asset classes, such as equities, bonds, and commodities.

However, with central banks lowering rates and injecting record amounts of liquidity into the financial system, you realize the importance of protecting your entire portfolio against currency risks.

Finally, you might be someone running a multinational company. You could be based in one country, but your offices span across many countries all around the world. Expenses for salaries, infrastructure, machinery, and supplies are paid out in different currencies every single month. As the business gets larger, you can’t turn a blind eye to the currency fluctuations, which have a significant impact to the company’s bottom line every month.

If you find yourself in any one of these categories, this book is for you. The sooner we all understand the forex “game,” the better it is going to be for us. Forex is a game for three reasons. First, playing it must be fun. Second, we play it with an intention to win. Finally, it has rules. If you break the rules, the rules will break you.

HOW IT ALL BEGAN

I had a painful start to forex trading because I broke a cardinal rule. Allow me to share my story with you. I’ll be the first to admit that I’m not a smart guy. I don’t have a finance degree or an economics degree.

I studied chemical engineering in school but graduated with third-class honors, dashing my mother’s hopes of my becoming a top chief executive for a Fortune 500 company. After graduation, I proceeded to apply for a job at petroleum giant Shell, but I haven’t heard from them yet.

Sometimes I console myself by thinking that my resume lost its way in the mail. I didn’t have much materially then, but what I had was the burning desire to achieve success in life. It was this desire to succeed that led me to my first experience with forex trading.

Six years ago, I was with a friend in a local coffee shop when he suddenly flipped open his laptop to reveal a screen full of charts. Through the charts and jumping numbers on the screen, I asked him, “What’s this?”

He coolly replied, “Forex trading.”

Thinking it was some hobby he recently picked up, I asked again, “Real cash?”

“Yes.” He nodded smugly. “Real cash.”

That began to draw me in, slowly but surely. Looking back, it wasn’t the fact that forex was the biggest financial market in the world that drew me in. What drew me in was the fact that all you needed was an Internet connection and a laptop to make money from this market anywhere in the world.

Fascinated, I started to ask my trader friend some questions. When he shared with me the story of how George Soros broke the Bank of England on September 16, 1992, and made $1 billion in a day, I was hooked.

I’m the kind of guy who only needs one live example of someone who has done something to convince me that I can do it too. Excited about this new discovery called forex trading, I went off and started to do my own reading on free websites.

Soon I started my first account with USD3,000.

MY FIRST TRADE

My first trade was on the GBP/USD. It was on an uptrend, and the price had reached a new high. This is it, I thought, rubbing my hands gleefully. I’m going to be a millionaire by next Friday. Seeing that the price had reached a new high, I was convinced that gravity would pull it right down.

I clicked “sell.” That poignant moment was the start of my painful lesson. After I clicked “sell,” the price continued to creep up. That’s not supposed to happen, I thought.

As prices continued climbing, I decided to hit the sell button again, only this time with double the lot size (and double the intensity) as my first trade. I reasoned that if I clicked twice the number of lots, all that needed to happen was for prices to fall a little before I could see some nice profits.

After the second “sell” click, I couldn’t believe my eyes. The price went up further. My hands started to get sweaty. My head started to shine from the beads of sweat that started to trickle down from my bald head. Murphy’s Law was in full motion. In desperation, I actually grabbed the laptop and turned it upside down to paint me a picture of falling prices. My ego was badly hurt.

“It’s got to come down,” I muttered to myself. At that point, I clicked “sell” for a third time, with double the lot size of the second trade.

The numbers on my laptop screen at the time weren’t very far from the numbers my friend had shown me. The only difference was that mine had a stubborn negative sign preceding them that just wouldn’t go away. A couple of days after my third dreaded click, the broker closed off all my positions. I was hit with the dreaded margin call.

In a grand total of just six days, I had lost my entire account.

Whenever I share my story in my forex seminars, I replicate the scenario and draw an uptrend on the whiteboard.

“Would you click ‘buy’ or ‘sell’ over here?” I always ask, as I circle the highest point reached by the price. At every single seminar, most people choose to sell, confident that high prices will fall.

It’s almost a consolation to know that we human beings are wired in much the same way. Needless to say, after I blew up my account, I was devastated.

THERE ARE NO SUCCESSFUL BUSINESSES

Losing USD3,000 of my hard-earned money in a week was heart-wrenching.

Self-defeating thoughts appeared in my mind incessantly.

“Forex is risky.”

“Forex is gambling.”

“Forex is not for me.”

I was tempted to wash my hands from the forex market and walk away.

However, it was at this low point of my life that the words of a rich and successful Chinese businessman who was my mentor came to mind.

“There are no successful businesses in this world, only successful people.”

At this point, I stopped the pity party and asked myself two questions: Do I know people who are making money in the forex market? And: Do I want to be in that group?

I picked myself up again after I answered yes to both questions. I started to work on myself. You see, it’s very easy for you and me to get sucked into recognizing that 80% of people lose money in the forex market.

However, why can’t we decide to be in the group that makes money? Isn’t it just a simple switch in our thinking? If 20% of the people are making money, let’s decide first to have our names in that special group. That self-talk was the turning point in my forex trading journey. I made up my mind to master forex trading.

Picking myself up from the setback, I began to equip myself with the right trading skills. I started devouring books by successful traders. Emulating their beliefs, knowledge, and habits, I worked hard on honing my trading skills every single day. My quest for mastery also led me to seek out two of the biggest names in the forex industry as my mentors: Kathy Lien and Ed Ponsi.

