The 10 Essentials of Forex Trading

06/01/2007 12:00 am EST

Focus:

Jared Martinez

President, CEO, and Founder, Market Traders Institute, Inc.

As an avid follower and student of the Forex markets, it was with great interest that I picked up Jared F. Martinez’s new book, The Ten Essentials of Forex Trading. The explosion of interest in the FX markets over the past few years has been astounding, as the high leverage and ability to trade 24 hours has made them very attractive.

The book starts off on a very strong note with many honest and valuable guidelines that will help you be a successful trader. The personal litmus test, if answered honestly, should allow a novice trader to quickly assess their strengths and weaknesses. Throughout the book, the need for discipline is stressed, as is the use of both profit-taking and protective stops. Unfortunately, in my opinion, the solid educational materials are interspersed with the promotion of the author’s own charting software and other products. While cautioning early on that there is no holy grail, some of the descriptions and examples that focus on his products might make you think otherwise. In my opinion, the book would be much stronger had the sales portion been saved for the end of the book. For example, the charts that imply it is possible to profit from huge moves such as the decline from 144 Yen/$ to 113 Yen/$ could give a novice trader unreasonable expectations and goes against the author’s advice to determine a profit taking level before the trade is initiated.

That being said, there are some good nuggets of information that should put a novice trader on the right track. The chapter on candlestick charting should encourage those not familiar with it to further explore this technical approach. His chapter on Fibonacci is also interesting, as it is an important part of his trading approach. In fact, Martinez states “knowledge of the Fibonacci’s saved my financial life.” The review of how Fibonacci appears in nature will be a surprise to some traders and the derivation of the Fibonacci ratios is generally easy to understand and follow. Jared uses the Fibonacci ratios to analyze corrections within a market’s major trend and thus to gauge the strength of the underlying trend. In other words, a market that only corrects 38.2% before moving to significant new highs is in a stronger uptrend than one which corrects 50%. He also uses Fibonacci projections to determine profit-taking zones, which I have also found to be a valid approach.

Towards the end of the book Jared has a well thought-out discussion of money management, which is a key ingredient to any successful trading career. No matter how long you have been trading a review of why it is so important is always needed. As is appropriate, he stresses that you should only trade with a stop and should analyze the risk before taking the trade. For those who put on a trade without a stop and end up with a profit, his reaction is “Congratulations, you just ran your first red light without an accident.” Invariably, he says, even if you get away with trading without a stop for two or three times it eventually will be disastrous. Also provided is a risk management formula that many will find useful, and he also points out that you can be right only 30% of the time and still make money, if your losses are small and your profits are large. He concludes this segment by advising, “Don’t fear the market – respect it. It is not to be feared, it is only to be understood.” If you are willing to endure or skip over the sales pitch there is some value in The Ten Essentials of Forex Trading.

Related Articles on