the forex odyssey guide to financial independence

THE FOREX ODYSSEY

GUIDE TO

FINANCIAL INDEPENDENCE

By Alan Vertue

Edition 2011

Copyright © 2011

Web: www.VertueTrading.com.au – Ph: 1300 221 797

Copyright © 2011 – Web: http://www.VertueTrading.com.au – Ph: 1300 221 797

The Forex Odyssey Guide to

Financial Independence

Realize Your potential.

Everyone starts trading to make money, right? Sure you want a rewarding career. One at which you can choose

your working hours and location. A career where you are totally responsible for your own success. A career

capable of giving you the lifestyle others only dream about. You deserve it! After all those hard years of slavery

in your prior existence! But, in the end, it’s really the money that promises all of the above, and it promises

much, much more.

So you develop a plan and write down your goals! You read the books and you trawl through the trading forums

searching for the secret of success. Your families start to wonder who the stranger is at the dinner table (that is, if

you actually make it to dinner).

You open a demo account and try out a plethora of strategies. You stare at charts until they blur. You become

indicator obsessed. You practice your entries and exits - all in simulation of course, but feeling the pain of

rejection as much as if it was the real deal. It may only be in ‘sim’, but deep down you realize a losing trade is an

assault on your ego.

But eventually you start to see some winners amongst the losers. Your simulated equity curve starts to rise, and

you’ve got some monopoly money in the bank. You’re confident you now understand the signals, and you’re

finally up to speed with your platform and data feed. Today’s the day. You’re going LIVE! “Watch out for the

money, Honey. There’s rivers of gold a comin’ our way!”

But after time, the winners evaporate like summer rain on hot concrete. The days turn into weeks, the weeks into

months. By now, you’ve stopped keeping accurate records of every trade and decision. You don’t need your

computer to tell you your account is in serious and steady decline, perhaps even haemorrhaging! Like most new

traders, past, present and future, you find consistency frustratingly out of reach. Many of you keep the news from

your partner. “Going great guns, Honey! Really getting on top of the learning curve now!”

If it sounds like ‘This Is Your Life’ is knocking at your door right now, congratulations! You’re finally in the

right place at the right time. If the above doesn’t sound like you, but you’re a ‘newbie’, chances are you just

haven’t let enough time flow by!

But here’s some great news... failure is not a natural part of trading. There are fabulously successful traders. The

vast majority started their careers just as you. Their accounts bled – perhaps even haemorrhaged. They felt the

pain, the attack on their ego. But with perseverance and dedication (yes, occasionally even dumb luck) they

discovered the critical elements that all successful traders understand. You too have the potential to be

fabulously successful. The explicit aim of this article is to help you to realise that potential. Game on!

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Forex: The long and short of it.

My name is Alan Vertue, and I’m a professional Forex trader and trading educator. Apart from private trading,

I’ve moderated trading rooms, overseen education programs for large companies, and witnessed most of the

mistakes that new traders make trying to make a ‘fast buck’. I’m sure that most of you who have already

announced to family and friends that you were considering becoming a Forex trader have probably experienced

some cynicism and negativity. “Oh, THAT’S a bit risky, isn’t it?” is the usual response as they stare at you in

feigned horror. Obviously equating the endeavour to attempting a bungy jump using hat elastic, most people

believe that investing in property or company stock is “safe”, and that trading Forex is only suitable for the

mega-rich or criminally insane. But let’s look at the facts;

a). Trading Forex allows for easy entry on short or long positions. Those holding shares in a bear market are in a

much more precarious position due to the difficulty in shorting their position.

b.) The electronically traded Forex market is the largest and most liquid financial market in the world. The time

taken to enter and exit positions can be measured in seconds, if not milliseconds!

c.) Forex contracts allow for highly leveraged positions. Of course, if traded without a planned exit strategy,

leveraging can quickly contribute to a trader’s demise, however with sensible money management using a strict

stop loss strategy, leveraging enables a winning trader to make greater profits with a much smaller risk.

d.) Commissions, in the traditional sense, are virtually non-existent in the Spot Forex market (brokers subtract

the bid/ask spread at the time of exit). All results at the end of the day are nett, i.e. there are no additional

brokerage or exchange fees to subtract from your balance sheet.

e.) The world’s electronically traded Forex markets are available to trade 24 hours a day, five days a week, all

from the comfort of your own home, or from anywhere in the world that has access to broadband internet.

So what’s the downside? There has to be a catch, right? Well, yes, there is a catch. When trading shares or

property you can only lose your initial investment in the event you make a wrong trading decision, and price

moves against you. Trading Forex on the other hand carries with it the risk of LOSING MORE THAN YOUR

ORIGINAL INVESTMENT. Of course there is a simple solution to this problem. By setting a suitable stop loss

exit at the time of entry, and using an efficient trade management strategy, such as those used by the Forex

Odyssey Trading System©, any trader, new or experienced, is able to participate in highly liquid and volatile

markets with minimal outlay and at no greater risk than trading stocks or property.