I reasoned that a mentor could help me to drastically cut short my learning curve. And cut short my learning curve they did.

Knowing what I know now, I recognize that the cardinal rule that I broke in my first live trading experience was to trade against the trend.

Within three years and several buckets of blood, sweat and tears later, I became an expert in trading the forex market. Less than a year later, I was invited to appear on CNBC to give my opinions on global finance.

WISH THAT YOU WERE BETTER

Given my bubbly character, many people think that it’s easy being on camera, speaking live to a camera that holds the attention of over 300 million viewers. The truth for me is that it’s not.

“Mario, what do you think the CPI is going to be for Singapore?”

“Mario, what’s your view on the U.S. dollar this week?”

“Mario, do you think China will report a good number for trade surplus this month?”

The TV anchor and the reporters on site fire questions from every angle, and you need to have the answers at your fingertips. They expect you to know, or you have no business being on the biggest stage in international finance.

How ridiculous it would be if I were to fake an answer like “I think inflation in Singapore is going to hit 65% next year.” I would be laughed off the chair.

So I had to study. In fact, to be in that three-minute hot seat, I had to study for three hours. That’s right: three full hours of study for three minutes on CNBC.

Thankfully, I did well. In fact, I did so well that I was called back, again and again. CNBC has three major shows that cover the financial markets. The early morning segment is called Squawk Box, in the early afternoon it’s called Capital Connection, and the evening’s slot is called Worldwide Exchange.

Eventually I was invited to appear on all three major shows. In fact, I was then asked to be a guest host on Worldwide Exchange. As guest host, I sat with the news anchor and instead of being there for three minutes, I would be there for a full hour.

My job was to have a conversation with some of the most brilliant financial minds on the planet who would come in and take their place on the hot seat. As I warmed up to the new role as a guest host, I had an important revelation. The job was getting easier. In fact, I didn’t have to study when I was guest host.

Do you know why? Because this time, it was my turn to ask the all-important question, “So, Jack, what’s your view on the U.S. dollar this week?”

This was my revelation: As you get better, it gets easier.

So, my friend, don’t wish that it were easier, wish that you were better.

Kaizen is the Japanese word for improvement. When we embrace kaizen in any endeavor, mastery is bound to be the result.

My kaizen approach to forex trading has enabled me to be a consistently profitable trader. Today, I am living the dream of traveling and spreading the message of profitable forex trading everywhere I go. I’ve even had the privilege to coach forex traders in some of the largest banks in the world. Forex trading has given me this new life, and I know that it can do the same for you.

AUDIENCE

Today the Forex Market is considered the largest financial market in the world. With that famous tagline, thousands of books have sprung up giving people insights into this amazing market. I did not write this book with the intention of adding to the vast list of global resources already available on the topic of forex.

My inspiration for this book is drawn from three specific groups of people:

OVERVIEW OF THE CONTENTS

The book is broken into two parts:

Part One: Forex Is a Game

Part One of this book is divided into five chapters, and it centers on the core description of forex as a game. We discover insights on the rules of the game, the major players, and how money is made.

Chapter 1 introduces the forex market. It begins by describing the total daily turnover and the seven major currency pairs. It then explains how to read a forex quote and how prices move. The chapter ends with a framework of how margin and leverage are employed in a forex trade.

Chapter 2 focuses on how money is made in a forex trade. We learn about long and short and the three points in every trade. We then move to the four big reasons that cause currencies to move and get a grasp of the fraction theory. Chapter 2 ends with an understanding of market structure.

Chapters 3 and 4 cover the six major players in the forex market and the numerous advantages associated with trading the market. Some of the major players include central banks, commercial banks, multinational companies, and retail traders. We also get a glimpse of three of the biggest blow-ups in proprietary trading in banking history.

Chapter 5 is devoted to discovering your unique profile in trading. It includes a profiling test to help you find out how your personality can help or hurt your trading style. There are essentially five types of traders: scalper, day trader, swing trader, position trader, and mechanical trader. By the end of this chapter, you will know which group you belong to.

Part Two: Strategies to Win the Game

Part Two is also divided into five chapters. Each chapter covers strategies for the five profiles of scalper, day trader, swing trader, position trader, and mechanical trader.

Chapter 6 covers two strategies for scalpers, called the rapid fire and the piranha. These strategies are used on the shortest time frames, namely the minute chart and the 5-minute chart.

Chapter 7 covers four strategies for day traders. The first two strategies are focused on breakouts while the next two are centered purely on trading the news. A unique way of trading the news, called the Rule of 20, is also discussed here. All four strategies are employed using the 15-minute and 30-minute time frame.

Chapter 8 covers five strategies for swing traders. As swing traders typically exit their positions within two to five days, the time frames used for the strategies are longer than the day traders. Hence, all five of the swing trading strategies are used on the 1-hour and the 4-hour time frame.

Chapter 9 covers three strategies for position traders. The first one, swap and fly, takes advantage of the interest rate differentials between the currencies and aims to earn maximum returns by holding on to positions for an extended period of time. The next two strategies are used specifically for the two most popular commodities in the world: oil and gold.

The final chapter covers three strategies for mechanical traders. Traders in this category are oblivious to the passing of time. This is why all strategies discussed here employ three different time frames from the other categories: the 5-minute chart, the 15-minute chart, and the daily chart.