Anda di halaman 1dari 30

4X works!

Creating realistic returns with minimal risk.

4X works assumes no responsibility for errors or loss of


capital. Trading currencies involves a high degree of risk which
can cause loss to any traders portfolio. 4X works will not be
held liable for any financial losses of any kind.

I ________________________agree to these terms.

Date:_____________________

Copyright June 26, 2007.


Do not copy without permission

1.
With over two trillion dollars a day flowing in and out of the forex market,
foreign exchange trading is the most liquid form of trading on the planet. Named
Forex for short, currencies are traded in pairs, most commonly against the
U.S. dollar.
Until recently this exciting market was only available to the very rich. Orders
were placed over the phone and monitored by a broker. However as technology
has advanced, the home computer and the world wide web is now giving anyone
the opportunity to take a small piece of this multi trillion dollar industry.
Unfortunately 95% of all technical traders lose their entire capital within three
short months simply from lack of patience, greed, and very unrealistic goals.
And these are not the only key reasons for their loses. When it comes to the
Forex market, I find that simply trading with charts can be almost useless
because of the constant over-reaction of price movement due to world wide
economic forecasting. Im not against chart trading, but I find that technical
trading is most useful in futures markets during times of high volatility.
However, through a lot of research, trials and errors I have found a way to easily
trade the forex market successfully with very little effort and still work a full
time job.

The success of 4X works method is based upon three simple facts.

1. No one knows where the market will go.

2. The understanding of what we do know about forex, based


upon its true character and what it is willing to give us.

3.Common successful techniques of veteran traders.

2.
I. No one knows where the market will go.
Trading any market is risky business and anyone who says they know where
the market is going to go is either trying to take your hard earned money or is
just fooling himself. Through technical analysis, one can only estimate what
the market will do by predicting what are called high probabilities. This
simply means exactly that, probably.
What makes the 4Xworks method unique is that we simply dont care which
way the market runs nor do we spend valuable time watching charts. We do wish
however for the market to move. Which way? We simply do not care! As long as
the market is moving, there is plenty of money to be made.

II. What is known about foreign exchange


A. Forex is volatile

The value of currency constantly rises and falls. This is called volatility. If you
are in a losing trade and can afford to soak up the loss for an extended period of
time, chances are very high that it will return to your original entry point and
continue to move in your favor. Never risk a trade you cannot afford to ride out.

B. Roll over interest

Most but not all brokers pay interest every day in an overnight trade. If you are
in a losing position but have the capital (and patience) to let it run to the floor
and return to your entry point, the interest made during your waiting period
could be very satisfying.

3.
C. Correlations

A correlation is an opposite. In this case well take a look at the two currency
combinations which are in the closest form.

#1 EURO/USD compared to #2 USD/CHF


base cross base cross
currency currency currency currency

In the first pair we see that the USD is the cross currency. In the second pair the
USD is the base currency making these currency pairs opposites. If we look at a
couple of monthly charts and compare the two, one can see just how close these
two pairs actually run. Look for yourself, they are a near mirror image. Page 24
explains how I use this as an advantage. It is this concept that really makes the
4Xworks method work.

II. How the big dogs trade.


To make money as an investor the first thing you need to know is how to
survive. Most people who desire to trade for a living unfortunately fall into some
hideous traps. The new coming trader looking at wealth building outside of its
proper perspective and misunderstanding what it takes to be a successful
investor will always lose. We live in a microwave society. We throw the burrito
in, push a button and wham its done! Nutrition at its finest! Most Americans
want things done right now and those who want to make a living at trading for
their career also want it done right now. This kind of mind-set should not be a
part of any traders thinking. The goal of a successful trader is to gain the ability
to survive any market condition yet still make profit even if the profit is
minimal. The goal is not how much profit, the goal is profit and survival.

4.
Gaining the ability to survive any market condition and still make profit, one
must understand the element of risk and how to keep it as low as possible. The
following 3 examples are commonly used by commercial traders. Learning big
dog trading fundamentals will not only help you place wealth building into
proper perspective but they will also help you lower your risk as much as
possible.

