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The Little Red TradingBook Top-Down Trading

“An airline pilot never leaves the runway without having

a destination and flight pattern.”

Paul Dean

You Learn Forex

Spring 2009



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©Paul Dean, You Learn Forex

THE LITTLE RED TRADING BOOK

This eBook is about how to become a first class trader in Forex or any

other financial market you choose. It’s about the steps you can take in

order to get to where you can trade on your own from the comfort of

your own office, home, condo, penthouse, mountain or beach home.

Unbelievable as it seems, I think the average person, of which I consider

myself to be, can learn the basic concepts of successful trading in a

matter of weeks.

This is one of the reasons I have called this eBook, The Little Red

Trading Book. I named it after a book of a similar title on writing and

because of a concept written about in the first chapter of that book.

That concept is a Top-Down Approach to writing. This book will take a

Top-Down approach to learning to trade as well as trading itself. Top-

Down trading is trading with “the conclusion in mind” as author

Brandon Royal summarizes with this quote, “ An airline pilot never

leaves the runway without having a destination and flight pattern.”

What we will discuss in this eBook is how to start with a sophisticated

method of trading and fill in the tools you may already know how to

use, underneath. This is not a baby out with the bathwater book. If you

have no knowledge then you will get direction and if you have some

knowledge, even advanced knowledge you can gain from reading this

book.

Here is an illustration of Top-Down learning. I am sure many of you

have seen commercials for a complete set of tools that you could use to

build anything from a bookshelf to a house. If you buy all the tools, can

you build a house? Probably not, especially if you have never built one.



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So what would you do? You could read some books. You can even go to

school and learn about construction. You could become an architect.

You could even decide to get a job on a construction crew and learn

one nail at a time. All of those methods would be Bottom-Up in myview and how most people go about learning.

Top-Down would be finding someone very good at building houses and

sticking to them like glue while they built a house. You would keep

notes, take still shots and put them in a notebook, or make movies of

each step and the order of each step. You would also participate in as

many of the on-site jobs as possible. After you had done this many

times you could probably build a modest house, then a bigger one and

so on. To me, this is the way to learn and the better the person you

learn from and the more knowledge of how to build a good house, the

better you will be. That is an example of Top-Down learning. Learning

with a specific end in mind before you start.

The same would be true of many professions or technical skills,

including trading. I have no doubt that if you were looking over my

shoulder day after day that before long you would be doing what I do

and making lots of pips. Therefore my objective here is to get you

started from the top, down.

Most Forex trading or trading of any kind is from the bottom up. That

would be learning about things like trend lines, moving averages, chart

patterns and formations, candlesticks or price bars, Fibonacci, ElliottWave, support and resistance, and on and on. Once you are done you

have a tool box of items but you still don’t know how to build a house

or make a trade, or read a chart.



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I assume that many, if not most, have a basic understanding of the

Forex market. It is not my intent to rehash those here. If you know

absolutely nothing then it would be best to get a book and read it first

or there are many websites that can give you the basics. If you wouldlike my opinion you can email [email protected] and give me an

idea of your trading knowledge and I can tell you what you might read,

if necessary before you read this book.

But let me reiterate, if you have some knowledge of trading and you

walked into my office and said, “Teach me how to trade.” I would teach

you from the Top, Down. A perfect example of this is golf which I played

and taught for many years. Golfers have problems because they are so

concerned with their grip on the club, their backswing, and their

downswing that they don’t think at all about the target until after the

golf shot has been attempted. That is not what our pilot does and not

what a good trader does. And let’s be clear about something from the

beginning. A good trader is someone at the end of the day, who makes

money.

There are 3 to 4 trillion dollars traded in the currency market every day.

Statistics tell us that 95% of retail traders will fail when trading the

Forex market. Statistics also show that there are about 1.5 billion Forex

traders across the globe. That means there are about 75 million retail

traders who are trading the markets and pocketing approximately 12

billion dollars a day.

How do you get to a place where you are getting some of that money?

Let’s take a look at this illustration to get started.

mailto:[email protected]






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TOP-DOWN TRADING

Technical Trader

Learn the Basics Tools of Technical

Trading

Fundamental Trader

Learn the Basics of Fundamental Trading

Dependent Trader

Find Something or Someone to do

the Trading.

