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Garry's Guide to Becoming a Millionaire in the Financial Markets using Risk Management

Garry Anthony DSouza

GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Thank You
For purchasing my book. I hope you enjoy reading it and become rich. Please read it till the end.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

-:Disclaimer:Everything discussed in this Book is for educational purposes only. I do not want anybody to use real money to apply the techniques discussed in this book unless he has tried them out in demo accounts or with paper money, before using his real money to actually trade in the markets. Also, he must be comfortable with the techniques and must make an informed decision as to whether he plans to trade with real money in the markets or not. I say this because I know that trading the markets can be risky as there are many variables involved including psychology, and I dont want to be responsible for you losses (although I would like to take credit for your gains).

The goal of this book is provide you with a valuable lesson that will help you become rich by participating in the financial markets. However, the financial markets are dynamic and always subject to change. A successful financial market participant must be able to adapt to the markets.

Moreover, participating in the financial markets may not be suitable for everyone due to time and other constraints.

I am not a financial advisor and everything I discuss in this book is the product of my personal opinion and experience in the markets. All I know is this muchthere are a lot of books, articles and advice is floating around in the market. Many people are always looking out for a magic pill which will help increase their chances of success. I have read lots of books and seen tons of hours of seminars, and if you pardon my language sifted through hours of bull-crap to tell you this much.... 3
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT MY BOOK IS THAT MAGIC PILL. You have to be open minded and understand and choose to accept my concepts, if you're a newbie the book is self-explanatory. If you're not then, there may be concepts in this book that you may not necessarily accept...but I have tried and re-tried them with varying degrees of success...If you noticed the words varying degrees also notice the word success. Follow my principles and get used to it. Good luck"

Garry DSouza, Forexmilionaire & affiliated companies shall not be held responsible for any issues caused due to implementation of any advice expressed in this book.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Preface
Okay, so now I am going to discuss what this book is going to be about. In this book, I am going to touch upon some core concepts which are vital to success in the financial markets. Then I will discuss some concepts (risk management concepts) that I have developed that can help you reduce risk drastically in the financial markets. Later on, I will get into some techniques I personally use while investing in the markets.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT However, please note that I do not reveal my exact investing style in the financial markets as I do not wish to publish it in a book, as these days books are easily reproduced and downloaded over the internet for free. For this reason, I only discuss my personal investment techniques in the Certified Money Manager program which you can enroll for on my website www.forexmillionaire.me. It is a course and at the end of the course there will be an exam. You will be able to find a sample exam paper on the website. If you need any more details regarding the course, kindly send an e-mail to garrydsouza@hotmail.com Essentially, the course explains how we can make money using some basic technical analysis like buying the dips in an uptrend, and adds some very, very advance risk management techniques not discussed in this book, to make it a risk-free strategy. We keep repeating this procedure and there are very fine rules to apply it. There will be a workbook which details all the techniques, concepts, and the risk-management models. Towards the end of the course, there will be an exam and the exam paper will contain charts and you will have to answer the questions that relate to the charts of the price of a financial instrument and what action would you take and how you would eliminate risk.

The strategies discussed in this book led me to the current investment technique I employ for my investments. Though drastically different, one leads to another, and through practice and experience in the financial markets, we tend to learn what works and what doesnt, even when it comes to risk management. In the coming sections of the book, I am going to explain all the important issues that need to be considered if one wants to be rich by participating in the financial markets. I will also provide a system that fits these concepts together and explains how money can be made easily in the markets (easy does not mean no physical effort on your part, unless you are using a robot to invest in the markets). The risk-management techniques I will be discussing in this book are unique and I have developed them on my own. It is on a whole new level and completely different from the other techniques that have been developed until now. Throughout this book, I am going to place much emphasis on the Forex market and stock market, as these are the markets I am familiar with in particular, the Forex market. 6
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Why the Forex market you ask?


A Global 24-Hour Market The Forex market is unique in that traders can access a 24-hour market very conveniently, without having to wait for the markets to open. At any time, there is always a major financial center open where banks, hedge funds, corporations, and individual speculators are trading currencies. Traders can trade during anytime of the day or night, and do not have to wait for any markets to be opened before placing their trades. This is particularly beneficial to people who hold nine-to-five jobs since they can trade it without any problems in the evening or night. The market runs 24 hours for 5.5 days a week because markets around the world open and close at different times. In stock or futures markets, you can only actively trade for less than 7 hours a day.
FX market Tokyo Open Tokyo Close London Open London Close New York Open New York Close GMT 23:00 08:00 07:00 16:00 12:00 21:00

With the stock and futures markets, one would need to have access to electronic communication networks (ECN) for pre-market trading, or would have to wait till the markets open. The chances of the prices gapping up or down against you are high especially if there have been news while the markets are closed. Worlds Most Liquid Market According to the Central Bank Survey of the Forex market conducted by the Bank for International Settlements, as at 2004, daily trading volume reached an all-time record high of $1.9 trillion, up 58% from 2001. Do you know that this humongous daily trading volume is about 20 times that of the New York Stock Exchange and the NASDAQ combined? With about 80 percent of foreign exchange transactions having a dollar leg, you dont have to worry about liquidity issues when trading any of these big-economy currencies, which are namely, USD, GBP, EUR, CHF, JPY, CAD, AUD and NZD. However with stocks, futures,

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT
options or commodities, you tend to be restricted by their illiquidity especially during afterhours. Limited Slippage Most brokers guarantee fills on stop-loss and limit orders on up to a certain number of standard lots, and provide instantaneous trade executions from real-time quotes which are displayed on the screen. There is usually no discrepancy between the displayed price and the execution price during normal market conditions. However, you may be subjected to slippage when you trade during news or during periods of high volatility. In the futures and stock markets, execution price can be vague because all orders must be done through the exchange, and slippage and partial fills are common especially in the futures market due to the chaotic open-outcry system. Buy or Short-Sell Anytime When trading stocks, short-selling is only allowed with an uptick, so it can be very frustrating for traders to wait and see their stocks trend downward, while waiting for an uptick. In the futures market, there is a limit down/limit up rule which kicks in when the contract value declines or increases by more than a certain percentage from the previous days close. However, in the Forex market, you can short a currency pair anytime without having to wait for any upticks and this translates to a more efficient and instant order execution. Profit In All Market Conditions bull, bear or sideways With Forex, you can have the freedom to long or short currency pairs whenever the opportunity comes, since there are no exchange-enforced restrictions on daily activities, like for stocks or futures. Flexible Leverage The Forex market offers the highest leverage available for any market. Leveraged trading allows Forex traders to execute trades up to $500,000 with an initial margin of only $5000. That means you get as high as 100-to-1 leverage or more, offered by most online Forex firms on standard-sized accounts. However, it is important to note that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally large. The good thing is, it is up to you to select the amount of leverage that you are most comfortable with.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT
Differences between Forex and Stocks
Forex Largest and most liquid market in the world Stocks Liquidity dependent on stocks daily volume

24-hour trading action for 5.5 days a week

Less than 7 hours of trading time per day

Can profit in both bull and bear markets

Most people buy stocks instead of short-sell

Can short-sell anytime

Need to obey uptick rule in order to short-sell

Minimum slippage and order errors

More room for slippage and error

100:1 leverage on standard-sized accounts

2:1 leverage to the average stock investor

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

How do you open a Forex trading account?


The first thing that you'll need to do is decide on a broker. This can be accomplished by playing with different Forex demo accounts by various brokers. Once you've decided on a broker, the process becomes a standard bureaucratic process that is similar to opening a bank account. A Forex demo account is basically an account where you do not risk any money. They give you free paper money or fake money and you can play around with it just to test the software and the markets and get a feel of how warm the water is.
Here are a few things that are typically required: Name Address Email Phone Number Account Currency Type A password for your trading account Date of Birth Country of Citizenship Social Security Number or Tax ID Employment Status Financial Questions: Annual Income Net Worth Trading Experience Trading Objectives You might ask yourself, why do they want to know all of these things? The simple answer is to comply with the law. Forex has been a bit of a Wild West industry since it went retail some time ago and because of that regulations have been put in place to "protect" account holders from various types of harm. It's unlikely that you will find any broker opening an account for you without requiring these questions to be answered. If you do happen to find one that isn't asking many questions, you should be suspicious.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT
If you are ever not feeling too sure about a particular broker you can look them up through the National Futures Association (http://www.nfa.futures.org/basicnet/) to find out their status. Once you've turned in all of your information to be processed, the broker will verify it and typically ask you to send in some verification documents such as a government issued ID, and maybe a utility statement to verify your name and address. This can slow down the process by a day or two, but it's nothing to worry about. Once your information is verified, you can fund your account and begin trading.

Personally, opening a Forex account has been a very easy process for me. I had to submit my proof of address, photo ID, answer those questions and then my Forex account was active. Thereafter, I funded my account by bank transfer from UAE Exchange directly to my trading account. It is a very simple process and the bank transfer details to transfer the money to your account can be found on the website when you access your account and click on transfer funds to your account. Kindly check your respective brokers website for more details (In my case, Oanda).

If you are ever not feeling too sure about a particular broker you can look them up through the National Futures Association
(http://www.nfa.futures.org/basicnet/)

to find out their status.


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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Which Forex brokers?


I personally use and recommend Oanda for buying and selling currency. However, I use FXCM micro trading station 2 for charting purposes. Please find the links below: http://www.oanda.com/ http://www.forexmicrolot.com/ I have a real account with both these brokers; however, my Oanda account is well-funded, but my FXCM micro account has a small balance in it but I use their charting software as I like it. Hence I have not closed my account with FXCM.

The first thing that you'll need to do is decide on a broker. This can be accomplished by playing with different Forex demo

accounts by various brokers.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Concepts
Moving on to concepts that form the framework for the strategy discussed in the final section of this book

Short selling
Everyone has heard of buying a share or currency pair. But, have you heard of short selling a share or currency pair?

Short selling is basically borrowing shares from your broker, selling those shares you borrowed in the market now, and buying them back in the future (at hopefully a lower price) and giving those shares back to your broker. In the process you make a profit. This is demonstrated below. 1. 2. 3. 4. 5. 6. 7. You borrow 1 share from your broker when the price of that particular share is $100. You sell that share you borrowed in the market now at a price of $100. Now you have $100 cash with you by selling that share you borrowed. Now say that the stock market falls and that share is now worth $50. You use your $100 cash to buy the share which now costs only $50. So you have an excess cash of $50. You return the share to your broker and you are left with $50 cash or $50 profit.

We do the same thing in currencies but we dont have to go to our broker personally and borrow currencies. Everything is automated and done with a click of a button. For example, if we click the buy button on the EUR/USD currency pair, and later click sell, we bought that pair and sold it later. But if we FIRST click the sell button on the EUR/USD pair and then later click buy, we short-sold that currency pair and bought it later. Buying it later is also called buying to cover. It is just a 13
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT technical term so you need not worry too much about it. Short-selling is essentially betting that the market is going to fall, and profiting if it does fall.

Risk Reward Ratio


This is a very important concept. In Investing, we normally buy at a low price and hold it for a long time till price rises maybe three or four times its original price. In this case our risk-reward ratio is 1:3. Let us consider a practical example: Say the price of a share is $50.
{Note throughout this eBook I will be using shares to illustrate concepts as it aids understanding as generally people are more familiar with the share market as opposed to the currency market.} Towards the end, I will switch to examples using currency prices.