A. Large capital

Dont let the words large capital discourage you. Its a key element to learn.
Its important to understand how the large investor takes advantage of his worth
to survive a sour trade and still make money. Take for example the e-mini S&P
500. In this index, every time the market moves one tick it pays $12.50 per
contract. There are 4 ticks for every 1 point move equaling $50 per point per
contract traded. In a typical bull market the large investor is looking for a low
point to buy, so lets say that he chooses to place 50 contracts on the line
anticipating for the market to climb. A 100 point move in his favor with 50
contracts will create for him a total profit of $250,000. In this case lets just say
that the trade went sour and moved 10 points against him. He would be at a loss
of $25,000 yet because his worth in capital is 15 million do you think hes
sweating right now? No not at all! He can afford to allow that trade to fall
another 500 points. However, in a bull market even a 100 point loss is extremely
unlikely, so a losing trade will eventually make money if an individual has
enough capitol worth available to take a trade all the way to the floor. Because
of their large capital, the big dogs always win.

5.
B. cost averaging

Were going to name this large investor we have just been talking about and
call him Joe. Joe has a cool little trick up his sleeve that helps him to take
advantage of some very large profit gains as he sees his original trade take a
major beating. Believe it or not hes actually anticipating for it to fall. Joe is
convinced this is a bull market and there is an economic forecast predicting that
the market will continue to rally for another 100 points. So as the market
continues to fall, Joe is looking for another opportunity to buy. The market
collapses another 10 points and Joe buys another 50 contracts with the hopes
that the market will rise. But again the market falls another 10 points yet Joe is
not worried at all but buys another 50 contracts. He does not look at these
pitfalls as losses but opportunities. And after buying three separate times as the
market fell Joe continued to take advantage of better buy points creating more
profit potential. The market finally turns in his favor with a 120 point gain and
adding $825,000 to his portfolio.
If the market rose after his first original buy point, Joe would not be
disappointed because of a $250,000 gain. In Joes mind, a profit is a profit! Joe
also minimized his risk by not placing the total amount of contracts he was
willing to risk at one time on the line. Joe divides the amount of risk he is
willing to invest into segments as the market falls. The closer he can buy near
the floor the more money he will make on his way up. This very common
trading method is used by the big dogs. This is called cost averaging.

6.
C. realistic goals

Another all too common pitfall that new coming traders make in forex is
setting unrealistic goals. Ive seen the adds on ebay and the internet that say,
500 pips a week with this amazing low risk system! or, 1000 pips
guaranteed weekly using my special indicator! People, if anyone could make
even 200 pips a week every week we would all be millionaires! Dont buy into
these claims because it simply isnt true or reasonable! I personally do not set
goals for myself as to how many pips I will make. Your initial goal should be
survival first profit last, not pips. My profit is not calculated by pips but by
percentage of return. If I make a 2 percent return on my portfolio in any given
month Im not exactly thrilled but it is nothing to complain about. A profit is a
profit. And a 2 percent return on a 6 figure portfolio isnt exactly a bad thing. Its
all about perspective.
What if an well known bank decided to give you a 10% annual return on a
typical savings account. Is 10% a pretty good return on your money? You bet! If
you saved your money for 30 years and never touched it, at that rate there would
be a pretty large chunk of change in there. What if you made on average a 10%
return on your portfolio every month and didnt touch it for 5 years, is that
something to complain about? No Way! If taxes were not an issue during those 5
years, 5000 dollars would easily turn into 1.5 million. Not bad! Did you know
that Warren Buffett does not make a 10% return on his money every month?
Hows that for perspective? Yet a 10% return every month on average is VERY
doable in the forex market even while working a full time job. I personally add
anywhere between 5 to 30 percent profit towards my capital EVERY month
depending on what the market is willing to give me, simply by taking advantage
of the methods and principles I have shared with you so far.

7.
III. Brokers
Before we begin going over the trading method its important to consider a
broker. Remember capital? We need to find a broker to suit our needs so we can
trade as though our pockets were deep. To understand where I am going with this
you need to understand lot sizes.

A. Lot sizes

In stock trading we buy shares, but in forex we buy lots. Simply put a lot is the
amount of leverage that a broker is allowing a trader to trade with. This can be a
lengthy subject so Im going to break it down in a way thats easier to
understand by showing the buying power of a typical lot size every time the
market moves one point.

Note: A one point move in forex is called a pip.