Secondary Trading Tools

Geometric and Patterns

Trend lines Chart Patterns Fibonacci Analysis

Moving Averages Support and Resistance Price Action

Candlesticks Time Frames Gann Analysis

Behavioral

Elliott Wave Theory Oscillators COT

Primary Trading Tool Guidelines

Identifies Momentum in the Market

Provides an Accurate Target

Provides Accurate and Consistent

Entry Point and Stop Loss.

Allows for the Determination of

Trade Worthiness

Objective Judgments



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The chart on the previous page is the structure of how one should learn

to trade in my view. In general the most specific tools are put in use

first by showing a trader all the elements of what makes a trader a

good trader.

For example, what if you won a day at the golf course with Tiger Woods

and he was going to teach you how to properly swing a golf club. What

if you spent the evening cleaning your clubs, in particular your driver.

When you arrived the next morning what if Tiger greeted you and ask

you to pull out your most important club. I wonder how many would

pull out their putter.

If you were asked what your favorite tool was for trading, what would

you choose and why. I am suggesting that the list of things in the Red

Box above need to be met first before moving on to any other trading

tool.

Next, working from Top-Down would be what I call Secondary Trading

Tools. This is where most traders gravitate much as tool lovers do when

they head to Lowe’s or Home Depot. These are without question the

tools of the trader but how many of them will meet the criteria of the

Primary Trading Tool Guidelines in the red box?

The last boxes are where many people start and some never really get

out of these first three boxes. However, by starting from the Top Down

you may entirely eliminate even having to decide anything. These three

boxes represent the choices made to people when they decide to learn

about Forex. You see this illustrated in forums and webinars. People are

trying to decide what is the best method for them to take. Let’s take a

minute to talk about each of the boxes at the bottom.



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Dependent Trader – This person is looking at the option of having

someone or something else do the trading for them. We would all love

it if we could buy a computer program that traded for us and deposited

thousands of dollars in our bank accounts over night. Unfortunately thisis not the case and no matter how attractive this idea may sound it has

not proven effective. If it had, all of trading would be automated and/or

mechanical.

Another aspect of this possibility is finding a person (expert trader) to

do the trading for you. This is risky business. You should never have

anyone trade your money who cannot present hard evidence of their

success rate and, in my opinion, a clear explanation of how they

approach the market. There are many people who will never recover

from recent stock market losses because many money managers could

not read the basics of the charts they were looking at.

Many of the experts hide under the guise of selling you a trading

program that is graphically appealing and seems to have the basis of a

sound system. If you read “About Paul” on my website you will get a

flavor for what this can be about and the money it might cost you.

The Dependent Trader is looking for someone else to do the hard work.

If this is the case, then this trader should also be ready to accept losses

that perhaps they didn’t count on, and frankly who does?

Here is a list of other things that the Dependent Trader will come across

eventually.

1. Selling trading platforms – These are often offered in a free

webinar setting where the charting package which can do

everything including take you to the moon on weekends. It will

http://www.youlearnforex.com/?page_id=1308






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have snappy features and handsome graphics none of which have

anything to do with making money.

2. Proprietary Trading Methods – This is an interesting method of

hooking the Dependent Trader. This can come in the form of acarrot. In other words to get this trading method you would need

to sign up for a $6000 training program from a top Forex training

company. In return they have a proprietary trading method that

you will gain access to. I have been there.

3. A Trading System in the Process of Development – I bit on this

too. Someone teaching their own method of trading that isn’t

quite completed yet, it’s in process. They are often selling a fancyindicator that you need to have in order to trade the system. Or

they may be offering a membership to a monthly webinar. You

also see this in forums. The problem here is that some people just

never get the hang of the system being used and no one makes

money.

The Fundamental Trader

There are many traders who fall under this category. After all, how can

you not be concerned about the fundamentals; interest rates,

unemployment, GDP, Existing Home sales, Retail Sales. The onslaught

of economic indicators come day after day, hour after hour. You are

told that the best way to trade is to focus on one or two currency pairs

and get to know them well. Study all aspects of the economy before

you make your decision to trade. Weigh everything in regard to which

pair is going to have the upper hand.