Lets say the price of a share is $50. We buy it at $50. Our maximum risk of loss is $50 if the price falls to zero. But let us say we establish a plan that says that we will sell the share when it reaches a price of $200. In this case, if the price does reach $200, our profit will be $150 ($200-$50).But if the price falls to zero, our loss will be $50. Hence we stand to lose $50, but we stand to gain $150. In this case, our risk-reward ratio is 1:3. Now it is very important that we maintain a good risk-reward ratio as, even if we have high probability of successful trades, market conditions can change and it is the risk-reward ratio that will keep us in business. This is demonstrated below: Let us consider 10 trades or investments. In 7 out of those 10 investments we lost $50. Our total loss will be: 7 * $50 = $350 14
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT But in 3 out of these 10 investments we make money. In each case we made $150. We make $150 in each investment because we held on to them for long. Our total profit will be: $150 * 3 = $450. Our overall net profit after 10 investments will be $100 ($450-$350). Notwithstanding the fact that we had 7 losing investments and 3 winning investments, we still made $100 overall net profit with a risk-reward ratio of 1:3. Hence, risk-reward ratio is a very important concept. We must never book our profits so quickly such that our losses outweigh our profits. The size of our profits must always be greater than the sizes of our losses in order to stay in this business. And you can only become a millionaire if you stay in the game. All newbies or new investors/traders make this mistake so it is essential that you keep the concept of risk-reward ratio firmly ingrained into your mind. The mistake they make is, when they are winning, they book their small profits immediately. However, when they are losing money, they let their losses run and become huge till most of their money is lost in the financial markets and they do not have any liquid cash to pursue further investment opportunities. They do this because they cannot stand the fact that their investments are losing.

In the Certified Money Manager course, I explain how we can maximize the expected riskreward ratio.

Cutting Losses short


What does cutting losses short mean? It means limiting your losses by selling your share when the market starts falling immediately so that you do not lose a lot of money. For e.g. suppose we buy a share at $100, and the price subsequently falls to $90, we sell the share when the price of it is $90 for a $10 loss ($100-$90) Our loss is limited to $10. We cannot lose more than this amount provided we sell the share when the market is falling. 15
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT This is essential to succeed in investing and giving us a positive mathematical expectation vis-vis risk reward ratio and probability. However, our loss need not be limited to $10/share provided our reward is much, much greater than our risk (i.e. 10). For example, we may book a loss of $50, provided we hold the share long enough to make, say, $400 in profit (a risk-reward ratio of 1:8). Now the question that may arise is: What if I was not on the computer to monitor the trade whilst the market fell. The solution to this is to place stop loss orders.

What is a Stop Loss order?


A stop loss order is an order placed on your brokerage trading platform to sell your share if price falls to a certain point. For example: suppose you bought a share at $100 and you place a stop loss order at $90, when price reaches $90 your brokerages computer software will automatically sell your share at $90 for a $10 loss. Stop losses are essential to minimizing risk. The alternative is to stay on your computer screen and monitor your investment and exit it if it works against you. Equally, one must place take profit orders in order to book their profits.

What is a take profit order?


A take profit order is an order to sell your share once it reaches a certain price and you are making money. For instance, suppose you bought a share at a price of $100 and you placed a take profit order with your broker to sell the share at a price of $150; once price reaches $150, your brokers computer trading software will execute that order for you and sell the share at a price of $150 for a $50 profit ($150-$100) The benefits of placing take profit and stop loss orders are that you need not be behind the computer screen all the time monitoring your positions. The computer does the needful for you. Additionally, you may not be able to act quick enough if you execute the orders manually and by the time you execute them, price can move against you; hence the need for setting stop loss and take profit orders. 16
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Multiple accounts
Oanda brokerage allows you to open multiple accounts without going through the registration process that entails opening your first account. Once you have opened an account with Oanda, you can create a sub account which is a fairly simple procedure which takes just a matter of a minute. What is a sub account? A sub account is basically a 2nd account. You can have multiple sub-accounts up to a limit. Kindly, check with Oanda for more information. Having multiple accounts can be very useful especially because of the FIFO rules (First in First Out). While applying money management, we may want to exit our last position first but this is not possible with current regulations. In order to circumvent this, we may want to open a sub account and use that sub account to manage our second position.

Trading like a turtle


Okay, I want to explain the importance of trading like a turtle. There are many analysts who try to predict the direction of the market and are wrong some (if not most) of the time. No one can predict the market 100% of the time at least no one I have heard of! Correct me if I am wrong and you know someone who can predict the market all the time. Hence, trying to predict market direction in advance is a futile activity. You are better off monitoring which way the market is going and, once the market has displayed which direction it is headed, following the market in that direction by placing buy market orders if the market is headed up, or short selling orders if the market is headed down. You may have not picked the exact bottom or top, but you will be fairly close to the bottom or top we dont want to protect our egos and prove to ourselves that we guessed market direction to the pip or penny; instead we want to make money and take advantage of persistent market movement driven by news, psychology, momentum, and many other factors. As you have noticed, once a trend manifests itself in the markets, it generally lasts for some time before changing its course. It dips then 17
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT rallies, dips then rallies, and so on and so forth. What we want to do is get in fairly early in the trend and ride it all the way along to maximize our reward and minimize our potential losses in the case that the trend we assessed turned out to be a fake signal, by setting stop losses. If you want to know more about the benefits of being a turtle trader, refer to this Wikipedia article about Richard Dennis: http://en.wikipedia.org/wiki/Richard_Dennis This article is about a very rich trader named Richard Dennis who apparently pioneered the turtle trading strategy.

Adding to existing positions


Adding to existing positions is required in order to be a successful investor or trader. It was said that Jesse Livermore, the worlds greatest speculator that lived, used a pilot position (or small position) to enter the market and, thereafter, added to his existing positions when he was right in his assessment of the market price trend. For illustration purposes, suppose he bought a share at $100 and price moved to $150, he would buy another share at $150 and if price then moved to $200, he would buy another share and so on and so forth.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT What are the benefits of adding to your existing positions? The main benefit is that when you are right in your assessment of the trend, you accumulate large gains that more than offset your losses if and when you are wrong in your assessment of the trend. You are at a theoretical mathematical advantage. For the purposes of this book, I am not going to talk any further about adding to positions as, having been mentioned in the beginning of this book, that will only be disclosed in the Certified Money Manager course. I personally use this technique as part of my investment style. It is a concept that is ignored by the vast amount of financial market participants as they do not understand the mechanics of how it works successfully. They are skeptical and think that adding to positions at higher prices only risks losing more money as price tops out, reverses, and all positions that were added to the initial position get stopped out for a loss. If you believe so, I am sorry to burst your bubble, but this is far from correct. I used to think that way when I was a relatively inexperienced investor.

Money Management
What is money management? In the context of my trading strategy, money management basically means not risking all your money on one trade; increasing your position size when you make money; and decreasing your position size when you are losing money. For example: Suppose you have a $1000 account and you bought 1 share worth $100; you would never buy 2 shares worth $200 (or $100 each) unless your account size increases to, say, $2000. When your account size increases to $3000, you would buy 3 shares and so on and so forth. These are sound money management principles that increase your chances of accumulating huge sums of money efficiently. In addition to this, maximum drawdown must always be taken to consideration. Let me illustrate the benefits of money management. 19
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Let us consider two types of investors: one who applies money management and one who does not. First Scenario: The investor who does not apply money management. An investor has $500 in cash. He bought 10 shares at $50 each and price rose to $100 per share. He made $50 per share or $500 in total. He now has $1000 in cash. He now bought 10 shares at $100 each and price rose further to $150. He makes $50 per share profit or $500 in total. He now has $1500 in cash. He now bought 10 shares at $150 each and price fell from $150 back to $50.A $100 loss per share or $1000 in total. He now has $500 in cash after the loss above, which brings him back to the starting point when he had $500 in cash to begin with.

Second Scenario: The investor who applies money management An investor has $500 in cash. He bought 10 shares that costs $50 each and sold it when price reached $100. He now has $1000 in cash. He now buys 5 shares at $100 each and price rises to $150. He now has $1250 in cash He now buys 2 shares that costs $150 and price falls to $50. He now has $1050 in cash. Compare the second scenario to the first scenario: The change in price is the same in both scenarios; however, in the first scenario the investor is left with $500 in cash, whilst in the second scenario the investor is left with $1050 in cash at the end. This is because of the way the second person managed his money. In spite of suffering the same loss or downward movement in price for both investors, the second investor managed his money in a better manner and hence made money. At higher

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT prices, he buys less number of shares and hence made money in this case even though prices dropped against him.

DRAWDOWN
What is drawdown? Drawdown in the context of the strategy in my book is an interim loss that we do NOT realize but wait for the markets to move in our favor before we book our profit. In the Currency market, one cannot have huge drawdowns as one may receive a margin alert in Oanda and, in worst cases, a margin closeout. Example of a drawdown: We bought a share at a price of $100. Price falls to $50 the next week. Thereafter, it rises to $200. When price fell from $100 to $50: that was our drawdown. It was not a loss because we did not sell the share. We sold our share only when it rose to $200. In Forex and other leveraged markets, you cannot have as big a drawdown as you wish like shares. Because we are using borrowed money in Forex to trade and in other leveraged markets, there is something called a margin call where, depending on how many units you 21
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT bought (the less, the better) you can only withstand a certain drawdown before your broker closes your positions (or the more likely scenario you have to add more funds to your account). But all this is not a problem if you invest in reasonable amounts i.e., do not bet all your money on one investment. If you can buy 100 000 units of a certain currency, buy 50 000 at most as a rule of thumb. I do not think it is necessary to get into the details of what is a margin call or margin closeout. What you basically need to know is that in Forex you are using leverage or borrowed money to trade and hence when the currency moves, you stand to gain (or lose) more than the currency s actual movement. Hence margin comes into play here. In order to avoid margin calls, which is the worst thing that can happen to you as a trader, you need to assess your maximum drawdown and risk a little of your capital. As a rule of thumb, if you can afford to buy 100 000 units of EUR/USD, buy 10 000 units per trade instead of 100 000. But we never randomly decide how many units to buy. We always base our number of units to trade based on our maximum drawdown or how much we expect the market to move against us and, consequently reducing our account balance, before turning back in our favor and increasing our account balance. We should buy such number of units that would enable to withstand as big a drawdown as envisaged in our trading strategy without giving rise to a margin call. This will all become second nature to you once you get started trading Forex. In your brokers trading platform, it will be displayed when a margin call will be due. They will display to what amount your account will need to fall before you receive a margin call. So you need not worry too much about this. Just dont bet everything on one trade or investment or you will get a margin call faster if price moves against you.