100k lot (Standard lot 100,000) - makes or loses $10 a pip

10k lot (mini lot 10,000) - makes or loses $1 a pip

1k lot (micro lot 1,000) - makes 10 cents each pip

To trade like the big dogs its best to trade with the smallest lot size possible.
Most brokers do not offer micro lots which is why I will only recommend
interbankfx.com. Interbank offers a lot size that has never been offered before in
the forex world and that is 10% of a micro (100). This means that one of these
tiny lots for each pip will pay or lose 1 penny. A $250 account can now be traded
as if it was large capital.

8.
IV. Review

A. Forex is volatile: In a losing trade you can bet it


will come back if you can afford to carry the loss.

B. Forex pays interest: Interest adds up nicely as a


trade is carried until close. This is a small part of the
system, but it is a very nice bonus.

C. Correlations: Buying currency pairs that move in


opposite direction creates a natural hedge play.
Hedging any market is the safest form of trading.

D. Cost averaging: This method creates better buy


points increasing profit gains while lowering risk.

E. Small and fewer lot sizes: By using the smallest lot


size possible the small investor has the potential to
leverage an account like the larger investors with
large capitol. This creates more buying power.

F. Realistic profit goals: With the right perspective a


trader is content with slow growth gains. Those who
are greedy will always overextend their account.

9.
V. Trading the system

This system is very easy to trade. For this example we are only going to buy
and go long as to accumulate interest while our trades are working. Buying these
currencies instead of shorting them is the best approach to acquire it. If we sell a
short position, we will be paying interest instead of making it. Those who wish
to go short can do so in extreme cases of exhaustion. (see pages 21-25)
We will start our first trade using micro mini lots with interbankfx (1 pip = 1
cent per lot) and start with $7000 in capital. We are going to buy 2.50 lots of the
EURO/USD pair and 2.50 lots of the USD/CHF pair. We are going to call these
two buy orders a combination trade. Once these two buy orders are executed,
leave them alone and let them work overnight.
Below is an example of what your trades should look like. The negative profit
shown at the far right is immediately taken for the cost of spread. The example
shown is an interbankfx platform.

Time Type Lots Symbol Price Price Swap Profit


-------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3300 0.00 -5.00
2007.06.13 12:34 buy 2.50 usdchfm 1.2435 1.2431 0.00 -8.04

Balance: $7,000 Equity: $6,916.96 -13.06

10.
The forex market runs the strongest in the early hours of the morning and
usually comes to a slow creep around 11:30 a.m. eastern time. Anytime after this
I find to be the best time to examine your trade, however it is entirely up to the
individual but this is what works for me.
Below are four different examples of what you might expect to see during this
time and what kind of action you might consider to take in either situation.

A. Example #1

Time Type Lots Symbol Price Price Swap Profit


-------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3260 -4.50 -105.00
2007.06.13 12:34 buy 2.50 usdchfm 1.2435 1.2446 6.67 30.15

Balance $7,000 Equity $6927.32 -$72.68

In this example, on the following day, we see that our account is still negative
yet the market has not moved much so there are no trades to close. To the far left
we see listed the time and day we entered our trades. Overall our account
remains negative in profit but listed under swap we have been paid $2.17 in
total rollover interest. This was Wednesdays payout so the interest rate has been
tripled. In this particular case I personally will not take any action at all because
the market has not moved negative enough for my tastes to cost average our
hedge. Its important to remember that it is our hope that the market will make a
big move in a particular direction. Which direction it moves is not our concern,
we just want it to move. So for now I will once again allow these two trades to
work overnight.

11.
B. Example #2

Time Type Lots Symbol Price Price Swap Profit


-------------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3182 -6.05 -296.05
2007.06.13 12:34 buy 2.50 usdchfm 1.2435 1.2498 8.90 171.40