In every case that I have found of fundamental trading eventually the

fundamental trader has to look at the charts and make technical



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decisions about when to enter. In a paraphrase of Andrew Cardwell,

Technical’s can tell you about the fundamentals but fundamentals

cannot tell you about the technical’s.

I have traded entire weeks without knowing what the economic

indicators were. Without looking at the stock market, oil prices, gold,

CNBC or any business news. Fundamental trading can sometimes be

the definition of paralysis by analysis. And even when you are sure

about the direction of a trade, you can be wrong. What you will end up

doing is spending hours online trying to build a consensus of opinion.

Unfortunately you will most likely gravitate to the side of the argument

you would like to come true. I will leave it at that.

The Technical Trader

I believe the best traders are technical traders. I believe the best

technical traders understand two things better than all other traders

that puts them in the winner’s circle time after time; market

momentum and target.

Why Market Momentum and Target?

As I will list later when we talk about the Secondary Trading Tools,

there are many ways to approach trading. You can for instance, draw a

trend line on chart where is touches three points which is the

conventional method of drawing trend lines that you will read in every

book. But that definition although not wrong is misleading because allyou are doing is imposing your trading method on price rather than

letting price tell you what it is going to do. That is why people who say

that price is all that matters are right. The problem, once you know that

is, what is price telling you?



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If you are going to trade from the Top Down your method has to have

the target in mind from the start. This is because the target is telling

you what the value of that currency should be; the future value. If I am

the pilot of a 757 leaving Los Angeles I know the future value of mytarget and it is four hours later in New York on a runway.

Momentum is what takes me there. Momentum is also directional if

the trader knows what to look for. That last sentence should be

repeated over and over until it is never forgotten. If it is it will save you

from many false entries.

Let’s assume we are a currency trader. What we are waiting for beforewe trade is momentum in the market with a highly accurate known

target. That is not the concept of most traders. Instead they are

thinking entry and how much they can afford to lose. They are often

following one or two of their favorite pairs rather than seeing the

market as a whole. Very traders have the target in mind first along with

the evidence that there is the momentum to get to the target. A signal

to buy or sell with no momentum is no signal. It’s a jet on the runway

with no fuel. If you don’t know when and where momentum is coming,

you will lose many trades to “noise”.

When the target(s) are known and the engine is reviving the trade will

have a much higher success rate. This is why Top-Down trading works

and why traders should tip their idea of learning on its head.



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The RED BOX

The First Step in the Top-Down Process

The items in this box outline what a highly profitable trading system

must have. These are not so much tools but concepts that your trading

tool or system must have to succeed.


We have already discussed momentum to some extent. But my idea as

far as I know has not been expressed by other traders. Obviously, even

though I have read over 100 books, hundreds of articles, and spent

endless hours on forums for more than four years almost 7 days a

week, I could never exhaust all the ideas of traders. However no one I

know of has put these thoughts down in any form that I have seen. I

don’t claim them as mine, but I do believe without them it will be

extremely difficult to succeed. An extensive treatment on Momentum

and Target will be part of my third book on RSI Advanced Trading

Techniques.

Primary Trading Tool Guidelines



Provides Accurate and Consistent

Entry Point and Stop Loss.

Allows for the Determination of

Trade Worthiness

Objective Judgments



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My theory is based on my use of RSI signals on trading charts and the

commonality of those signals across a wide array of currency pairs at

the same time on a particular time frame. In other words, if I am

looking at 12 different pairs on the hourly charts nearly all of them areshowing an initial readiness at a particular hour and then a

confirmation signal in the next. I interpret this as momentum that is

affecting all of the currency pairs. It is like an airport when all is

relatively quiet and subdued. People are reading magazines and

sleeping. Then you begin to hear the PA as flights are preparing to

arrive. People get somewhat restless, some begin heading for gates.

Then the planes arrive and people get off and head toward baggagewhile others are getting on the same planes that arrived. The planes

arriving were the signal that something was about to happen. The

planes lining up on different runways and taking off are the

confirmation. The momentum is the fuel and the take-off.