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Question: “What’s the most important skill a new trader absolutely must learn? Is it signal recognition?

Platform fundamentals? How about chart patterns?”

No! No! No! Wrong! Wrong! Wrong! Get a pen and write this down… backwards, on your forehead, and stare

at yourself in the mirror: The single most important skill a new trader must master, if they are to eventually

become successful, is how to minimise losses!

Oh yeah. Right! As if you needed to be told that. Well, in my experience the ability to manage losses is the one

‘skill’ that is most sorely neglected. The majority of new traders focus their attention on making money and not

protecting what they already have.

Being a trader means you WILL lose some of the time. Get used to it! It’s not the loss itself that matters, but the

SIZE of the loss! In this game, preservation of capital is absolutely paramount if you want to make it to the

Super League.

Being able to manage small losses allows you to build on your gains, rather than keep returning hard-won profits

to the market. It sounds so simple, yet most aspiring traders continue to take big hits until either their capital, or

their will is destroyed. Learning to minimise your losses will maximise your chances of staying long enough on

the playing field to learn and practice the other skills necessary to become a long-term winner.

I’m sure you’ve heard it quoted many times before; “trading is a business”. It’s true, and as such, your business

requires a business plan – one that makes allowances for profit and loss. In fact, the words ‘profit’ and ‘loss’

should really be replaced by ‘income’ and ‘expense’. If you manage your trading as you would a true business

venture, ‘profit’ is what you extract at the end of year if your income is greater than your expenses. ‘A loss on

the other hand is what you’re left with if you haven’t managed your expenses well.

So how do we learn and develop this skill? Well, the same way we learn any other skill – PRACTICE,

DISCIPLINE and PERSEVERANCE! Write down a trading plan and trade it. Firstly in ‘sim’, and then ‘live’,

but with minimum position size. I don’t care how many shekels you have stowed away under the bed, you need

to begin at the beginning. By doing so you will learn to be a good loser, and you need to become a good loser in

order to become a good winner.

By learning to take a small hit and roll with the punches, you’ll be better able to see the openings to make a

knockout of your own. Trust me on this. One small lot combined with a reasonable stop loss, and you’ll become

immune to the emotional burden that the majority of retail traders bear. Fear of failure!

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10 pips a day to financial freedom.

One of the main reasons most players fail in the trading game is because they fall victim to the emotion of fear.

Fear of losing, and fear of missing out! Emotional trading can rapidly bleed an undisciplined trader’s account.

Hard-earned gains can be converted quickly and efficiently into confidence-sapping losses. Most new market

players trade too frequently, and with too large a position. This is a sure fire way earn a spell on the bench, often

permanently. Pulling trades too early, second guessing signals or declining legitimate trades because of recent

losses can all reduce a trader’s confidence – and to be successful, you must be confident in both your system and

your own ability.

It’s a documented fact that you only require 10 pips per lot traded, per day to build your stake into a substantial

investment account. And this for a maximum risk of only 2% per trade!

Now I know what you’re probably thinking. If something sounds too good to be true, then it probably is! But if

you’ll just bear with me for a moment, I can prove that ordinary people can make extraordinary profits using a

little known money management strategy. Virtually every professional trader in the world utilises this strategy as

a safe and efficient way of minimising risk and maximising profits. On the following pages I’ve included an

example of such a plan, showing how it’s possible to grow an account simply by increasing position size. By

taking tiny bites out of the market on a regular basis, using a maximum risk of just 2% per trade, your account

has the potential to experience exponential growth, as does your confidence as a trader.

Before we analyse this money management strategy, it’s important to understand the main unit of transaction in

the Forex market is a Standard Lot, which is approximately equivalent (depending on the currency pair traded) to

US $10 per pip. Forex brokers allow traders to open positions using fractional lots, i.e. Mini Lots and Micro

Lots. When trading with a Mini Lot, each pip is equal to US $1, and if trading with a Micro Lot, that same pip is

only worth 10 cents. This enables traders with modest account sizes to play in the same game, on a level playing

field, as the large market professionals.

In the following example, we are going to start with an account balance of $10,000, but it could just as easily be

$1,000 or $100,000 – the principles are still the same. We will trade with Mini Lots at $1 per pip, per lot, and

we’ll risk only 2% of our account on any individual trade. To calculate this, we’ll assume a Stop Loss of 20 pips,

meaning that for each Mini Lot with which we enter, our risk potential is $20.