Now let me talk about compounding: Compounding is basically reinvesting your gains, so that your account grows very fast much faster than if you did not reinvest your gains.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT The power of compounding is illustrated below. Suppose you have a $1000 account and you make 20% profits each month then, after 12 months, your account will grow to: $1000 * (1.2)12 = $7430.08 Or $1000 * 1.2 * 1.2* 1.2* 1.2 * 1.2 * 1.2 * 1.2 * 1.2 * 1.2 * 1.2 * 1.2 * 1.2 = $7430.08 1.2 stands for a 20% increase in capital. Since there are 12 months in a year, we multiply 1000 by 1.2, 12 times. 1000 +20% increase in month 1= 1200 1200 +20% increase in month 2= 1440 1440 +20% increase in month 3= 1728 The procedure above is repeated till month 12 when our capital base increases to $7430.08. Contrast this with what happens if you do not use compounding: Say you have a $1000 account. You make 20% on it i.e., 200 You withdraw the same. You now have $1000 and make 20% on it and withdraw the same. After 12 months, your total profit will be 200*12 or $1200. Add that up to your starting capital and you are left with a new capital base of $2200 as opposed to $7430 above had you reinvested all your 20% gains. Do you see the power of compounding here? You made more than 7 times your money by making just 20% a month. But kindly note that 20% a year is considered very good returns for a fund in a year. A bank account provides nearly 5% a year. 20% a month is generally not considered feasible in the investment world; however, there are many traders who have achieved spectacular returns in the financial markets and have turned 1000s into millions. It will not be easy task to do by any means, but it certainly is possible. 23
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

I have provided links of some of these traders below who have made spectacular returns: http://en.wikipedia.org/wiki/Jesse_Lauriston_Livermore http://en.wikipedia.org/wiki/Timothy_Sykes http://en.wikipedia.org/wiki/Richard_Dennis http://en.wikipedia.org/wiki/Larry_R._Williams

Fixed Value Loss


First, let me get our readers comfortable with the notion of fixed value loss. This is something I have invented, as far as I know, in the finance industry. With fixed value losses, we as investors or traders, dictate the amount of loss we want to suffer for a given price movement. I will use currencies to illustrate my point and then use shares to explain the concept.

Suppose we purchased the EUR/USD currency pair at 1.3100. Price has fallen from 1.3100 to 1.2950. Let us say we bought 10 000 units on the Oanda brokerage platform. In a normal scenario, we would lose $150, which is essentially the difference between the price-fall from 1.3100 to 1.2950. But with my fixed value loss strategy, the loss would only be $45. We do this by fixing our loss for every 10 pip move against us at $3.

What is a pip? A pip is a measurement of a movement in a currency pair. For example, if the

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT price of the EUR/USD currency pair moved from 1.3100 to 1.3099, we would say that it fell by 1 pip. Conversely, if the price of the EUR/USD currency pair rose from 1.3100 to 1.3101, we would say that the currency pair rose by 1 pip. So now, how do we fix our loss for every 10 pip move against us at $3? We know that with 10,000 units purchased and a 10 pip move against us, our loss should be $10. We do this by exiting our units in piecemeal. For example, we would exit 3000 units when price fell from 1.3100 to 1.3090. In such a case our loss would be $3. A 10 pip move but only 3000 units exited hence our loss is $3. Keep in mind the ratio 10 000 units and a 10 pip fall means a $10 loss. 3000 units and a 10 pip fall equates to a $3 loss. It is simple mathematics. Now, when price falls further from 1.3090 to 1.3080, we would exit 1500 units. Why 1500 units? Because: we want to maintain a loss of $3 for every 10 pip move against us from the current price. The current price is 1.3090, and when it falls to 1.3080, we only want to suffer a $3 loss. If we exit 1500 units at 1.3080, this will be the case. We initially bought 10 000 units at 1.3100, sold 3000 units at 1.3090, and further sold 1500 units at 1.3080. At the price of 1.3080, price is essentially 20 pips away from our starting point which is 1.3100. So now we would not sell 3000 units. Because: with a 20 pip move against us, and by selling 3000 units, we would lose $6. But we want to lose $3. Note that if we sold 10 000 units for a 20 pip move against us, we would lose $20. Hence, since we only want to lose $3, when price moves from 1.3100 to 1.3080, we would sell 1500 units at 1.3080. As price falls further and further, we would exit less number of units in order to maintain a $3 loss for every 10 pip move against the current price. We exit less number of units because the distance between current price and our initial price that we bought gets bigger. It is simple mathematics. I have attached a table below to demonstrate the number of units to exit as price falls further and further from our starting point which is 1.3100, in order to maintain a $3 loss. $loss/row price $loss number 1.30900 3 row number 3 1 25
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units=row number*column 3 3000

GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.30800 1.30700 1.30600 1.30500 1.30400 1.30300 1.30200 1.30100 1.30000 1.29900 1.29800 1.29700 1.29600 1.29500 3 3 3 3 3 3 3 3 3 3 3 3 3 3 1.5 1 0.75 0.6 0.5 0.428571429 0.375 0.333333333 0.3 0.272727273 0.25 0.230769231 0.214285714 0.2 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1500 1000 750 600 500 428.5714286 375 333.3333333 300 272.7272727 250 230.7692308 214.2857143 200

Okay. Now I am going to explain the table above.

I will start by saying the table pertains to 10 000 units of EUR/USD currency pair. When we buy 10 000 units of EUR/USD currency pair and price moves up by 1 pip, our profit is $1 and vice versa. Through logical deduction, if we were to buy 3000 units of the same and price moves up by 1 pip, our profit would be 30 cents or $.3 We have bought 10 000 units of EUR/USD pair at 1.31000 and what we have witnessed in the table above is a 150 pip fall in price. Hence, without risk management, our loss should be $150. (10 000 units; 150 pips = $150) But using risk management, our loss is $45, as we can see by adding column 2 of the table. The total number of units sold is 9954. Please note that this is very close to 10 000 and that I am not aiming for spurious accuracy but trying to get my point across. The difference is insignificant in terms of profit and loss vis-a-vis the benefit we get by using $3 as our loss per 10 pip and considering a 150 fall in price. If we aim for spurious accuracy it only becomes less intuitive for us to perform our operations. We want to keep it simple -- at least for the sake of this 26
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT workbook and the explanations I am about to provide. Coming back to the explanation; A 150 pip fall in price. 10 000 units bought. And actual loss suffered is $45 instead of $150. Now how do we do this? We do this by the value loss averaging strategy that I have discovered and conceptualized in the investment world. What we basically do is that, for a 10 pip fall in price, we sell the number of units as shown in the units column or column 4 of the table. So in the first instance, for a 10 pip fall in price, we would sell 3000 units. Our loss would be $3 when price falls to 1.3090. When price falls to 1.3080 (a 20 pip fall in price because we initially bought at 1.31000) we sell 1500 units. Now why do we sell 1500 units as opposed to 3000 units? If we sold 3000 units, our loss would be $6. Hence we do not want to sell 3000 units all the time. As price keeps falling, we reduce the number of units we sell to keep the loss at a value of $3. We continue this procedure as price keeps falling and our total loss after a 150 pip fall in price is $45. Do you like this concept? I love it! Now the caveat is that price may fall from 1.31000 to 1.3050 say, and then come back up to 1.31000. In such a case, we would add back the units we sold at 1.3090, 1.3080, 1.3070, 1.3060, and 1.3050 respectively. We do this by placing limit orders to buy at 1.31000. That is, we would only add back these units when it comes back to the starting point or 1.3100.

Now let us consider what will happen if price rises 150 pips. Since the number of units we have purchased of the EUR/USD currency pair is 10000 units, we will make a $150 profit. (10 000 units. 150 pip move = $150) We do not sell any units on the way up until it reaches our target of 150 pips. This is unlike what we do when price moves down we exit some of our units for every 10 pip move against us. But when price is moving in our favor, we do not exit any units but hold onto our whole position till the end (150 pips).

Hedging
Okay. Now I am going to talk about hedging. 27
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT What is hedging? Hedging employs various techniques but, basically, involves taking equal and opposite positions in two different markets (such as cash and futures markets). Hedging is used also in protecting one's capital against effects of inflation through investing in high-yield financial instruments (bonds, notes, shares, real estate, or precious metals). For the purposes of this workbook, by hedging I am referring to taking offsetting positions to reduce or control risk.

For example: If we buy 10 000 units in our primary account and short sell 10 000 units in our sub account or secondary account. We have hedged our risk completely. No matter what happens price falls or rises, we do not lose money. On the same token, we do not make money too. How do we not lose money when price falls? Because our sub account where we short sold 10 000 units will make some money, when our primary account where we bought 10 000 units will be losing money. Let us expand from the above example. We have bought 10 000 units at 1.3100. If price falls 150 pips, we lose $45 as illustrated in the table. Now I never want to lose any money -- and so do you! So I am going to tell you to open another account or sub account and short sell 3000 units in that sub account. Now when price falls 150 pips, our sub account will make a $45 profit and our primary account will lose $45. So no matter what happens, we do not lose money, which is what we want to achieve. A caveat though is if price meanders between 0 and 150 pips without reaching our target. This is considered as a consolidating market and that is the only time where there is a possibility of losing money. But this is still better than not controlling risks at all. From time to time, we can accept small losses provided our gains are much greater in amount as discussed when explaining the risk-reward concept. Note that with the fixed value loss concept, you need not accept a $3 loss only for a 10 pip move. In fact, this is a concept and the variables can be modified to suit your investment needs

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT in particular your style of investing or trading. For example, if you are a long-term investor or trader, you may want to take losses at a slower pace. For illustration purposes, I have attached a table below where we take a $2 loss for every 10 pip move against us, as opposed to a $3 loss in the table above. price 1.30900 1.30800 1.30700 1.30600 1.30500 1.30400 1.30300 1.30200 1.30100 1.30000 1.29900 1.29800 1.29700 1.29600 1.29500 1.29400 1.29300 1.29200 1.29100 1.29000 1.28900 1.28800 1.28700 1.28600 1.28500 1.28400 1.28300 1.28200 $loss/row row $loss number number 2 2 2 1 2 0.666666667 2 0.5 2 0.4 2 0.333333333 2 0.285714286 2 0.25 2 0.222222222 2 0.2 2 0.181818182 2 0.166666667 2 0.153846154 2 0.142857143 2 0.133333333 2 0.125 2 0.117647059 2 0.111111111 2 0.105263158 2 0.1 2 0.095238095 2 0.090909091 2 0.086956522 2 0.083333333 2 0.08 2 0.076923077 2 0.074074074 2 0.071428571 units=row number * column 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
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2000 1000 666.6666667 500 400 333.3333333 285.7142857 250 222.2222222 200 181.8181818 166.6666667 153.8461538 142.8571429 133.3333333 125 117.6470588 111.1111111 105.2631579 100 95.23809524 90.90909091 86.95652174 83.33333333 80 76.92307692 74.07407407 71.42857143

GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.28100 1.28000 1.27900 1.27800 1.27700 1.27600 1.27500 1.27400 1.27300 1.27200 1.27100 1.27000 1.26900 1.26800 1.26700 1.26600 1.26500 1.26400 1.26300 1.26200 1.26100 1.26000 1.25900 1.25800 1.25700 1.25600 1.25500 1.25400 1.25300 1.25200 1.25100 1.25000 1.24900 1.24800 1.24700 1.24600 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0.068965517 0.066666667 0.064516129 0.0625 0.060606061 0.058823529 0.057142857 0.055555556 0.054054054 0.052631579 0.051282051 0.05 0.048780488 0.047619048 0.046511628 0.045454545 0.044444444 0.043478261 0.042553191 0.041666667 0.040816327 0.04 0.039215686 0.038461538 0.037735849 0.037037037 0.036363636 0.035714286 0.035087719 0.034482759 0.033898305 0.033333333 0.032786885 0.032258065 0.031746032 0.03125 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 30
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68.96551724 66.66666667 64.51612903 62.5 60.60606061 58.82352941 57.14285714 55.55555556 54.05405405 52.63157895 51.28205128 50 48.7804878 47.61904762 46.51162791 45.45454545 44.44444444 43.47826087 42.55319149 41.66666667 40.81632653 40 39.21568627 38.46153846 37.73584906 37.03703704 36.36363636 35.71428571 35.0877193 34.48275862 33.89830508 33.33333333 32.78688525 32.25806452 31.74603175 31.25

GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.24500 1.24400 1.24300 1.24200 1.24100 1.24000 1.23900 1.23800 1.23700 1.23600 1.23500 1.23400 1.23300 1.23200 1.23100 1.23000 1.22900 1.22800 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0.030769231 0.03030303 0.029850746 0.029411765 0.028985507 0.028571429 0.028169014 0.027777778 0.02739726 0.027027027 0.026666667 0.026315789 0.025974026 0.025641026 0.025316456 0.025 0.024691358 0.024390244 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 30.76923077 30.3030303 29.85074627 29.41176471 28.98550725 28.57142857 28.16901408 27.77777778 27.39726027 27.02702703 26.66666667 26.31578947 25.97402597 25.64102564 25.3164557 25 24.69135802 24.3902439

Basically, what we are seeing in the table above is that for every 10 pip move against us from our starting point that we bought EUR/USD currency pair @ 1.31000, we book a $2 loss. Hence if price were to fall 820 pips, we would book a $164 loss in total compare this to the loss we would have booked had we held on to our 10 000 units position for an 820 pip move against us our loss would be $820. Hence by exiting our position in parts we have averaged our cost without any significant concomitant risks. The only risk is if price does not make any sizeable moves and keeps consolidating in a range. Now I will post an example in terms of shares, for all the people who do not invest in currencies and are not familiar with the mechanics of how the retail currency market works. But the real investors will deeply appreciate my core risk management techniques that I use to manage my personal investments that I havent disclosed in this book as mentioned in the beginning of the book, but will provide the secrets only to students who apply for the Certified Money Manager course. Below I have attached a table. Below that table will follow the explanation of what the table is about and what is in the table. 31
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT The situation for shares is a bit different.

Please find the excel sheet below along with the corresponding explanation. shares $ price sold 990 980 970 960 950 940 930 920 910 900 890 880 870 860 850 840 830 820 810 800 790 780 770 760 750 740 730 720 $ loss per share 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280 $ loss 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 710 700 690 680 670 660 650 640 630 620 610 600 590 580 570 560 550 540 530 520 510 500 490 480 470 460 450 440 430 420 410 400 390 380 370 360 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 290 300 310 320 330 340 350 360 370 380 390 400 410 420 430 440 450 460 470 480 490 500 510 520 530 540 550 560 570 580 590 600 610 620 630 640 290 300 310 320 330 340 350 360 370 380 390 400 410 420 430 440 450 460 470 480 490 500 510 520 530 540 550 560 570 580 590 600 610 620 630 640 33
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 350 340 330 320 310 300 290 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 650 660 670 680 690 700 710 720 730 740 750 760 770 780 790 800 810 820 830 840 850 860 870 880 890 900 910 920 930 940 950 960 970 980 990 1000 650 660 670 680 690 700 710 720 730 740 750 760 770 780 790 800 810 820 830 840 850 860 870 880 890 900 910 920 930 940 950 960 970 980 990 1000 34
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Notes: We bought 100 shares initially at a price of $1000. Price fell from $1000 to $0. Our total loss can be found by taking the sum of column 4. In this case, our total loss is $50,500 for a 1000 dollar move against the point we bought 100 shares. How is that possible? If price moves 1000 dollars against us, our loss should be 100 shares * 1000 or $100 000. No. But it is $ 50 500. What we have effectively done is averaged our costs in a more safe manner than plain doubling up or averaging down on losing positions by entering new positions and perhaps greater positions than our previous ones. Okay. Now the question that would arise is: how do we average our costs in a safe manner in the share market? As demonstrated above, for every $10 move against us, say from $1000 to $990, we would exit 1 share. If price moves from $990 to $980, we would again exit 1 more share. If price moves from $980 to $970, we would again exit one share. We keep on repeating this process till price falls to 0 (highly unlikely). But note that if price only rises from our starting point - $1000 to, say, $2000, we make $1000 per share. With 100 shares that equates to a profit of $ 100 000. Compare this to the loss we would have made if price fell by the same amount ($1000) in this case, our loss would be $ 50, 500 because of the averaging technique I discussed above. In real-time, it may be very difficult to monitor the market at all times and exit a share for every $10 move against us. This is why we must place stop loss orders with our brokers trading platform or perhaps widens the distance when we will exit shares from, say, $10 to, say $100. I need to mention that this strategy is flexible and with the help of an excel sheet, you can input different values and arrive at different results. There is no one size fits all for this strategy so request you to play around with it as everything that can be discussed concerning it cannot be conveniently fitted into this book. A caveat is that price may fall, take out our stop-loss orders, and then rise back up to reach our profit target of $2000 (we initially bought at a price of $1000). If this is the case, we must remember not to worry as we have a very big margin of safety (potential $100 000 vs. highly unlikely $50 500).

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Let us use the above table to illustrate such a case. Say price fell from $1000 to $700, and then rose to $2000. In such a case we would have booked the sum of the losses as shown in the 4th column upto the 31st row (which is when price is at $700 in the table). Our total loss would be $4650. Now when price rises to $2000, our total profit will be $ 100 000. Hence our net profit would be $ 95350. Wow! That is a huge profit. Yes, it pays to know when an asset is headed higher with reasonable accuracy in the long-term and cut losses in the short term. This along with the hedging strategies discussed in the previous section can be combined to make money irrespective of market direction, majority of the times, to give us an overall positive mathematical expectation and, using money management, increase our position size with time to accumulate large sums of money well into the thousands and millions. If you decide to continue your education further, and enroll for the Certified Money Manager course, where I explain my core risk management techniques, then your target of becoming a millionaire is almost guaranteed. Just to put the above risk-management strategy in perspective, let us consider how a layman would average his costs by doubling up. Doubling up is akin to gambling and not recommended by almost all experts in the finance industry.

DOUBLING UP
What is doubling up? Doubling up is basically increasing your position by twice the size as price moves against you in the hope that it will rise back up subsequently and you will book handsome profits as your highest positions were bought at lower prices. This is explained below. Say, you bought 100 shares at a price of $1000 Price now falls to $500. You now buy 200 shares at a price of $500.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Let us say price rises up to $1000. The 100 shares you bought at a price of $1000 will be in a breakeven situation or no-profit, no-loss situation. The 200 shares you bought at a price of $500 will have made a profit of $500 each when price rises from $500 to $1000. Your profit will be $100 000 overall. All is well and good provided price rises up subsequently. But, what if the company goes bankrupt? Though it is unlikely, many people who have used this technique have experienced their shares drop and not rise for decades, losing a lot of money in the process. Some have even gone bankrupt. So let us consider one such scenario. You bought 100 shares at a price of $1000. Price falls to $500. You now purchase another 200 shares. Price falls to $250. You now purchase 400 shares at a price of $250 each. Price now falls to $100, you think it cannot go any lower, and you purchase 1000 shares. Price eventually falls to $1. Your total loss will be $100 000 on the 100 shares you bought at a price of $1000 each. $100 000 will be your loss on the 200 shares you bought a price of $500 each. $100 000 will be your loss on the 1000 shares you bought at a price of $100 each. Totally, your loss will be $ 300 000. Compare this to the loss we would have suffered using the previous strategy of exiting 1 share for every $10 fall in price the loss would have been $50,500. But note that the people who double up usually do not wait for price to fall from $1000 to $500. They double up much faster at prices like $800, $700, $500, $400, $300, and losses really grow in size, much larger than the $300, 000 loss discussed above. This is why the industry considers this as gambling, especially when applied in the Forex and futures markets, as in these markets people trade with borrowed money which leads to margin calls. As I mentioned in the first few sections of this book that due to margin calls, we cannot withstand as much of a downward move like in shares by buying as many units as we can. If we 37
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT get a margin call, the broker will either ask us to provide more funds into our account or, in the event of a margin closeout, close all our open positions at a loss. Doubling up not recommended.

Other things regarding being a trader


Back Testing
It is very important to back-test your strategy before applying it in the markets. What backtesting means basically is that you go back in time in the charts and see how your strategy played out in the past and see whether it made money or not before applying your strategy in real-time. This is essential because you will get an idea of how robust your financial trading strategy is and whether it actually makes money in the financial markets.

Stress control
Trading the financial markets will give you an enormous amount of stress as it is your money which is on the line and research says that you feel ten times worse when you lose money, than

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT you feel when you make money. Hence it is essential to keep stress under control. I recommend doing some meditation, studying some Buddhist topics on alleviating stress & anger which can be researched on Google or watch some videos by the Dalai Lama. If you are a Hindu, Christian, Muslim, or Jew, you can go to your places of worship and pray. I also like to visit this website www.2knowmyself.com it helps to give me some knowledge and improve my understanding of myself.

Now I am going to put all the concepts of this book together (except the technical and fundamental analysis) and explain a strategy we can use to trade the Forex market. Note that we can use this strategy to trade other markets as well. In the share market in certain countries, brokers do not allow you to short sell or there may be restrictions on short selling. This can be a hindrance. This is why I trade the Forex market it gives me the flexibility to trade however I want, and the only issue is to know which way price direction is headed. We can make money on the way up and on the way down. But if you do not want to trade the Forex market, or you want to remain as a buy-and-hold investor, do not worry, as the Certified Money Manager course is very suitable for stock market participants. It explains some of the best techniques I have discovered in my trading career. We can make money in all markets without risk.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Forex Trading Strategy/Financial Markets Trading Strategy for this book


I will be explaining the strategy in this book in terms of applying it in the Forex market; however, the strategy can be applied equally in other markets provided similar trading conditions apply. Firstly, in order to trade using this strategy, we will require more than two accounts. (This is not a requirement but it makes it easier to apply the strategy that way) In fact, due to the FIFO regulations, you either need to enter all new orders with a take profit and stop loss order or, if you are unable to do so conveniently, it is recommended that you have more than two accounts to apply the strategy. We need not open two separate accounts with our broker. Especially the Forex broker Oanda allows us to have more than one account. It is a fairly simple process; we log in to our account, and click - add a new account. We now have a second account to trade which is our sub account. Our first account is our primary account. Throughout this section I will be referring to sub account#1, sub account#2, sub account#3, which are basically new accounts that we will be adding to our existing account. Or, in other words, we will be having multiple accounts or more than one account. I recommend using the strategy below on the EUR/USD or GBP/JPY currency pairs. Note that we have to be flexible and adjust our targets and stops based on market volatility. However, for the purposes of explanation I will use a standard take profit and stop loss level to explain the

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT strategy.