Or consider a herd of elephants or antelope threatened by a predator.

They are at first agitated, then anxious and when threatened enoughthey will run away or in the case of elephants stampede.

As a trader I am looking for that momentum in Forex across currency

pairs because it gives me a sign that my signals are correct and the

direction that I am trading is correct. I have traded as many as 12 pairs

of currencies at once with stop losses of only 30 to 40 pips in which

none of the trades were stopped out. That could be called Directional

Momentum.

It also reduces the chance that I will be stopped out by noise. When a

plane takes off it goes in one direction. When elephants stampede they

go one direction and nothing gets in their way.



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Why is target so important? Without a target you have no reason to

trade, no prediction or estimate of the future value of a currency pair

or other financial instrument. There is no destination. To trade

successfully traders need to know where price is going if the trade is to

produce the full potential of the trade. And it must be based on

objective measurement that has proven to be true. If this not the case

then the trade is not only a weak speculative trade, it is a subjective

trade.

For example, many traders have a goal of making 20 pips. If the traderreaches twenty pips then they are out except sometimes when they

decide to stay in because they have a good feeling, or perhaps because

the trade shot up to 40 before they could do anything about it. That of

course is a good thing but if they don’t take their profit, which they may

not, thinking the trade will continue to move in their direction, they

may find that the profit they made was impulse buying at the last

minute and then a sudden drop occurs. How much will they let it drop?

What if it drops to below 20? Hopefully they will get out but some

traders will hold on thinking it will go back up. Then the next bar forms

and price goes lower. If you have traded long enough you know what I

am talking about. You’ve been there.

Top-Down trading means there is a specific and objective target well

established by acceptable trading theory. It is one quarter of theequation however, as a target without a specific entry point that relates

to the target and a specific stop which relates to the risk is just as bad

as no target. The fourth part of the equation is the Reward to Risk Ratio

and the question, Is this trade a trade I should take?



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Provides Accurate and Consistent Entry Point and Stop Loss

We discussed this above but any Top-Down method of trading needs to

be able to know where the entry point will be in reference to both the

target and the stop loss. The entry point is more than just a place that

the trade starts, it is a reference point for Risk and Reward.

Once you have an entry you can decide the Risk and here is where

many wannabe traders get into trouble and it’s really not their fault.

Most trading systems leave it up to the trader to decide on Risk. In

other words, how much can you afford to lose? That is arbitrary and

subjective. But a stop or Risk should be based on where the trade hasgone wrong. The trader should know in advance based on their trading

system, where a trade has gone wrong. If your trading system cannot

tell you where the trade is gone wrong then you do not have a trading

system. You are gambling.

Let’s illustrate this now taking Momentum, Entry, Stop and Target

together.

We find an entry point when the market is ready to move. This would

be a signal to buy or sell with momentum. We have take-off with

engines running. We also have determined out pre-flight plan, we have

a target. And our stop is the end of the runway. Hopefully that will not

be a problem!

Our signal to get in the market is to BUY.Our Entry is: 1.3000

Our Stop is: 1.2960 pips and based on where the trade has gone wrong.

Our Target in this case is: 1.3120



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Are we ready for clearance from the traffic controller in the tower?

No!!!

Allows for the Determination of Trade Worthiness

What is Trade Worthiness? Trade worthiness is your Reward to Risk

Ratio and asks the question, under the circumstances do we take this

trade? Is the tower going to give the pilot an “all clear?”

We can decide that quickly.

Risk = Entry – Stop Loss

Risk = 1.3000 – 1.2960

Risk = 40 pips

Reward = Target – Entry

Reward = 1.4200 – 1.3000

Reward = 120

Reward to Risk Ratio = Reward/Risk

RRR = 120/40

RRR = 3:1

The last question is what RRR do we find acceptable in our trading

system? In my opinion 3 to 1 is a minimum. For example, $1.00 traded

has the potential to return $3.00.



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In this case the trade is ALL CLEAR!