It should be noted that this is a hypothetical plan and shows a potential progression. Your results may vary from

those shown, however these targets are very conservative, and although a more aggressive approach may bring

with it greater risk, it may also create the opportunity for substantial reward. But be prepared to discipline

yourself and knuckle down to master the necessary skills.

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STOP LOSS (PIPS) 20 MAX RISK PER TRADE 2.00%

WEEK MINI

LOTS

AVG DAILY

PIPS/LOT

WEEKLY

PIPS/LOT

TOTAL

POINTS

GROSS

WEEKLY

PROFIT $

WEEKLY

PROFIT % BALANCE $ RISK%

0 $10,000.00

1 10 10 50 500 $500.00 5.00% $10,500.00 2.00%

2 10 10 50 500 $500.00 4.76% $11,000.00 1.90%

3 11 10 50 550 $550.00 5.00% $11,550.00 2.00%

4 11 10 50 550 $550.00 4.76% $12,100.00 1.90%

5 12 10 50 600 $600.00 4.96% $12,700.00 1.98%

6 12 10 50 600 $600.00 4.72% $13,300.00 1.89%

7 13 10 50 650 $650.00 4.89% $13,950.00 1.95%

8 13 10 50 650 $650.00 4.66% $14,600.00 1.86%

9 14 10 50 700 $700.00 4.79% $15,300.00 1.92%

10 15 10 50 750 $750.00 4.90% $16,050.00 1.96%

11 16 10 50 800 $800.00 4.98% $16,850.00 1.99%

12 16 10 50 800 $800.00 4.75% $17,650.00 1.90%

13 17 10 50 850 $850.00 4.82% $18,500.00 1.93%

14 18 10 50 900 $900.00 4.86% $19,400.00 1.95%

15 19 10 50 950 $950.00 4.90% $20,350.00 1.96%

16 20 10 50 1000 $1,000.00 4.91% $21,350.00 1.97%

17 21 10 50 1050 $1,050.00 4.92% $22,400.00 1.97%

18 22 10 50 1100 $1,100.00 4.91% $23,500.00 1.96%

19 23 10 50 1150 $1,150.00 4.89% $24,650.00 1.96%

20 24 10 50 1200 $1,200.00 4.87% $25,850.00 1.95%

21 25 10 50 1250 $1,250.00 4.84% $27,100.00 1.93%

22 27 10 50 1350 $1,350.00 4.98% $28,450.00 1.99%

23 28 10 50 1400 $1,400.00 4.92% $29,850.00 1.97%

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24 29 10 50 1450 $1,450.00 4.86% $31,300.00 1.94%

25 31 10 50 1550 $1,550.00 4.95% $32,850.00 1.98%

26 32 10 50 1600 $1,600.00 4.87% $34,450.00 1.95%

27 34 10 50 1700 $1,700.00 4.93% $36,150.00 1.97%

28 36 10 50 1800 $1,800.00 4.98% $37,950.00 1.99%

29 37 10 50 1850 $1,850.00 4.87% $39,800.00 1.95%

30 39 10 50 1950 $1,950.00 4.90% $41,750.00 1.96%

31 41 10 50 2050 $2,050.00 4.91% $43,800.00 1.96%

32 43 10 50 2150 $2,150.00 4.91% $45,950.00 1.96%

33 45 10 50 2250 $2,250.00 4.90% $48,200.00 1.96%

34 48 10 50 2400 $2,400.00 4.98% $50,600.00 1.99%

35 50 10 50 2500 $2,500.00 4.94% $53,100.00 1.98%

36 53 10 50 2650 $2,650.00 4.99% $55,750.00 2.00%

37 55 10 50 2750 $2,750.00 4.93% $58,500.00 1.97%

38 58 10 50 2900 $2,900.00 4.96% $61,400.00 1.98%

39 61 10 50 3050 $3,050.00 4.97% $64,450.00 1.99%

40 64 10 50 3200 $3,200.00 4.97% $67,650.00 1.99%

41 67 10 50 3350 $3,350.00 4.95% $71,000.00 1.98%

42 71 10 50 3550 $3,550.00 5.00% $74,550.00 2.00%

43 74 10 50 3700 $3,700.00 4.96% $78,250.00 1.99%

44 78 10 50 3900 $3,900.00 4.98% $82,150.00 1.99%

45 82 10 50 4100 $4,100.00 4.99% $86,250.00 2.00%

46 86 10 50 4300 $4,300.00 4.99% $90,550.00 1.99%

47 90 10 50 4500 $4,500.00 4.97% $95,050.00 1.99%

48 95 10 50 4750 $4,750.00 5.00% $99,800.00 2.00%

49 99 10 50 4950 $4,950.00 4.96% $104,750.00 1.98%

50 104 10 50 5200 $5,200.00 4.96% $109,950.00 1.99%

6




Targeting an average of just 10 pips a day, or 50 pips per week, a disciplined trader could potentially build a

return on their original investment of over 1,000% in less than a year... and at no stage would they have risked

more than 2% on any single trade!