Balance $7,000 Equity $6,875.35 -124.65

Entry price Current price

(next day) Listed under swap, you will notice that the rollover interest being
paid out is very minimal. The EUR/USD and USD/CHF hedge play is not a very
good interest maker however, they run very tight to each other so this play is
less risky. With that being said, notice the difference between the entry price
on the left compared to the current price on the right. The EUR/USD pair fell
a total of 116 pips. The USD/CHF pair helped compensate our loss because it
moves in the opposite direction. However, our account is still negative.
When an account is in negative territory and one of your currencies has fallen
against you 80 to 120 pips, (if drop is extreme see below) its time to consider
buying again. Remember the story about the man named Joe who traded the
S&P? We are going to learn from his example and cost average our hedge by
buying the same amount of lots as we did two days ago. Your trades should look
similar to what is shown below with a total of two combination trades.
Time Type Lots Symbol Price Price Swap Profit
-------------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3182 -6.05 -296.05
2007.06.13 12:34 buy 2.50 usdchfm 1.2435 1.2498 8.90 171.40
2007.06.15 11:12 buy 2.50 eurusdm 1.3184 1.3182 0.00 -5.00
2007.06.15 11.12 buy 2.50 usdchfm 1.2502 1.2498 0.00 -8.04

Balance:: $7,000 Equity: $6,862.31 -137.69

Note: if you see a currency pair drop severely, (150-200+ pips) do


not buy again until you have seen what the US markets are doing.
See page 26.
12.
C. Example # 3

Time Type Lots Symbol Price Price Swap Profit


-------------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3099 -7.56 -502.50
2007.06.13 12:34 buy 2.50 usdchfm 1.2424 1.2577 11.13 382.48
2007.06.15 11:12 buy 2.50 eurusdm 1.3184 1.3099 -1.51 -212.50
2007.06.15 11:12 buy 2.50 usdchfm 1.2502 1.2577 2.23 187.64

Balance: $7000 Equity:$6,859.41 -140.59

(next day) Once again the EUR/USD pair has fallen more than 80 pips and our account is
still in negative territory. The second pair we bought just the day before is also negative but
you will notice that the second combination is a little more even in profit/loss. So since one of
our pairs fell against us more than 80 pips and we still have a negative account we are going
to buy a third time. However, 80 pips for each cost average is not an absolute rule, but simply
a guide. In a downturn, you may want to wait for a harder drop. I have seen the market fall
200 pips in one day. But 80 pips for each buy is ideal in a solid market. There are signs that
communicate a possible downturn. Watch for new all time highs in the dominant currency.
These are signs of a breakdown. A currency can only run up so high before it runs out of
steam.
Time Type Lots Symbol Price Price Swap Profit
-------------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3099 -7.56 -502.50
2007.06.13 12:34 buy 2.50 usdchfm 1.2424 1.2577 11.13 382.48
2007.06.15 11:12 buy 2.50 eurusdm 1.3184 1.3099 -1.51 -212.50
2007.06.15 11:12 buy 2.50 usdchfm 1.2502 1.2577 2.23 187.64
2007.06.16 11:46 buy 2.50 eurusdm 1.3097 1.3099 0.00 -5.00
2007.06.16 11:46 buy 2.50 usdchfm 1.2573 1.2577 0.00 -8.04

Balance: $7000 Equity: $6846.37 -153.63

As seen above we now have bought three times, so according to the risky category we are
now in what I like to call a fully loaded hedge. Once you are fully loaded, there is nothing
left to do but to wait for at least one of your combinations to work its way into profit. This
may take 1 to 5 days and on very rare occasions (like a downturn) it may take even longer
but it usually only takes two or three days.

13.
D. Example #4

Time Type Lots Symbol Price Price Swap Profit


--------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3123 -8.07 -473.50
2007.06.13 12:34 buy 2.50 usdchfm 1.2424 1.2584 13.36 400.16
2007.06.15 11:12 buy 2.50 eurusdm 1.3184 1.3123 -2.02 -152.50
2007.06.15 11:12 buy 2.50 usdchfm 1.2502 1.2584 4.46 205.32
2007.06 16 11:46 buy 2.50 eurusdm 1.3097 1.3123 -1.51 65.00
2007.06 16 11:46 buy 2.50 usdchfm 1.2573 1.2584 2.23 27.50

Balance: $7000 Equity: $7080.43 80.43

(3 days later) You can see that in this example two of our combinations are
now in profit. This does not mean you need to close these out. Some people like
to hold onto the trade until all three combinations are in profit. I personally like
the bird in the hand mentality so I am going to close out the last two
combinations. Remember, when closing out your trades you need to close out an
entire combination, not just half of it. Also do not close out just one side of the
hedge (combination) and get back in. This will create an unbalanced hedge. You
must wait for the winning side to dominate the losing side and then close it out.