Some currency pairs are more volatile than others and, hence, we need to set different stop loss and take profit order levels for different currencies. While a 60 pip profit target may be suitable for the EUR/USD currency pair, a higher profit target may be applicable to the GBP/JPY currency pair. I will also be using a position size of 10 000 units to illustrate the concept. Those with larger accounts will be using a position of, say, 50000-300 000 units and hence the profit will be much larger than what is explained in the book.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

The Strategy
We buy 10 000 units in the primary account and short sell 10 000 units in sub account#1 both at the same price and the same time. Let us say, the current price of EUR/USD pair is 1.3100. So we buy 10 000 units of EUR/USD at 1.3100 in the primary account and, at the same time, short sell 10 000 units of EUR/USD currency pair in sub account#1. If we dont do anything from this point and just hold on to our units, there is no chance of losing money as we are completely hedged if price goes up our primary account will make money; however, if price falls, our sub account#1 will make money. Either way, the profits and losses will offset each other, because we bought and short sold 10 000 units at the same time. So, in order to make money, we need to exit our losses in parts as mentioned in the beginning of this book in the concepts section, and we need to book our profits in whole (not in parts). All the while we need to maintain a good risk-reward ratio as mentioned in the concepts section of the book. Now I am going to get to the part where the EUR/USD falls in price and we book losses in our primary account. Then I will get to how we book gains in our sub account#1. I will use excel tables to illustrate the process. EUR/USD $loss/ row price $loss number 1.30900 5 1.30800 5 1.30700 7.5 total= 17.5 row number 5 2.5 2.5 units= column 3*1000 1 5000 2 2500 3 2500 10000

Say, the current price of EUR/USD is 1.3100. As you can see in the table, price has fallen from 1.3100 to 1.3090 to 1.3080 and 1.3070. Now I always mentioned that we exit our total position of 10 000 units in parts. 42
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT So, as per the table above, we would exit 5000 units at 1.3090, 2500 units at 1.3080, and 2500 units at 1.3070. Our losses would be $5, $5, and $7.5 respectively. Totally this adds up to $17.5. So, we have booked losses of $17.5 when price fell from 1.3100 to 1.3070, in our primary account. Now I will get to what action to take in sub account#1 using an excel table just like the one above. EUR/USD price 1.30900 1.30800 1.30700 1.30600 1.30500 1.30400 $ profit units closed 60 10 000

Note that, as per the table, we short sold 10 000 units in sub account#1 at a price of 1.3100. When price falls from 1.3100 to 1.3050, we do nothing. However, when EUR/USD rate reaches 1.3040, we close 10 000 units at a profit. It is a profit because price fell and we short sold (go back to concept section if you are not familiar with short selling). So we wait for a 60 pip fall before we book profits in sub account#2. The profit will be $60. Compare this to the loss of $17.5 in our primary account. Our profits outweigh our losses. Now how did this all happen logically? Essentially, what we have done is taken our losses at a faster rate (5000 units sold for a 10 pip fall; 2500 units sold after a 20 pip fall; 2500 units sold after a 30 pip fall), thereby reducing them in size, and taken our profits when price made a sizeable move of 60 pips thereby increasing the size of our profits. This works in reverse too, i.e. if price rose from 1.3100 to 1.3160, we would still end up making a net profit of $42.5 ($60-$17.5). For illustration purposes, I have attached excel sheets below to demonstrate the process.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT First let us consider what would happen in our primary account or buying account if the EUR/USD currency pair rose from 1.3100 to 1.3160 EUR/USD rate 1.31100 1.31200 1.31300 1.31400 1.31500 1.31600 units closed

$ profit $60 10 000

Note that we initially purchased 10 000 units of EUR/USD currency pair at a rate of 1.3100. Price rose to 1.3160 and we booked our profits of 60 pips (1.3160-1.3100) which equates to $60 for 10 000 units. Why do we book our profits at a rate of 1.3160? Remember, I said we always book our profits slower than our profits. Below we will consider what will happen in our sub account#1 at the same time price rises from 1.3100 to 1.3160. In our sub account#1, we are short selling; so our sub account#1 will lose money while the primary account or buying account will be making money.

EUR/USD units rate $ loss closed 1.31100 5 5000 1.31200 5 2500 1.31300 7.5 2500 1.31400 1.31500 44
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.31600 Total=

$17.50

In the table above, you can see that as price is rising, we are booking losses in our sub account#1 at a faster rate than we had booked profits in our primary account. By booking them faster, the loss in size becomes smaller because the distance between the point we short sold and the point we realized our losses is less than the distance between the point where we bought in our primary account and the point where we booked our profits. As per the table above, we exited half our position or 5000 units when price rose 10 pips; a quarter of our position when price rose 20 pips; and the final quarter was closed for a loss when price rose 30 pips from the point we short sold at 1.3100. Totally we booked losses of $17.5. So, if price rises 60 pips from 1.3100 to 1.3160, we make $42.5 in profit. ($60 profit of the primary account - $17.5 loss of the sub account#1) In reality, it is highly unlikely that price will rise or fall 60 pips all the time. It is very likely that price will, say, fall 20 pips, then rise 80 pips. In other words, price movement wont be upward or downward in a linear fashion. There will be ebbs and flows over time in price. In such a case, if price falls from 1.3100 to 1.3080, note that as per the tables above, we would have exited 5000 and 2500 units of EUR/USD currency pair in our primary account. If price then rises from 1.3080 to 1.3160, we will not make $60 because we have only 2500 units of EUR/USD which are remaining to sell or exit. Instead of $60, we will make $15. But the losses on our sub account#1 will remain at $17.5. Hence this will turn into a losing scenario if price falls from 1.3100 to 1.3080 and then rises to 1.3160, instead of plainly moving from 1.3100 to 1.3160. For this purpose, I recommend adding back the units exited when price fell, in the primary account, if price rises and comes back to our starting point where we initiated our trade (1.3100). I will illustrate this process below with the help of tables. 45
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Note that first I will be considering what will happen in the primary account or buying account for a EUR/USD price move from 1.3100 to 1.3080 and then up to 1.3160. Later I will consider what will happen in the sub account#1 EUR/USD rate 1.31000 1.30900 1.30800 1.30900 ($loss)/$profit $5 loss $ 5 loss units buy 10 000 sell 5000 sell 2500 buy 7500 units

1.31000 1.31100 1.31200 1.31300 1.31400 1.31500 1.31600 $60 profit Net profit = $50

sell 10 000 units

As you can see from the table above, when price falls, we sell units for a loss in our primary account. But when price rises back, we add back those units we sold (in other words, purchase them again) in order to profit when price is rising. In this case we bought 7500 units which brings the total no. of units up to 10 000 units and we make a $60 profit when price moves 60 pips in our favor (1.3160-1.3100). But since we booked $5 loss at 1.3090 and a $5 loss at 1.3080 by selling 5000 units and 2500 units of the EUR/USD at these respective rates, we only made $50 net profit in the primary account. Now let us consider what would happen in the sub account#1 during the same point of time EUR/USD rate falls from 1.3100 to 1.3080 and then rises to 1.3160. Note that we are short selling in the sub account#1. So when price rises from 1.3100 to 1.3160, we will be losing money. But we do not make money on the way down because, as I mentioned earlier, we book 46
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT profits at a slower rate and since price never made a 60 pip move downwards, we would have not booked profits at all. EUR/USD rate 1.31000 1.30900 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31400 1.31500 1.31600 Total loss= ($loss)/$profit units short sell 10 000 exit 5000 $5 loss units exit 2500 $5 loss units exit 2500 $7.5 loss units

$17.5

Firstly, I want to say that some may be confused how the loss remains at $5 when price moves from 1.3110 to 1.3120. This is because we sold 2500 units after a 20 pip move, as opposed to 5000 units. This equates to a $5 loss. In the above table, we have realized losses of $17.5 in the sub account#1. They are losses because price moved up and we are short selling. In short selling, we make money when the market price falls. However, in our primary account, we realized a net profit of $50. Subtract the loss of $17.5 which we suffered in our sub account#1. The net profit we made overall will be $32.5. Thus far, in the illustrations contained in this book, we have only been making money. I will now consider a scenario where we lose money. After that I will extend the strategy further to explain how we can turn a losing scenario into a winning one.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

A losing scenario
A typical losing scenario is one where we have lots of consolidation or a range bound market which is range bound within 60 pips or less than 60 pips. Now let us consider a situation where price meanders between 1.3130 and 1.3070 for a long time before reaching a EUR/USD rate of 1.3160. I will use tables to illustrate the result. Note that the first table below will be for the primary account

EUR/USD rate 1.31000 1.30900 1.30800 1.30700 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31200 1.31100 1.31000 1.30900 1.30800 1.30700 1.30600 1.30700 1.30800 1.30900 1.31000

($loss)/$profit units buy 10 000 $5 loss sell 5000 $ 5 loss sell 2500 $ 7.5 loss sell 2500

buy 10 000

$5 loss $5 loss $7.5 loss

sell 5000 sell 2500 sell 2500

buy 10 000 48

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.31100 1.31200 1.31300 1.31200 1.31100 1.31000 1.30900 1.30800 1.30700 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31400 1.31500 1.31600

$5 loss $5 loss $7.5 loss

sell 5000 sell 2500 sell 2500

buy 10 000

$60 profit

sell 10 000

In the table above, we have considered what will happen in the primary account if price meanders between 1.3070 and 1.3130, before reaching 1.3160, and we initially bought at 1.3100. We bought 10 000 units of EUR/USD currency pair. After adding all the losses and profit in the table, we arrive at a net profit of $7.5 But, arent we supposed to be considering a losing scenario? Yes. But in the grand scheme of things it is a losing scenario. Because remember, we have two accounts. Our sub account#1 will be losing money during this price movement. If we consider the loss of the sub account# 1 and the $7.5 profit of the primary account, overall it will be a sizeable loss. Now I will post the same table, and the losses that will be suffered in sub account#1. EUR/USD rate ($loss)/$profit units short sell 10 1.31000 000

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.30900 1.30800 1.30700 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31200 1.31100 1.31000 1.30900 1.30800 1.30700 1.30600 1.30700 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31200 1.31100 $ 5 loss $ 5 loss $ 7.5 loss exit 5000 exit 2500 exit 2500

short sell 10 000

$ 5 loss $5 loss $ 7.5 loss

exit 5000 exit 2500 exit 2500

1.31000 1.30900 1.30800 1.30700 1.30800 1.30900 1.31000 1.31100 $ 5 loss 1.31200 $ 5 loss

short sell 10 000

exit 5000 exit 2500 50

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.31300 $ 7.5 loss 1.31400 1.31500 1.31600 Total loss = $52.5 exit 2500

Now if you add up the total losses in the table above which shows the results of the trades of our sub account#1, we would have realized a total loss of $52.5 If we subtract the profit of our primary account, which was $7.5, our net loss is $45.5.