____________________________________________________________________

Risk:Reward: The essence of success.

Drawdown, and risk to reward ratios are two essential factors to consider when trading Forex. These two factors

very clearly indicate the overall risk exposure for all open positions.

Even if you’re using strategies that have winning strike rates over 50%, i.e. having a strategic winning edge,

Murphy’s Law dictates that sooner or later you’ll incur a losing streak. It’s therefore imperative to maintain risk

at minimum levels by using an optimized risk to reward ratio. Strict adherence to this principle will prevent you

from over-leveraging, and subsequently, emotion-based trading.

Let’s assume that you trade with 1:1 Risk:Reward, i.e. for every dollar you’re prepared to risk, you expect to

gain a dollar. Under normal conditions your strategy has a winning strike rate of 60%. The following table

illustrates your result after 30 trades, starting with a balance of $10,000 and risking 2% on each trade. As you

can see, a 60% strike rate combined with a 1:1 Risk/Reward guarantees a profit of $1,207, or a return on the

original balance of 12.07%.

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Copyright © 2011 – Web:



But what if the strategy experienced an extended drawdown, and the winning strike rate over the

was reduced to just one in three?

Web: http://www.VertueTrading.com.au – Ph:

ssey Guide to


But what if the strategy experienced an extended drawdown, and the winning strike rate over the

Ph: 1300 221 797

But what if the strategy experienced an extended drawdown, and the winning strike rate over the next 30 trades

8




Not only has this drawdown caused a loss over the 30

profit. By ensuring that you implement a healthy Risk/Reward into your trading plan,

extended drawdowns, and maximize profits during the good times.


ssey Guide to


Not only has this drawdown caused a loss over the 30-trade period, but it has also wiped out all of your original

profit. By ensuring that you implement a healthy Risk/Reward into your trading plan, you will be able to weather

extended drawdowns, and maximize profits during the good times.

Ph: 1300 221 797

trade period, but it has also wiped out all of your original

you will be able to weather

9



Financial IndependenceThe following tables illustrate this point.

following example at 1:3 has still made a healthy profit of more than $1,955, and 19.5% ROI, despite losing

approximately 67% of trades.


ssey Guide to


The following tables illustrate this point. Whereas the previous example at 1:1 lost

xample at 1:3 has still made a healthy profit of more than $1,955, and 19.5% ROI, despite losing

Ph: 1300 221 797

lost more than $1,861, the

xample at 1:3 has still made a healthy profit of more than $1,955, and 19.5% ROI, despite losing

10




So, what if you trade with 1:3 Risk/Reward and achieve an average 50% winning strike rate? The following

table shows just how much better off you will be, batting for a higher return on each trade, rather than

concentrating solely on the strike rate.

11




A $7,700 profit and 77% better off over the same period, with only half of all trades being winners!

It is very difficult to consistently achieve a winning strike rate greater than 50%. Therefore, most professional

traders aim for a Risk/Reward of 1:2 as an absolute minimum, while 1:3 or even 1:4 is highly recommended.

The Forex Odyssey Trading System©

relies on a healthy Risk/Reward to maximize profits and minimize risk.

Because our trades mostly rely upon exiting on a trailing stop, it’s impossible to predict the actual Risk/Reward

prior to entry, however experience shows most FXO strategies average approximately 1:3 or greater.

Be under no illusions, the mechanics of trading are essentially very simple, but their application is somewhat

more difficult, unless you have a guide or mentor to follow. Markets change, and to be successful a trader must

be agile and adaptable, ready to face new challenges. That is why trading is such an enriching experience. It’s

not because we’re riding a winner to every post, but because it keeps us living. It keeps us thinking, learning,

participating.

The road to success is not a multi-lane freeway - it has an abundance of twists and turns, cracks and potholes.

But it also promises a rare destination. It’s up to you to navigate the obstacles.

Trading is a business like no other. What business requires such a small initial outlay, yet offers virtually

unlimited potential to increase income and wealth. Trading is a simple task, but human beings, and our inherent

psychological imperfections, conspire to make it difficult. The Forex Odyssey Trading System©

bridges this

anomaly by introducing new traders to the financial markets in a gentle fashion, eliminating much of the stress

via the use of cutting edge automatic trade management technology. Ultimately though, success or failure rests

in your hands. Commit, connect, and create your dream. Thousands of people around the world are already doing

it, so why not you?

I wish you the very best of luck, a happy life, and a rewarding trading career.

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the forex odyssey guide to financial independence

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