(see the examples circled above)

Combination #1. - 473.50


400.16 Do not close
-----------
-$73.34 = No profit
-----------------------------------------------------------------------
Combination #2. - 152.50
205.32 Close both
--------------
$57.18 = Profit
-----------------------------------------------------------------------
Combination #3. 65.00
27.50 Close both
-------------
$92.50 = Profit

14.
Time Type Lots Symbol Price Price Swap Profit
-------------------------------------------------------------------------------------------------------------------------------------
2007.06.13 12:34 buy 2.50 eurusdm 1.3298 1.3123 -8.07 -473.50
2007.06.13 12:34 buy 2.50 usdchfm 1.2424 1.2584 13.36 400.16

Balance: $7148.48 Equity: $7080.43 -68.05

After closing these two combinations out you can see that the overall acount is
negative again but we have locked in some very nice profit which is accounted
for in our balance. Now at this point you may want to consider jumping back in
with a second combination or wait a day or two, its totally up to your judgment
because we really dont know for sure what the market will do. It may move
against us from here or continue to build profit, but if and when the market
moves against you, remember to only cost average twice after your initial get in
for a total of 3 combinations and wait for your profits to come into fruition.
Those who wish to trade 4 combinations should consider using the
aggressive category. Those who want to trade 6 combinations should
consider using the minimal category. Most people (myself included) like the
aggressive in stable market conditions.
After you have planned out which category to trade and you have set your
orders you must prepare yourself to accept the fact that your account may remain
negative for an extended period of time. But you must understand that this not
day trading, sometimes it takes a while before a trade becomes profitable, but as
long as your risk is low enough and you are patient, the market should always
move in your favor. The key to this trade play is a lot of waiting, and accepting
small consistent returns without cheating. Small profits equals large long term
income.
The trading examples used were modified to save time for teaching purposes. But this is quite
typical of what to expect over a longer or even shorter period of time depending on how the forex
market is reacting due to the release of economic data or common price movement.

15.
VI. Knowing how much to buy?
The spreadsheets below are a guide to help you understand how many lots to
buy for each currency combination. But please remember, it is a guide only, not
a recommendation. The amount of lots you purchase is entirely up to you.

A. How to use the spreadsheet.

I have listed four categories for purchasing lots. They are labeled as mild,
minimal, aggressive, and risky. Choose one of these categories that suits your
toleration of risk and consider buying the number of lots listed matched with
the account balance you have. According to each category, the more risk you
trade the less you can cost average. The mild category trades up to 10
combinations, the minimal trades up to 6 combinations, the aggressive trades up
to 4, while the risky category is designed for only 3. The more combinations you
trade and cost average, the less risk you are trading.
For training purposes only I chose the risky category as our example with
an account balance of $7,000. But just because we are trading this category for
the visual it does not mean this is a suggestion. You can use each category to
your advantage depending upon how the market is reacting. When the market is
strong, the risky category is one you may consider. Keep an eye out on the U.S.
markets. When the Dow panics, the minimal category may be preferable.
Remember that the key to success in forex is to survive anything the market
throws at you. This is not a race! Small returns = large profit.

16.
B. Allocating your lots

If your personal capitol is different than what is listed such as maybe $6000,
add the amount of lots listed under $1,000 to $5,000. Example: 0.40 + 1.70 =
2.10. Or if it is $17,000, add $1,000 + $1,000 + $5,000 +$10,000. Example:
0.40 + 0.40 + 1.70 + 3.40 = 5.50. Since the account size used was $7,000 we
added $1,000 + $1,000 + $5,000. This would translate our allocation to 0.40 +
0.40 + 1.70 = 2.50. See below.

Category: Risky

Account balance: EUR/USD USD/CHF


-----------------------------------------------------------------------------------------------------
$1,000 buy 0.40 lots buy 0.40 lots
-----------------------------------------------------------------------------------------------------
$5,000 buy 1.70 lots buy 1.70 lots
-----------------------------------------------------------------------------------------------------
$10,000 buy 3.40 lots buy 3.40 lots

$1,000 + $1,000 = 0.80 $5,000 = 1.70 (0.80 + 1.70 = 2.50)


Trade Lots Type Symbol Price Price Swap Profit
-------------------------------------------------------------------------------------------------------------------------------------
2007.06 25 19:27 2.50 buy eurusdm 1.3467 1.3463 0.00 -3.40
2007.06 25 19:27 2.50 buy usdchfm 1.2281 1.3461 0.00 -5.54

Balance $7000

This account can now be cost averaged two more times with 2.50 lots for each
currency as the market falls.