So above, we have considered a losing scenario. Now I am going to explain how we can turn a losing scenario into a winning one by adding to our positions. Note that we experienced a losing scenario above because price was consolidating or meandering above 1.3100 and below 1.3100 But note that, this happens occasionally but, by observation and common sense we know that price does not consolidate at all price levels; if it did so, there would hardly be any movement in the markets. But the markets are making a lot of big moves every day or every week and some levels experience straight upward or downward moves while some price levels experience consolidation at those levels. So the trick to turn a losing scenario into a winning one, is to open new positions at new levels; or, in other words, buy another 10 000 units in the primary account when price rises to, say, 1.3120, and short sell another 10 000 units in the sub account#1 when price rises to 1.3120. We repeat this process even below 1.3100. That is, if price falls from 1.3100 to 1.3080, we would buy another 10 000 units in the primary account, and short sell another 10 000 units in the sub account#1. But note that when we buy another 10 000 units in the primary account at a price of, say, EUR/USD 1.3120, we would not sell our position for a profit when price reaches 1.3160 like we

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT do for the first 10 000 units that we bought at EUR/USD 1.3100. Instead, we would sell at 1.3180 because that is 60 pips higher than 1.3120. Similarly, while booking losses on the 10 000 units that we purchased at 1.3120, we would sell 5000 units at 1.3110; 2500 units at 1.3100; and 2500 units at 1.3090. Compare this to the first 10 000 units we bought at 1.3100, which we exit at 1.3090, 1.3080, and 1.3070 respectively. Now I will again reproduce the losing scenario considered previously, and demonstrate how a losing scenario can be turned into a winning scenario by adding to positions

Note that, first we will be considering the results of the primary account after price movement in the EUR/USD pair, and then later I will reproduce the same table illustrating the results of the sub account#1 Results of primary account AFTER adding to positions

EUR/USD rate 1.31000 1.30900 1.30800 1.30800 1.30700 1.30700 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31200 1.31100

($loss)/$profit $5 loss $5 loss $7.5 loss $ 5 loss

units buy 10 000 sell 5000 sell 2500 buy 10 000 sell 2500 sell 5000 buy 5000 buy 10 000 buy 10 000

$5 loss

sell 5000 52

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.31000 1.30900 1.30900 1.30800 1.30700 1.30700 1.30600 1.30600 1.30700 1.30800 1.30900 1.31000 1.31100 1.31200 1.31200 1.31300 1.31200 1.31100 1.31000 1.30900 1.30900 1.30800 1.30700 1.30700 1.30600 1.30600 1.30800 1.30900 1.31000 1.31100 1.31200 1.31300 1.31400 1.31500 1.31600 1.31700 $5 loss $5 loss $7.5 loss $ 5 loss $7.5 loss $ 5 loss $5 loss sell 2500 sell 5000 sell 2500 sell 2500 sell 2500 sell 5000 sell 2500 buy 10 000 buy 7500 buy 10 000 sell 10 000 buy 10 000

$60 profit -

$ 5 loss $ 5 loss $7.5 loss $5 loss $ 5 loss $7.5 loss $5 loss $5 loss $60 profit $60 profit $60 profit

sell 5000 sell 2500 sell 2500 sell 5000 sell 2500 sell 2500 sell 5000 buy 10 000 Sell 2500 buy 7500 buy 10 000 sell 10 000 sell 10 000 sell 10 000

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.31800 $60 profit sell 10 000

Note that, in the above table, we are only considering the positions that we bought in the primary account. The primary account is only for buying purposes. So we are only considering the primary account in the above table. I have highlighted certain rows in the table with different colors indicating that they belong to a different position bought at a different price level. To clarify, we bought 10 000 units at 1.3100 in the primary account We bought 10 000 units at 1.3120 in the primary account. WE bought 10 000 units at 1.3080 in the primary account And we bought 10 000 units at 1.3120 in the primary account So each set of these 10 000 units will be managed separately; that is why I used different colors to indicate that each set has a different color indicating that it belongs to that set. What do I mean by managed separately. By managed separately I mean that the 10 000 units we bought at, say, 1.3120, the profits for it will be taken at 1.3180. However, the 10 000 units we bought at 1.3100, the profits for it will be taken at 1.3160. Same goes for the 10 000 units we bought at 1.3080 the profits will be taken at 1.3140. This does not apply to profits only. Even losses for each set of 10 000 units we bought at different prices in the primary account will be sold at different levels. We have to manage each position of 10 000 units bought at different respective price levels, differently. Note that in reality, you may want to use multiple accounts for this purpose to make it easy to figure out what is what; instead of using one primary account for buying, you can have one primary account for the buying set at 1.3100; a subaccount#3 for the buying set at 1.3120; a sub account#4 for the buying set at 1.3080; and so on and so forth.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Kindly note that after all the price movement in the table above, we ended up making a profit of $187.5 in the primary account. Contrast this to the losing scenario where we had made a profit of $7.5 without adding to positions. Now we will consider the results of the sub account#1 which we use for short selling. Since price is rising, we will be losing money in the short selling account I will now illustrate the amount lost using a table.

EUR/USD rate 1.31000 1.30900 1.30800 1.30800 1.30700 1.30800 1.30900 1.31000 1.31100 1.31100 1.31200 1.31200 1.31300 1.31300 1.31200 1.31100 1.31000 1.30900 1.30900 1.30800 1.30700 1.30700

($loss)/$profit $5 loss $5 loss $7.5 loss $5 loss $ 5 loss $ 5 loss $7.5 loss -

units short sell 10 000 short sell 10 000

exit 5000 exit 2500 exit 2500 exit 5000 exit 2500 shot sell 10 000 exit 5000 exit 2500 short sell 5000 short sell 10 000

short sell 10 000

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.30600 1.30600 1.30700 1.30800 1.30900 1.30900 1.31000 1.31100 1.31100 1.31200 1.31200 1.31300 1.31300 1.31200 1.31100 1.31000 1.30900 1.30900 1.30800 1.30700 1.30700 1.3060 1.30600 1.30700 1.30800 1.30900 1.30900 1.31000 1.31100 1.31100 1.31200 1.31300 1.31200 1.31300 1.31400 1.31500 $ 60 profit $ 5 loss $5 loss $5 loss $7.5 loss $5 loss $7.5 loss $5 loss $ 5 loss $7.5 loss $5 loss exit 10 000 short sell 10 000 exit 5000 exit 2500 exit 5000 exit 2500 exit 2500 exit 2500 exit 5000 short sell 10 000 exit 2500 exit 2500 exit 5000 short sell 5000 short sell 10 000

short sell 10 000

$60 profit $5 loss $5 loss $7.5 loss $5 loss $5 loss $7.5 loss $5 loss $5 loss $7.5 loss $5 loss $5 loss $7.5 loss

Exit 10 000 short sell 10 000 exit 5000 exit 2500 exit 2500 exit 5000 exit 2500 exit 2500 exit 5000 exit 2500 exit 2500 Short sell 10 000 exit 5000 exit 2500 exit 2500 56

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 1.31600 1.31700 1.31800

Note that the above table pertains to sub account#1 where we short sell 10 000 units at different price levels. We manage each of these set of 10 000 units short sell positions at different price levels, separately. We short sold 10 000 units at 1.3100 We short sold 10 000 units at 1.3120 We short sold 10 000 units at 1.3080 And finally, we short sold 10 000 units at 1.3060 We manage each of these sets of 10 000 units (indicated by different colors in the table) separately. By managing them separately, I mean, we have different take profit targets and stop loss orders for them. The sum of the losses in the sub account#1 for this movement in price 47.5 (the movement in price is the same as considered for the primary account where we made $187.5 in profit net) So, in the grand scheme of things, considering price movement and all our winners and losers, we ended up with an overall profit of $140.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Note that this profit amount may seem small; but it is small only because we bought 10 000 units for each set. Totally, we had about 40 000 rolling in each account (primary and subaccount#1). To buy 40 000 units you need approximately $1200 funded in your Oanda account So if you have a $5000 account, you may be able to make 4 times the amount of profit or $560. These 60 pip movements happen either every day, or at least twice a week. So you can bank on this money. And note that we have considered an adverse situation where price meanders a lot If price moves in a straight upwards or downward fashion, you stand to make a lot more money. In the next illustration, I will consider what will happen if price moves in a straight upwards fashion and how it will affect the results in our primary account and our sub account#1. Primary account EUR/USD rate 1.31000 1.31100 1.31200 1.31300 1.31400 1.31500 1.31600 1.31600 1.31700 1.31800 1.31900 1.32000 1.32100 1.32200 Total profit = ($loss)/$profit $60 profit $60 profit $60 profit $60 profit $240 units buy 10 000 buy 10 000 buy 10 000 buy 10 000 sell 10 000 sell 10 000 sell 10 000 sell 10 000

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT As we can see from the above table, we made a $240 profit in the primary account if price moved up in a linear fashion from a rate of EUR/USD 1.3100 to 1.3220. We initially bought 10 000 units at 1.3100 and, as price kept making a 20 pip move up, we added another 10 000 units. We only booked our profits on those 10 000 units when price made a 60 pip move in our favor from the price that we bought the 10 000 units. We made a $240 profit by buying up to 40 000 units. But do not forget that we have a sub account#1 too. The results in our sub account#1, which we use for short selling, will be as follows:

EUR/USD rate

($loss)/$profit

1.31000 1.31100 $ 5 loss 1.31200 $5 loss 1.31200 1.31300 $5 loss 1.31300 $7.5 loss 1.31400 1.31400 1.31500 1.31500 1.31600

$5 loss $7.5 loss $5 loss $5 loss

1.31600 1.31700 $7.5 loss 1.31700 $5 loss 1.31800 $5 loss 1.31800

units short sell 10 000 exit 5000 exit 2500 short sell 10 000 exit 5000 exit 2500 short sell 10 000 exit 2500 exit 2500 exit 5000 exit 2500 short sell 10 000 exit 2500 exit 5000 exit 2500 short sell 10 59

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT 000 exit 2500 exit 5000 exit 2500 exit 2500

1.31900 1.31900 1.32000 1.32100 1.32200 Total loss=

$7.5 loss $5 loss $5 loss $7.5 loss $87.5

So even though we made $240 in the primary account when price made a 120 pip upward move, we suffered a loss of $87.5 in the subaccount#1. So we ended up making a net profit of $152.5

By now I hope everyone is clear about what the strategy in this book is about, how useful it is, and how it can be used to make money consistently in the markets. Using the other concepts discussed in this book like money management, for example you can reinvest your profits and grow them till you become a millionaire.

Fundamental and Technical Analysis


Now I will dwell on some fundamental and technical analysis. I am definitely not anywhere near the best fundamental and technical analysts in the industry. I still consider myself a learner. Some of the concepts I am going to teach you in the next few pages I have learnt from other people. But the main course of this book or the risk management techniques explained herein is purely mine. I will give credit where it is due. That said, I will now go on to explain some technical and fundamental analysis which will assist us in our investing or trading.

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Commitment of Traders report.


I will now talk about the commitment of traders report. What is the commitment of traders report? It is basically a report that is published periodically by the CFTC (Commodities Futures Trading Commission). This report details the positions of the commercials, large speculators, and small speculators. Kindly note: commercial traders are in this business for hedging purposes. That is, commercials are companies who actually deal in the product that is being traded in the futures market, for example wheat, corn, gold, silver, etc. So if they produce gold, for example, they may short sell futures contracts of gold so that if the price of gold falls and they get to sell their gold product at a cheaper rate in the business, the loss is offset by the gain on the short selling contract in the futures market.