1. We have momentum across the majority of pairs.

2. We know the target.

3. We place the trade.

If the trade nears the target and momentum suddenly slows down

(clouds or bad weather), we take all or a percentage of the profit. If we

take a percentage we would move our stop. We could also be moving

our stop as the price approached our target.

Objective Judgments

What does this mean when we talk about trading? When you look at

every tool in the yellow box of Secondary Tools, many of them with the

exception of Oscillators are subjective in nature. This is what is meant

by that. A trend line is subjective if the trader is drawing the line on the

chart because 10 traders looking at the same chart could draw trend

lines from different points. Even the Elliott Wave which has many

followers and takes many years to master is subjective. Traders rarelyagree as to the wave patterns.

An oscillator used properly can make trend line placement on price an

objective exercise as the indicator dictates where the trend line must

go. And these trend lines are from only two points, not three.

The reason that I put Objective Judgments last was because any trading

method to have consistency must have objective cornerstones in whichto establish themselves; it is foundational.

Does the highly respected Fibonacci Analysis do this? Yes and no. One

of the best books on Fibonacci Analysis is by Constance Brown. One of



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her main points is that Fibonacci ratios are often improperly drawn.

They must be drawn so that the lines of the ratios find the areas of

previous support and resistance that have been respected by the

market. If you are trading using Fibonacci then you have to ask yourself if 1.5 billion traders in the world are trading the EURUSD where are

most of them placing Fibonacci ratios? Do you think there might be

some differing opinions? And then add to that where the majority of

traders are drawing them in terms of time frame and it is not hard to

see that this is not the most objective method of trading.

Brown has a very unique method of using Fibonacci ratios to locate

confluence which can be very helpful but again as much as she tries to

define objectivity in the placement, when you have millions of people

using Fibonacci ratios, the placements are going to be different and

they all haven’t read her book so they will not be doing it all the same.

And if everyone did do it the same then there would be no market

because everyone would be on the same side of the market!

Enough about objective judgments except to say the trading method or

tool that is used in Top-Down Trading must have a high level of

objectivity to it. The oscillator that I depend on is the Relative Strength

Index which is a momentum oscillator and it is a leading indicator. It

answers all of the above criteria. We will talk about it more a little later

on.

Following is a brief summary and discussion of Secondary Trading Tools.



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SECONDARY TRADING TOOLS

Trend Lines

1. Trend lines fall under the umbrella of the Geometric method of

trading.

2. Basic trend line placement is 3 points that touch a line. Although

this is the standard subjective idea, I propose that 2 points

objectively placed is more accurate.

3. Price is not determined by the trend line. A trend line is only amethod to frame what it thinks price is doing. It is just a visual

tool of what the trader thinks the market is doing.

4. It indicates the direction of the trend.

5. It can also be used to indicate patterns that are recognizable and

repetitive, something that will be discussed later.

6. Sometimes the most obvious place to draw a trend line is not the

best place to draw it, nor is it the correct place.

7. A trend line with no objective purpose cannot tell you the truthabout price. No matter how well you think you have detailed your

chart with trend lines and other methods if they are subjective

based on your instincts they will be wrong more than they are

right. The only way to know you are going to be right more than

Secondary Trading Tools

Geometric and Patterns

Trend lines Chart Patterns Fibonacci Analysis

Moving Averages Support and Resistance Price Action

Candlesticks Time Frames Gann Analysis

Behavioral

Elliott Wave Theory Oscillators COT



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you are going to be wrong is to change from a subjective method

of trading to an objective method of trading.

8. When you draw a trend line can you find any reason other than

your own subjectivity as to why the trend line you have drawn

should be there?

Moving Averages

1. Moving averages are calculated over time.

2. The reason moving averages are used is to determine trend.

3. Moving averages are less static then trend lines as they adapt to

price as it moves.4. Moving averages are lagging indicators.

5. Using moving averages to enter the market makes stops less

accurate as well as targets.

6. As a standalone trading method, moving averages do not give us

all the information we would like to have. They have value for

helping to determine trend but that information may not be

current enough for us to trade it successfully.

Chart Patterns

1. Pattern recognition. May traders use the many trading patterns

that occur on charts, defined by trend lines, to trade. This is less

subjective then many methods and falls under the method of

Pattern Recognition.