17.
Spread sheet.

Interbankfx.com
Mini account

Leverage 200:1

EUR/USD and USD/CHF hedge.

18.
EUR/USD USD/CHF (interbank mini)

Risk Category: Minimal (6 combinations)


Account balance: EUR/USD USD/CHF
--------------------------------------------------------------------------------------------------------------------------
$250 lots to buy 0.05 lots to buy 0.05
--------------------------------------------------------------------------------------------------------------------------
$1,000 lots to buy 0.20 lots to buy 0.20
--------------------------------------------------------------------------------------------------------------------------
$5,000 lots to buy 1.00 lots to buy 1.00
--------------------------------------------------------------------------------------------------------------------------
$10,000 lots to buy 2.00 lots to buy 2.00

Risk Category: Aggressive (4 combinations)

Account balance: EUR/USD USD/CHF


-----------------------------------------------------------------------------------------------------------------------
$250 lots to buy 0.07 lots to buy 0.07
-----------------------------------------------------------------------------------------------------------------------
$1,000 lots to buy 0.26 lots to buy 0.26
-----------------------------------------------------------------------------------------------------------------------
$5,000 lots to buy 1.30 lots to buy 1.30
-----------------------------------------------------------------------------------------------------------------------
$10,000 lots to buy 2.60 lots to buy 2.60

Risk Category: Risky (3 combinations)

Account balance: EUR/USD USD/CHF


---------------------------------------------------------------------------------------------------------------------
$250 lots to buy 0.10 lots to buy 0.10
----------------------------------------------------------------------------------------------------------------------
$1,000 lots to buy 0.40 lots to buy 0.40
----------------------------------------------------------------------------------------------------------------------
$5,000 lots to buy 1.70 lots to buy 1.70
----------------------------------------------------------------------------------------------------------------------
$10,000 lots to buy 3.40 lots to buy 3.40

19.
For those who wish to trade even more
conservatively please consider the category below.
Fantastic category during exhaustion periods.

Risk category: mild (up to 10 combinations)

Account EUR/USD USD/CHF


-------------------------------------------------------------------------------------------------------------------------------------------------
$250 0.03 0.03
-------------------------------------------------------------------------------------------------------------------------------------------------
$1,000 0.10 0.10
-------------------------------------------------------------------------------------------------------------------------------------------------
$5,000 0.50 0.50
-------------------------------------------------------------------------------------------------------------------------------------------------
$10,000 1.00 1.00

This category is perfect to drop back to when seeing signs of exhaustion.


See page 26. The less risk you trade with, the higher chances of your survival in
the market, but no system is perfect. There is no such thing as a holy grail
trading method. Every system has its pitfalls and every system can fail
including this one. Never say that a margin call isnt possible even if you have
been successfully trading for months.
Below is a segment that explains the weakness of this system. Please read and
examine the data listed thoroughly. The information should save you from being
caught in the markets during times of panic and instability which could save you
weeks of waiting to close out a profitable trade.

20.
VII. The down fall to this system
(The downturn)

Unfortunately every system has its flaws, that is why I urge you to always be
on guard for a major correction in the market. This is where some technical
analysis is nice to understand. When you are trading correlations you have an
objective pair and the subjective pair. The objective pair is the dominant
currency pair, which is the currency that will be on the positive side of your
hedge making you money. Always keep your eye on a daily chart of the
dominant pair. In this case we will be looking at the EUR/USD which is shown
below on the next page. Also watch the EUR/CHF chart. If the price is rising on
the EUR/CHF, the dominant currency is the Euro. If the price is falling, the
dominant currency is the Swiss.

Setting your indicators

I inserted Bollinger bands on my chart set to default and a modified slow


stochastic on my chart set to 21, 3, 3. To do this, click on the insert tab on your
interbank platform and scroll down the indicators list to trend. Select Bollinger
bands and click ok. Scroll down the indicators list again to custom and select
stochastic. Click on K period and change to 21 and then ok. Your
indicators should look exactly like the chart below. I will also do this to a weekly
chart and compare the two together. If they are both are doing the same thing,
the signals are even stronger.