So even though the commercials are the "big dogs" that don't go bankrupt as often as small speculators or large ones, we do not want to blindly follow them. As Trend followers, we want to follow the large speculators in the report. If the large speculators are increasing their buy positions, we want to follow suit. Conversely, if the large traders are selling their positions, we want to follow suit. When the commercials have accumulated really large positions, for example long (buy) positions, they then start distributing these positions or selling and price starts rising. Overall, they make a profit as the average price they have distributed or sold their positions making profits is greater than the average price at which they have accumulated their positions suffering losses. Please note this is not always the case and I am speaking generally. The large speculators are the ones who follow the trend. We want to follow the large speculators. The small speculators are considered to be the public.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Mind you. The public is always wrong. Most of the peaks in the price of Gold were preceded by the public or small speculators being excessively bullish. What we are looking for is for the commercials to be excessively bullish a commodity or currency, while the small speculators are excessively bearish the same commodity or currency. Then we want to see the commercials distributing their positions to these small speculators and large speculators. This generally calls for a correction or a reversal in the trend. Now why do commercials turn from going excessively long to short? As mentioned before, the commercials hedge their activity. They turn from being excessively long to distributing their positions as this precedes a change in price direction and they start hedging in the other direction. Moreover the commercials have a specific timeframe within which they operate in each market and they hedge for this particular time period. The commercials account for most of the volume and open interest in the markets. So, if the commercials are distributing, they need someone to distribute it to in the markets at higher prices, and hence it is almost certain that price will rise as the commercials have historically been profitable most of the time as observed on the charts. What is open interest? Open interest is viewed as the amount of activity in the markets. Since commercials account for most of the volume, if the open interest increases, it is a bearish sign as the commercials are hedgers in the market place. So you can expect a down move when the open interest increases and the market has been range bound.

I give credit to Larry Williams for explaining the above to investors and traders. Now I will attach some reports of the commitment of traders to better illustrate the concept. First I will provide some links where you can access the data, before reproducing data here itself. http://cot-futures.com/ http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT What we are basically looking for, from a fundamental analysis perspective, is that the commercials be excessively long a commodity or currency pair, and the public or small speculators be excessively short that same currency or commodity pair. Alternatively, we would just want to follow the large speculators and monitor their positions if we are Trend Traders or investors. This is illustrated below. We want to place trust in the fact that the commercials have better access to information than us in their particular markets, more research is conducted by them, and hence better decisions are made by them in terms of market direction vis--vis their business activity (or, they do a pretty decent job at hedging).

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As you can see in the picture above, the commercials were extremely bullish the Yen as indicated by the index being at 100. The small speculators or public were extremely bearish the Yen indicated by the index being at 2. From then on, the commercials became less bullish indicating that they started distributing their positions. I don't trade based on this information alone. I use it in conjunction with technical analysis and risk management. This closes the chapter on the commitment of traders report. Your homework is to go back in

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT past data and play around with it and see how it relates to the charts -- whether it indeed preceded a top or bottom in the markets.

Now I am going to dwell on some technical analysis. Note that I have not discussed a lot of fundamental analysis unfortunately as I do not specialize in it. I do read the news and monitor some fundamentals like central bank activity in the Forex markets, however, I am still learning and hopefully I will be able to publish a new book in the future on the topic of fundamental analysis in the Forex market. I am a technician for the most part. I do post a lot of fundamental analysis activity on my facebook profile recently, so you may want to have a look at it: http://www.facebook.com/garryanthonydsouza If you want to learn more about Forex news events for investing or trading in currencies, kindly refer to the following links: http://www.cnbc.com/id/41157529/Forex_FX_Trade_Currency_Trading_Forex_Trading_Strate gies_from_CNBCrsquos_Money_in_Motion__CNBC http://investorshub.advfn.com/ http://finance.yahoo.com/ http://www.forexfactory.com/calendar.php Note that the above links can be used to monitor financial-related news affecting shares as well. I do monitor the news events on these websites every day to assist me with my investing and trading in currencies.

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Technical Analysis
Okay. Technical analysis has always been one of my favorite methods of analyzing the market. But in my experience, technical analysis alone cannot make money. It needs to be used in conjunction with money management and risk management and that will make you money. Nonetheless, I am going to touch on some technical analysis as that will help us with our trading. It is one part of the successful-investor/trader puzzle but a very small part. The indicators I Use: Moving Averages, MACD , Fibonacci retracements MACD is the moving average convergence divergence indicator. This gives us an indication of the momentum behind price action. How it is constructed is not really important for the purposes of this workbook. There are plenty of articles on Google describing the workings of this indicator. Instead, I am going to explain how we can practically apply this indicator to our trading/investing.

First, I am going to talk about Moving Averages. These are, by far, my favorite indicators for investing in the markets.

What is a Moving Average? We all know that the market trends. What is a Trend? A trend is basically a persistent upward move in the markets; or conversely, a persistent downward move in the markets.

Generally, when the market is bullish, it persistently moves upwards. It may dip a bit or fall by a small amount, and the continue rising in the upward direction.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

We always want to trade in the direction of the trend, because most of the impulsive or big moves are always in the direction of the trend. The correction or small downwards moves in price are not worth trading for, because they are small moves, and do not maximize our profit potential. Moreover, that is what most newbies do trade against the trend and go bankrupt.

So we want to follow the trend in price. Moving Averages are one way of assessing the trend in price. The Moving averages tell us the average price over the past, say, 10 days or 20 days. It depends on what Moving average you use.

If you use a 10 day moving average, it will tell you the average price over the past ten days. If the moving average is tilted upwards, it means that price has been moving up over the past 10 days.

WE only want to buy a stock or currency when it is hot. When the moving averages are up, that is the time to buy. But note that when price has already moved up so much, people start to sell for a profit. This brings price down. When price falls down, people start to realize the stock or currency is cheaper than it was so many days, weeks, or months ago depending on what period moving average you use and they start to buy. This is called buying the dips.

We want to buy the dips in an uptrend, and short-sell the rallies in a downtrend.

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I like to use intra-day timeframes like the 60 minute chart to monitor price action. It also improves my timing a lot and helps me pick the exact bottom in price.

But, if I am using the 60 minute chart What is a 60 minute chart? A 60 minute chart is basically a chart that gets updated every 60 minutes as opposed to every day.

If I plot a 10 period moving average on a 60 minute chart, it is equivalent to plotting the average of the price over the past 600 minutes or 10 hours. But, I prefer not to pay much attention to intra-day movements as most of the time they are just noise. I prefer to monitor movement over days, especially in volatile currency pairs like the GBP/JPY currency pairs. So, instead of plotting the 10 period and 20 period moving averages on the 60 minute chart, I plot the 240 and 480 period moving averages.

Why the 240 and 480? 1 period moving average on the 60 minute chart is equivalent to 60 minutes. A 24 period moving average on the 60 minute chart is equivalent to 1 day because there are 24 hours or 60 minutes in a day. A 240 period moving average on a 60 minute chart is equivalent to 10 days.

So essentially, I am using the smaller time frames to get better entries, but plotting or transposing, if you will, the 10 day and 20 day moving averages onto the intra-day time frames.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT Then, we look for price to fall down into the sweet zone after it has risen up for so many days.

The sweet zone is basically the area between the 10 day and 20 day moving averages.

I have attached a pic below to illustrate the whole concept of buying the dips in an uptrend. Generally speaking, when price is in the sweet zone, it is considered cheap. We are getting to buy it at good value. Price has come back to its average over the past, say, 15 days, and is no longer too expensive or over-priced.

As you can see in the picture above, the yellow line signifies the 240 period moving average. It is essentially 240 periods of 60 minutes or in other words the 10 day moving average.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT The pink line signifies the 480 period moving average. It is essentially 480 periods of 60 minutes or the 20 day moving average. Both these averages are plotted on the 60 minute chart of the GBP/JPY currency pair.

Now go back to the picture and you will find that the 10 day moving average is above the 20, indicating that we are in an uptrend where price is moving up. However, when price is above the moving averages, it may be over-extended or over-valued. So, we are waiting for price to fall down a bit before buying it. We buy it in the sweet zone. The sweet zone is when price comes in between the pink and yellow lines or moving averages.

As you noticed, a lot of people monitor these currency pairs and are waiting to pounce or buy it at any chance they get when price falls. Hence price continues moving up after falling a bit.

This is called trading with the trend and, more specifically, buying the dips in an uptrend. We keep repeating this procedure until we get a bearish crossover. A bearish crossover means that the 10 day moving average or the pink line cuts below the yellow line or the 20 day moving average.

When the 10 day moving average is below the 20 day moving average, we now have a downtrend and, if we are investors, we want to stay out of the market. If we are traders, we want to start short-selling and making money on the way down. Many times we can get fakeout crossovers; so I not only look for a bearish crossover, but I also look for a break of support after the bearish crossover and price rallying to resistance. If we do not get that break of support and price continues moving higher, then it wasnt a confirmed crossover signal and we may want to remain in our positions.

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I have illustrated a bearish crossover below.

Note that, in the diagram above, the indicators remain the same. The white circle signifies the point of which the pink line cut through the yellow and we have a bearish crossover of the moving averages where the 10 day moving average is now below the 20 day moving average.

The white horizontal line in the picture indicates support which was broken, confirming our bearish crossover signal and now price is a downtrend and, as traders, we may want to shortsell the rallies in a downtrend and, as investors, we may want to stay out of the market.

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Note that all these indicators are feely available to plot on the charts by your brokers trading platform software.

More on Technical Analysis

Fibonacci Retracements
Introduction
Fibonacci Retracements are ratios used to identify potential reversal levels. These ratios are found in the Fibonacci sequence. The most popular Fibonacci Retracements are 61.8% and 38.2%. Note that 38.2% is often rounded to 38% and 61.8 is rounded to 62%. After an advance, chartists apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback. Fibonacci Retracements can also be applied after a decline to forecast the length of a counter trend bounce. These retracements can be combined with other indicators and price patterns to create an overall strategy.

The Sequence and Ratios


This article is not designed to delve too deep into the mathematical properties behind the Fibonacci sequence and Golden Ratio. There are plenty of other sources for this detail. A few basics, however, will provide the necessary background for the most popular numbers. Leonardo Pisano Bogollo (1170-1250), an Italian mathematician from Pisa, is credited with introducing the Fibonacci sequence to the West. It is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 The sequence extends to infinity and contains many unique mathematical properties. After 0 and 1, each number is the sum of the two prior numbers (1+2=3, 2+3=5, 5+8=13 8+13=21 etc).

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT A number divided by the previous number approximates 1.618 (21/13=1.6153, 34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The approximation nears 1.6180 as the numbers increase. A number divided by the next highest number approximates .6180 (13/21=.6190, 21/34=.6176, 34/55=.6181, 55/89=.6179 etc.). The approximation nears .6180 as the numbers increase. This is the basis for the 61.8% retracement. A number divided by another two places higher approximates .3820 (13/34=.382, 21/55=.3818, 34/89=.3820, 55/=144=3819 etc.). The approximation nears .3820 as the numbers increase. This is the basis for the 38.2% retracement. Also, note that 1 - .618 = .382 A number divided by another three places higher approximates .2360 (13/55=.2363, 21/89=.2359, 34/144=.2361, 55/233=.2361 etc.). The approximation nears .2360 as the numbers increase. This is the basis for the 23.6% retracement.