2. Traders speculate that prices will for example, break out in the

direction of the previous trend.

3. An interesting view point on Chart Patterns is the following quote:



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It is most valuable to recognize when a pattern has failed and the

majority of people have been caught off guard. And that failure

happens when the market suddenly destroys the pattern that it

tricked the majority of the people into believing was being formed.

Here are some of the questions you might ask after reading the

quote and assuming it was true or made sense.

How do you know when the pattern failed?

Wouldn’t that only be evident when it failed and wouldn’t

everyone know by then?

How would you know what failure was? Wouldn’t it be based on

what you thought was success? And if success is when failure

happens, “when the market suddenly destroys the pattern” then

when would you know which was which?

Fibonacci Analysis

1. This falls into the Geometric Pattern of trading categories.Constance Brown, who has written extensively on Fibonacci,

points out that many people place their start and end points for

Fibonacci Ratios incorrectly. If nothing else Fibs can fib. In other

words everyone using Fibs do not draw them from the same place

nor on the same time frame.

2. Fibonacci analysis attempts to establish points of retracement.

Although this can seem objective in nature it is relative andtherefore subjective in many cases. It can be like drawing a line in

the sand and saying don’t cross this line. Some people will and

some won’t. If no one crosses than you can say the line was

reliable.



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3. Fibonacci can be used to predict targets. Fibonacci extensions to

find a target have merit.

4. Stops for Fibonacci trading can be somewhat subjective.

5. Constance Brown in her book, Fibonacci Analysis discusses findingpoints of confluence using multiple Fibonacci ratios. This is a very

interesting technique and well worth reading however it is

somewhat of a skill that takes time to develop and even after

development, may not produce consistent results because the

placing of Fib points top and bottom is so varied trader to trader.

Price Action

1. Price Bar or bars that indicate price direction may be changing the

direction of the trend. This is a method that Martin Pring

developed when he discussed his Pinocchio bar. This is a bar that

has a long nose and opens and closes within the previous bar.

The nose of the bar is lying to you that price is going to continue

in the direction of the nose but then changes its mind and goes

the other direction.

2. Targets are not easily predicted primarily because Price Action

does not have a sense of momentum.

3. There are other Price Action bars: Double Bottoms with Higher

Closes, Double Tops with Lower Closes, Engulfing Bars and Inside

Bars. Many of these have been studied at forum websites as

James16.

4. Price Action bars should be used in conjunction (confluence) with

other methods to help eliminate false signals.



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Elliott Wave Theory

1. This is a total trading concept and falls under the Behavioral

methods.

2. The Elliott Wave takes much study and experience to learn. It is

also open to many interpretations.

3. It is best used with another method that allows for precise

entries, stops and targets.

Confluence

This is not so much a tool as a method of finding places where

multiple trading methods merge at one point. For example, a

Fibonacci level with a wave that coincides with Elliott Wave

Theory.

The Definition of Confluence

1: a coming or flowing together, meeting, or gathering at one point

<a happy confluence of weather and scenery>2 a: the flowingtogether of two or more streams b: the place of meeting of two

streams c: the combined stream formed by conjunction.

Non-Correlation

This concept is presented by Constance Brown. She presents several

categories in which trading tools fall. We have discussed several of

them; Pattern Recognition, Geometric and Behavioral. The idea is that

before placing a trade the trader should have an agreement using a

trading method from each category.



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An example might be: Chart Patterns (Pattern Recognition), Fibonacci

Analysis (Geometric), and Elliott Wave Theory (Behavioral). If two or

three of those methods agree then you have a better chance of

succeeding.

I think this is a powerful tool to embrace. The question is which of the

methods we have discussed is best and in what combination?



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THE ANSWER

What follows is an answer to Top-Down Trading. It answers the

question of Identifying Momentum which none of the Secondary Tools

listed can do. Remember without momentum we have no take-off. Also

momentum combined with set ups across a set of currency pairs can be

a very positive factor in the determination of direction. Next is Target.

