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BIRD WATCHING IN LION COUNTRYFOREX TRADING EXPLAINED

2010 EDITION(Revised, Updated & Expanded)

Dirk du Toit

NOTICE: You Do NOT Have the Right to Redistribute or Resell this ebook!

If you obtained this ebook from anywhere other than http://www.bird-wtaching-lioncountry.com, you have a pirated copy. Please help stop Internet crime by reporting this to: mailto:dayforex@gmail.com 2009 Copyright Dirk du ToitALL RIGHTS RESERVED. No part of this ebook may be reproduced or transmitted in any form

whatsoever, electronic, or mechanical, including photocopying, recording, or by any informational storage or retrieval system without express written, dated and signed permission from the author.DISCLAIMER AND/OR LEGAL NOTICES:

The information presented herein represents the view of the author as of the date of publication. Because of the rate with which conditions change, the author reserves the right to alter and update his opinion based on the new conditions. The report is for informational purposes only. While every attempt has been made to verify the information provided in this ebook neither the author nor his affiliates/partners assume any responsibility for errors, inaccuracies or omissions. Any slights of people or organizations are unintentional. If advice concerning legal or related matters is needed, the services of a fully qualified professional should be sought. This report is not intended for use as a source of legal or accounting advice. You should be aware of any laws which govern business transactions or other business practices in your country and state. Any reference to any person or business whether living or dead is purely coincidental.

About Dirk du Toit

www.dirkdutoit.com www.dayforex.com www.forex-trading-explained.com www.bird-watching-in-lion-country.com

Contents

PREFACE PART 1 HOW TO BUILD A BOMB

Introduction Chapter 1 Chapter 2

Who is this book for? A Trading System

3 6 18

PART 2

UNDERSTANDING THE EDGE

Chapter 3 Chapter 4 Chapter 5 Chapter 6

Paint the right picture About the Edge How not to trade Elements of a proper trading system

29 47 69 77

PART 3

AND ALL THAT JAZZ

Chapter 7 Chapter 8 Chapter 9

Foreign Exchange Basics The Foreign Exchange Market Trading the Spot FX Market

87 123 143

PART 4

USING THE EDGE

Introduction Chapter 10 Chapter 11

Pre-trading Edges General Trading Edges

163 168 194

PART 5

APPLYING YOUR EDGES

Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16

The Market in perspective The 4x1 Strategy Piling up the edges Median Trading Making the Edges Count 4x1 Trading as Risk Management Relational Analysis Combining your Edges

223 236 254 267 285

EPILOGUE

APPENDIX

One Year of 4x1 Trading

Preface

The first version of BWILC was written during 2004 and published at the end of that year as an ebook. One of the reasons I chose the ebook format was because of the fickle nature of the online retail forex trading industry. It was new, constantly changing, and an ebook would be ideal for quick adaptation. My target audience was the typically confused novice trader, confused because his first introduction to the market was the overwhelming diet of intra day trading with technical indicators as only toolset. To be in a position to write a preface five years later to an updated and expanded version of BWILC is a sign of success. The book is still in demand. It has sold in over sixty countries, and this despite its contrarian trading methods or its promise of success but only with blood sweat and tears. Five years is a long time in the forex market where quick fixes are the norm for aspirant traders looking to get rich without having to work for it. BWILC is contrarian. And five full years later it is still on the road less travelled, and still going strong. I suppose in one sense the central question I wanted to answer for myself by writing this book was why so many smart people, but so many forex losers? Its not as if the losers were doing crazy stuff. On the contrary. These are smart people who read, researched, studied, planned. Then they traded, and failed. Why? They have apparently conquered the basic psychology about greed and fear. In fact, they know more about behavioural finance than many successful traders. They obtain more than a decent understanding and skill at applying technical analysis to intraday prices. Some even put this to work within the framework of fundamental drivers or news trading.i

BIRD WATCHING IN LION COUNTRY 2010, PREFACE

They know a lot about money management.