21.
EUR/USD Daily chart.

22.
EUR/USD Weekly

23.
To predict a downturn we are looking for signs of exhaustion. When a currency
pair has exhausted itself, it is now ready for what is called a correction or
pullback. This is when the currency is over priced and needs to deflate in value
so that potential buyers are willing to continue to buy at a cheaper price.
On the daily chart on page 22 before the downturn, you can see that our
stochastic is floating above 80% of its range which is the first sign of
exhaustion. The second is where the price pierced through the Bollinger bands.
If you compare this to a weekly chart (page 23) with the same indicators you will
notice that the price ran through the Bollinger bands at the same time on the
week of the eighth of July. However, the daily first pierced the bands on June
29th and July 2nd. This does not mean it is time to close. Wait until both the
daily and the weekly agree. More specifically, both the weekly chart and the
daily chart agreed on the 10th of July 07. This agreement is called confluence.
If and when you begin seeing these signs develop, you can continue to trade if
you wish but seriously consider trading the mild category.
Now when a downturn becomes obvious and severe, this is a preferable time
for shorting trades. If you do go short, I still believe in using the hedge play and
continue to trade the minor categories (mild or minimal) until you see a more
desirable time to buy again.
The interest we make going long is only a bonus, which means if we decided to
short the hedge during these times of exhaustion, we will have to pay swap to
carry it, but its minimal. Make sure your prediction is accurate. Just because
you see an exhaustion developing does not mean you need to short your trades.
If you are going short, make sure the downturn is severe. The
U.S. markets panic if it is severe. Watch the U.S. markets! If the downturn is
mild the correlations should hold. This is extremely important to understand.
Listed on page 26 are very powerful things to think about when considering
reversing your positions. But first read on.
Below is a daily chart of the EUR/CHF pair since the currencies we are trading
are the EUR/USD USD/CHF. As stated before, if the EUR/CHF pair is rising
the dominant currency at the time is the Euro and if it is falling, the dominant
currency is the Swiss. I personally only use this chart as an indicator for
direction only because it tends to lag.
24.
These corrections or downturns can be minor or they can be downright scary if caught in
one. My system is designed to help you survive a downturn in case you do. That does not
mean that a margin call isnt possible because it is. It is a lot less stressful if a drawdown can
be avoided. The waiting time can be very aggravating while waiting to enter another trade, but
it is even more aggravating waiting 8 weeks for your trades to finally come into fruition.
Being stuck in a downturn can also turn your positive outlook into fear and make you lose
confidence in what you are doing. When in doubt, stay out!
For more info on predicting a downturn while correlating currency pairs, I recommend the
book, Hit-the-Spot. To acquire it, please go to www.4xez.biz/_wsn/page4.html

4Xworks receives no incentives for any sales of this book.

25.
VII. More to think about when seeing an
exhaustion developing.
1.) Quit trading the Risky and Aggressive categories during exhaustions.

2.) When signs of exhaustion are forming a big drop in the dominant pair may occur, but it
may take up to 6 weeks or more. When you see the Bollingers breach on both the daily and
weekly charts that does not mean you need to quit trading long. You can continue to trade on
the upside, but you must seriously consider trading as conservatively as possible. The mild
trading category is perfect for such times as this. The drop itself maybe mild, but know one
knows how harsh it will be until it happens which is why we can continue to trade but in a
much more conservative category. We want to avoid getting caught fully loaded during a big
drop in the dominant pair. When the warning signs are showing, we should have plenty of
time to downsize our account.

3.) Before cost averaging your trades, consider buying again after the markets have quieted
down. This normally takes place after 11:00 a.m. eastern time. You may even try waiting
before you go to bed at night. If there is a major drop a currency pair, (150 - 200 + pips)
see if the U.S. markets are in panic mode. When the U.S. markets are panicking, the
correlations (opposites) tend to fall apart. If you see these kinds of things happening, quit cost
averaging, quit buying, and stay out. If you are already in a few positions you should be fine
as long as you have been trading conservatively. 2 to 4 working trades (combos) in the
mild category caught in a downturn should not be problem, but you will have to carry it for
a while. Once again do not trade the Risky or the Aggressive categories when seeing
signs of exhaustion.