1.618 refers to the Golden Ratio or Golden Mean, also called Phi. The inverse of 1.618 is .618. These ratios can be found throughout nature, architecture, art and biology. That was an explanation of Fibonacci retracements. Now I am going to touch upon how we can use Fibonacci retracements in our trading and investing processes and the usefulness of them for buying purposes as well as selling purposes i.e., when to book our profits. First, in basic words, I want to explain what a Fibonacci retracement level is. There are four Fibonacci retracements in particular that I am going to talk about: The 38% Fibonacci retracement level The 50% Fibonacci retracement level The 62% Fibonacci retracement level & the 76% Fibonacci retracement level What this basically means that is price rises from $0 to $100 theoretically, we would expect it to fall 38% of $100 or 50% of $100 or 62% of $100 or 76% of $100. $100 is basically the price move

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT from 0. Why would we expect price to fall to those percentages of the price move up? Simply because this is what we observe in nature and in the charts. Moreover, technical analysis is a self-fulfilling prophecy and, as many people believe in the Fibonacci retracement levels especially technical analysts in the markets and other professionals they automatically tend to place buy orders at these Fibonacci retracements levels moving price up from these levels. Note that our brokers trading platforms provide us with the facility to plot these retracement levels on the charts so that we can know when to expect that price will continue rising up after a fall. However, we need not plot these as, by plain eyeballing, we can tell when price has fallen from the bottom to the top by 50% or 38%.

Many people trade based on these retracements. However, I view Fibonacci retracements a bit differently. One of my principles is that I always buy on strength and sell on weakness; so if price has fallen 50% from its highs, I do not want to place a buy order just because it has risen from 0 to 100 and then fallen to 50 hence it is cheap. No! I want to buy on strength not when price is falling. I want to be aligned with the movement of the markets as I believe that gives me higher odds of being profitable or right in my trading and investment decisions. In other words, I want to buy breakouts and short sell breakdowns. When price rises above resistance, it is a breakout. When price falls below support, it is a breakdown. Ideally, we want to see high volume when price breaks through these points. Now I will get into the concepts of support and resistance. Then I will combine support and resistance with Fibonacci levels using practical examples and charts to illustrate how we can combine the two and make financial decisions based on them. I will also add candlestick analysis to it too. I will explain the same too in the coming pages.

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What is support and resistance?

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In basic words, a support level is basically a level where buyers are expected to come in and buy a stock because, based on past price action, buyers believed that it was a very good place to buy. A resistance level is basically a level where sellers are expected to come in and sell a share because they believe it is overpriced. We arrive at these levels by monitoring past price action. Note that if you had bought a share at a price of $100. Price falls to $50. Now if price ever comes back to $100, would you be dying to sell that share? Of course you would. Not only you, but everyone else who bought the share at a price of $100. So $100 becomes a very strong resistance area. How I utilize support and resistance in my financial decisions is that, I wait for price to fall below support indicating that there are no more buyers of the share at a support level so price may be headed lower so I short sell a share or currency pair. If price rises above resistance, it tells me that there are no more sellers of a particular share or currency pair and price may be headed higher. We know that support and resistance areas are

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT reversal areas and if price does not reverse in those areas that means it may not reverse at all and we can profit from that conclusion. Before I combine Fibonacci analysis, support-resistance analysis, and candlesticks, let me now touch up candlesticks and what they are.

Candlesticks and what they are

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

What a candlestick basically tells us is: the price at which a share opened for the day; the price at which the share closed for the day; the highest share price of the day; and the lowest share price of the day. Go through the diagram above multiple times. Note that the candlestick in the above diagram is black indicating that price fell for the day. However, in the charting package I use, if price falls for the day, it shows a red candlestick bar and, if price rises for the day, it shows a green candlestick bar. Notice there are very thin lines above and below the candlestick bar. This basically shows indecision. That means price rose all the way to the high for the day but could not hold the high and fell during the day. It means that investors felt that the high for the day was not the correct valuation of the share during that particular day, which is why the share closed at a lower price. How I use candlesticks is that, when price is rising above resistance or breaking it and I am looking to buy; I want to make sure that price rises above it with fat real bodies. In my charting 79
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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT package, I am looking for fat green bodies to break above resistance if I am looking to buy. I have attached a diagram below to illustrate my above point.

As you can see in the diagram above, I have drawn a pink line at resistance. How is that resistance? Because price turns at the point from up to down as can be seen in the diagram. But, in the future, price rises above resistance or breaks it, and that is the time we want to buy provided we see big fat green candle bars breaking above it. Instead if we see a thin line breaking or rising above resistance, we do not want to buy it. What a thin line means is that price rose above that level then fell back. When price is falling below resistance it means that a price fall could be imminent; so we do not want to buy when price is respecting resistance and falling after touching it. A diagram to illustrate this is shown below.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Notice that, in the diagram above price did stick its head up above the pink resistance line. But notice that it was thin lines -- and not big fat green candle bars. Hence we would not buy on this instance. We always want to wait for confirmation that we are right and big fat green candle bars gives us just that. A big fat green candlestick bar tells us that price closed higher than it opened for the day. If price rises and then falls back down, those thin lines form which tell us that price rose up and then fell back down closing lower for the day. This could mean that it was a false breakout or people changed their minds and the sentiment is no longer Up. This works in reverse too i.e., if price breaks support or falls below support to the downside, we want to short sell shares or currency pairs, provided it broke support with big fat red candlestick bars and not thin candle lines. A red candlestick bar indicates that price fell and close below the opening price for the day. In the stock market we have a period of time to buy and sell shares. When the stock market opens, we have the opening price and when the stock market closes, we have the closing price. Back to our example:

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT I will post a pic and then move on to the explanation.

In the picture above, we have a scenario where price is falling. We have support as indicated by the pink line. Note that price fell below support many times. But each time price fell through it, it was a thin line. As mentioned previously, we want to see big fat red candles piercing support to validate our views that price is going to fall to the downside. We got our first big fat red candlestick closing below support right on the right end of the picture. Then we can say price broke support and closed below it, and we can consider short selling (or just selling) and searching for profit targets. Now I am going to post some pictures which will illustrate the concept of Fibonacci analysis both retracements and extensions. Retracements are generally places where people buy the share or currency pair; and extensions are generally places where people start to take profits.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

As can be seen in the picture above, we have a market where price is falling. We measure the distance between the upper most point in price to the initial fall where price reversed direction and started rallying a bit. We measure this distance using the blue line. It gives us 3 levels from which to judge whether price will continue falling once it reaches those levels the 38%; the 50%; and the 62%. Once price reaches these levels, we would look for price to fall once again and break support to the downside. The moment we had that red candlestick bar close below support, we would consider short selling shares or currencies. How do we ascertain our profit target?

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT We do this by using Fibonacci extensions. Note that your brokers trading platform will provide this indicator (i.e. Fibonacci tools) for making measurements. You need not exert any effort yourself. You just need to add the indicator to your chart -- that is all.

Now I will show how we can ascertain when to book profits using the Fibonacci extension tool. I will consider the same chart above.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT This is the same chart as the one above. Here we short sold when price broke support and are first profit target will be at the 1.272 Fibonacci extension level. Our Second profit target will be at the 1.618 Fibonacci extension level. The moment price reaches our first profit target, ideally, we want to move our stops to breakeven. That is, if price comes back to the starting point where we entered the position we exit the market with no profit or no loss. But if we had bought 2 units say, we want to book our profit on 1 unit when price reaches the 1.272 Fibonacci extension level.

Now I am going to explain a similar example which is nothing but the reverse scenario price rises, retraces to a Fibonacci retracement level, then breaks resistance, and reaches our Fibonacci extension levels. We want to buy when price breaks resistance sharply marked by big fat green candlestick bar closes above resistance, all after price initially retraced to a Fibonacci retracement level. We want to take profits at the Fibonacci extension levels.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT As you can see in the picture above, price rose, formed a significant swing point high. A swing point high is a high point in price where price reversed followed by two lower candlestick bar highs on either side of it. We measure the distance from the bottom most point in price to the significant swing point high. We draw 3 retracement levels: the 38%; the 50% and the 62%. We can see that price retraced to the 62% retracement level. Now when price rises from there and takes out the former high, we observe that we have a couple of green fat candlestick bars punching through resistance and breaking it. It will be a good time to go long or buy as resistance is a point where there should be sellers but in this case there were none.

In order to arrive at the point where we will start booking profits, I will post the same picture above again along with the Fibonacci extension levels where we will start taking our profits on the initial positions that we bought when price broke above resistance.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT In the picture above, which is nothing but a reproduction of the chart in the previous picture, we bought when price broke through resistance indicated by the blue line with big fat green candle stick bars. We only consider a break of resistance if price had retraced to a Fibonacci retracement level earlier. In this case, price had retraced to the 62% Fibonacci retracement level. The yellow lines labelled 1.272 and 1.618 will be our profit targets. If we bought 2 shares when price broke resistance, we would sell one share when price reaches the 1.272 level while moving our stop loss on the remaining position to breakeven, and then sell 1 share when price reaches the 1.618 Fibonacci extension level.

When I look at price breaking support I monitor the candlestick charts. Steve Nison introduced candlestick charting techniques to the West and credit goes to him for explaining it to the people. Basically we do not short a currency pair or stock just because it broke support. Conversely, we do no buy into a stock or currency pair just because it broke resistance. What we are looking for when price breaks support is candlestick CLOSES below support before shorting it. Moreover, price must hold below support for a while. Then we can draw Fibonacci extension levels and book our profits at those levels. The most common mistake people make is shorting when price breaks support but it turns out to be a fake breakout. Why? Because the candlestick did not close negative below support; instead it just broke support then reversed back up displaying say a bullish hammer pattern on the chart. Hence it is always wise to wait for confirmation before shorting or buying.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

This ends the session on technical analysis.


If you want more personal coaching on technical analysis, please send an e-mail to garrydsouza@hotmail.com and I will explain it to you for free. Please note that I have posted a lot of technical analysis slides on my Facebook profile, so if you wish to learn more on technical analysis, either subscribe to me on Facebook or add me as a friend alternatively, to view all my Facebook posts. http://www.facebook.com/garryanthonydsouza

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

This is just the tip of the iceberg, obviously there is a lot more to knowing and learning about risk management in the financial markets than I cant cram into one book. I am positive that utilizing the principles and strategies in this book will make you a more successful and richer trader/investor. In case you want to learn more and REALLY see how I do things, feel free to contact garrydsouza@hotmail.com to enroll for the Certified Money Manager Course or buy more products. Alternatively, visit www.forexmillionaire.me If you are looking for better trading strategies, in particular better risk management methods, kindly visit my website and enroll for the Certified Money Manager course. The cost of the program will be $500. You can also send an e-mail to garrydsouza@hotmail.com. I will be eagerly waiting to hear from you. For $500, I will be disclosing one of the best-kept-secrets in the financial industry of how the top investors and traders who made millions in the financial markets managed their risks. No bullshit and suitable for all types of investors and traders. Short selling is also NOT a prerequisite. You can only enroll and make money by learning from it.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

With this I end my book. I hope you enjoyed reading it.


Do visit my website: http://www.forexmillionaire.me/ My Facebook profile: http://www.facebook.com/garryanthonydsouza Or contact me on Hotmail: garrydsouza@hotmail.com It does not matter how you got this book or who you are, as long as you contact me and keep in touch.

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GARRY'S GUIDE TO BECOMING A MILLIONAIRE IN THE orexMillionaire FINANCIAL MARKETS USING RISK MANAGEMENT

Wishing you All the best in your trading!


Garry anthony dsouza Email: garrydsouza@hotmail.com Facebook: http://www.facebook.com/garryanthonydsouza Phone: (+91) 961 - 934 - 4827

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