It looks like they have the whole package, but still they fail. Why? I spent a lot of time thinking about this and it was only through a process of interaction with BWILC readers who decided to join my personal mentor programme and were becoming successful traders that I began to realize what was wrong.. It wasnt that BWILC was contrarian. It wasnt contrarian enough!

People simply did not understand the deep differences between successful forex trading and what they were generally attempting. People were seduced with a message tainted at its core. It looked good but it was a pig with lipstick. If marketing wizards said to these people you can become fabulously rich in no time with no effort little money and less risk, who was I to tell them they were deluding themselves? The one thing I did have in my favour was the market. The market has a way of teaching lessons that I cant. I knew the market was going to take their money. And it did. That is why a lot of my clients arrive at my door as patients, bandaged and hurting. Then I tell them exactly what they dont want to hear, which is that trading is tough, that you need lots of time, lots of effort, some money down as trading capital and some invested in resources like training and even then you still run the risk of losing it all. Thats what I tell them and thats what I am telling you. But its working. My mentorship programme is growing so quickly that I have to limit the numbers. (Oh yes, you also need luck. But chance favours the prepared trader. And the more you practice the luckier you get!) The new BWILC is based on the feedback of readers, clients and my mentoring students. There is one thing I want to say up front. BWILC has repetition, but that is for a specific purpose. Each repetition of a topic or a subject is subtly different. The market is a very difficult animal to understand. You need to mull over it time and time again, but from a slightly different angle. I have tried to weave that method into the fabric of the book. Just let it seep in. There are areas of my trading approach I did not emphasise enough - I have embroidered on these. There are others I have put in for the first time. I deal now in some detail not only with median trading but how my daily briefings are applied to the median grid, in real time, using relational analysis. One miscalculation I made was how literally people would take some of the things I wrote. I have tried to clear this up. The 2009 edition has been, I hope, greatly enhanced and enriched. I have split Part 4 and added a new Part 5. This means there is a lot more detail about 4x1 strategy, especially the 5th one and I have included much more about the median grid trading methodology. FinallyBIRD WATCHING IN LION COUNTRY 2010, PREFACE ii

I have replaced almost everything I have said about relational analysis and I have included an extensive example of relational analysis, fresh out of the oven, end of November 2009. But it is incumbent on me to warn you that relational analysis cannot be taught in a static text / context like a book. It can only be taught in a dynamic context like an online

community where you can on a day-to-day basis observe, learn and eventually own the ability to do it yourself. Ultimately what I would like to achieve with this book is to convince you, by giving you my best effort at this time, to give me some of your time going forward. I was quite open about this in BWILC 2004 and I was attacked for this on a popular forum. I said: reading this book is not going to be enough to make you successful. You will need more. All successful people acknowledge the role mentors play in their success. I will mentor you to help you reach your realistic goals in forex trading. We are in a brave new world, a Wiki world, a world where the wisdom of the crowds rule, where online communities encourage and empower their members to reach for and achieve their individual goals. This book is therefore also an introduction to my private online

community where you can think together. But ultimately my book is based on the principle that in order to be successful in your personal forex trading business you need to own your own brain.

I hope to see you join our forex family in due course, but first you have to understand the need for a paradigm shift.

Dirk du Toit Pretoria, December 2009 www.dirkdutoit.com

BIRD WATCHING IN LION COUNTRY 2010, PREFACE

iii

Foreword to the 2004 edition

The first person I met in the retail forex trading industry, the CEO of a prominent start-up forex trading company (IB) in South Africa was previously a star trader in vending machines. The second person I met was the marketing director of a market maker. I expected to meet knowledgeable, successful and profitable traders. I met fast talking, successful, profitable salesmen. I knew I had entered lion country. Shattered expectations. That is the result of all financial failures. And shattered

expectations are part of the history of the relatively young retail forex trading industry. Thousands of traders expected to