4.) Overall, the charting is only secondary to what we do. In the beginning of its inception
4Xworks was a chartless system. However, it is more profitable if a downturn can be avoided
which is why we use some charting. Before executing your trades, take some time and see
how the US markets reacted during the day. Historically, the correlations hold even in a bear
market. Regardless of market conditions, watch out for panic on Wall Street.

A great market news resource is MSNBC. Shows like Morning call, Power lunch, and Closing
bell are great programs that will inform you of huge sell-offs in the Dow. A 200 to 300 point drop in
the Dow in a single day is an indication of economic meltdown.

26.
VII. Thoughts on trading.

1.) Be patient! This is not a race! If your account is negative wait it out. If you
have room to cost average WAIT until it falls at least 80 pips.
Also, please remember that a profit is a profit, there is nothing wrong with a 5
to 10 percent increase in a month. If you are a person who lacks patience, you
may consider trading a demo or second account for your riskier trading.

2.) Do not free trade! What I call a free trade (directional trading) is trading one
currency at a time. Do not trade without the hedge! If you want to scalp and free
trade, open a second account for that type of trading.

3.) Close the whole combination! Do not close out just one side of a
combination trade without the other. WAIT until the winning dominates the
losing. If you take profit from the winning side and get back into the hedge, your
hedge will be out of balance and could remain out of balance for a VERY long
time.

4.) Wake up! Trading can be exciting. It is not uncommon to glance at your
computer the instant you dash out of bed. Remember, the market is not going
anywhere. Before you turn your computer on, wash your face, get a cup a coffe
or whatever you need to do to wake up and become fully aware of your
surroundings. Trust a man with experience! I have made some costly and
avoidable mistakes simply because I was incoherent from sleepiness.

27.
VIII. Frequently asked questions.

1.) Is this a type of trading a new concept?

No. This type of trading has been around for a while. But it is getting some notice in the forex
world and is also turning some corporate heads.

2.) Can I trade 4 combos in the risky category?

Yes you can, but you are exposing yourself to higher risk. I do not recommend it but it can
be done.

3.) Why not use the information listed for directional trading?

You can, but the hedge is designed for your safety if the prediction is wrong. It helps eliminate
the stress factor and the psychology of trading. Remember a high probability means
probably. A successful trader never sees how much he can win compared to how much he
can lose.

4.) Can I trade the GBP/USD or the USD/JPY and allocate my own percentages?

The Pound is a very volatile pair to trade, especially the Yen (Do not trade the Yen!). These
currency pairs are extremely unstable in times of economic panic. If you want to experiment
with the pound, allocate higher/lower percentages, or add more options to your trading, go to
the website listed below. Forex-assistant is not affiliated to 4Xworks. The information is
made available only for your education. 4Xworks receives no incentives.

Go to:
www.forex-assistant.com/downloads.html

28.
IX. How the hedge works
Right now you maybe a little lost as to how the reciprocals work. Its
quite simple really. When one currency is making money, the other will
lose money. The kicker to this play is that they are not perfect opposites.
One currency will always work harder than the other. The cool thing
about this concept is that they take turns doing this. In other words, if
you are negative in your account, wait a few days (sometimes weeks)
and you will see the account turn in your favor. Now when we cost
average our account, we can see a combination work in our favor much
more often than if we were to just get in one large lump sum. Not to
mention, cost averaging also minimizes our risk.

X. Conclusion
I have been trading the forex market for some time now and have spent countless hours studying
how to make it work for me. I have made money and I have lost money. So far I have not found a
trading method that makes money as consistently as this one and I am confident that you can
experience the same amount of success as I have. Keep in mind however that trading any market is
risky business and know that there is no holy grail system. Anyone can lose so be a wise and patient
investor and avoid greed at all costs. Never compare youself to another trader even if you are only
capable of locking in 6% a month. There is nothing wrong with profit no matter how small it is. Rome
was not built in a day and neither is wealth. So be content in your trading and embrace the journey.
Any questions regarding this system please feel free to shoot me an e-mail to info@4xworks.com and I
will try to help you as best as I can. Thank you and

Happy trading!

29.