The Target must be in place before you enter or take off. Third, Entries

and Stops that don’t just tell you what you are willing to risk, but where

the trade has gone wrong. Fourth, you must decide Trade Worthiness

by calculating the Reward to Risk Ratio and last, is your method of

trading objective or subjective?

There is only one tool I know that is objective in regard to momentum,

target , entry , stop, RRR and that is The Relative Strength Index (RSI).

RSI makes all the methods that are in the Secondary Tool Box into

useable and reliable tools no matter which ones you use. It is also a

standalone trading tool. It is called an oscillator as it measures

momentum in the market. If there is no momentum there is no market

to carry trades through to fruition. The use of this indicator across all of

the currency pairs you are trading is the first signal that momentum has

entered and/or slowed. It is a measurement of the collective behavior

of the market, the psychology if you will.

Welles Wilder developed RSI to determine overbought and oversold

conditions. RSI does a poor job of determining overbought and oversold

but many traders still refer to it for that purpose which is totally wrong

and makes some traders think it is not valid. It also is used to locate and

trade divergences. This method of trading has also been found to be

incorrect.



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Andrew Cardwell discovered that divergences create the opposite of

what many traders believe.

So what is RSI good for?

Cardwell also discovered Reversals. These Reversals are the key to

trading RSI and in my opinion the key to successful trading. Reversals

are not subjective, they are found on charts and can be traded from an

objective point of view. Collectively I have found how currency pairs

use this method to create and indicate momentum. The method has a

Top-Down Target before the trade begins as well as an entry, stop and

RRR calculation to determine if the trade should be taken.

Once the trader learns this technique he or she can read a chart in a

matter of minutes and know what is happening. Also because it is a

“leading indicator” the trader can determine when the trade is about to

leave the station and there is a simple method to confirm the trade.

It allows the trader to get the total overview of the market rather than

spend hours trying to figure out waves as in the Elliott Wave theory.Having said that, the Elliott Wave Theorist can use RSI techniques to

pin-point their trades and significantly improve there profits.

And this is true of all of the Secondary Trading Tools that we have

discussed. They can be used to establish confluence and non-

correlation with RSI to increase the probability of success and

confirmation of a trade signal.



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Conclusion

Trading currencies or trading any financial instrument is one of themost difficult things someone can take up. The trade off is how

rewarding it can be. The problem is how to get from 1 on the scale,

where you know little, to 10. Most people will think that you must go

from 1 to 2 then to 3 and 4 and so on to 10. I have attempted to show

here that through my experience, that is the wrong approach.

I believe the Top-Down approach is the correct method. As I said

earlier, if you came into my office I would not start at point 1, I would

start at 10. After all if you learn 10 you may not need 3, 4, 8 or 9.

The next step is yours. I hope that you take the opportunity to learn

some of the items I have discussed above and see the products listed

on the products page of the You Learn Forex website. There is a video

that simply teaches you what you need to know to get started trading

RSI Advanced Techniques in 64 minutes. In 64 minutes you will havewhat you need to become profitable. I know because I have RSI

Advanced Traders who have paid for the video, eBook or both in on

trade. The video is short so that you do not need to take days and hours

going through videos. The concepts are clearly presented and you can

easily repeat them.

The book does the same thing only it takes a little longer to readthrough. However there are things in the eBook that were easier to

illustrate then the video. I would recommend either for learning RSI

Fundamentals: Beginning to Advanced, or both. Either however, on

their own will give you all the information you need.



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I refer to RSI as “Advanced” not because it is difficult but because

almost no one knows about this method of trading. It took me nearly 4

years of studying trading day after day before I came across it.

Fortunately I was alert enough to see that it made more sense thananything I had used in the past. You can actually use it as a standalone

trading system and it will teach you more about trading currencies than

any book I have read.

I have enjoyed bringing you this material and trust that it will help you

on your journey. Please feel free to email me: [email protected]

We also have Free weekly webinars that are free where we discussmany of the topics above and a Daily Briefing that comes with a free

month when you purchase the video or the eBook.

Thanks again and much success,

Paul Dean, President, You Learn Forex

About Paul

More about RSI

Testimonials can be found with each product on the Products page.

Other references can be provided on request.




http://www.youlearnforex.com/

















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the little red trading book

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