High-Probability Techniques For Trading Without Indicators .

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High-Probability Techniques forTrading without Indicatorsnak e dforexFREE Trading Software andVideo Tutorial Includedalex nekritinwalter peters , phdForeword by Abe Cofnas

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 2012i21:10Printer: Courier Westford

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier WestfordNaked Forexi

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier WestfordFounded in 1807, John Wiley & Sons is the oldest independent publishingcompany in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketingprint and electronic products and services for our customers’ professionaland personal knowledge and understanding.The Wiley Trading series features books by traders who have survivedthe market’s ever changing temperament and have prospered—some byreinventing systems, others by getting back to basics. Whether a novicetrader, professional or somewhere in-between, these books will providethe advice and strategies needed to prosper today and well into the future.For a list of available titles, please visit our Web site at www.WileyFinance.com.ii

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier WestfordNaked ForexHigh-Probability Techniques forTrading without IndicatorsALEX NEKRITINWALTER P ETERS, PhDJohn Wiley & Sons, Inc.iii

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier WestfordC 2012 by Alex Nekritin and Walter Peters. All rights reserved.Copyright Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act,without either the prior written permission of the Publisher, or authorization through paymentof the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive,Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com.Requests to the Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 7486008, or online at http://www.wiley.com/go/permissions.Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their bestefforts in preparing this book, they make no representations or warranties with respect to theaccuracy or completeness of the contents of this book and specifically disclaim any impliedwarranties of merchantability or fitness for a particular purpose. No warranty may be createdor extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professionalwhere appropriate. Neither the publisher nor author shall be liable for any loss of profit or anyother commercial damages, including but not limited to special, incidental, consequential, orother damages.For general information on our other products and services or for technical support, pleasecontact our Customer Care Department within the United States at (800) 762-2974, outsidethe United States at (317) 572-3993 or fax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content that appears inprint may not be available in electronic books. For more information about Wiley products,visit our web site at www.wiley.com.Library of Congress Cataloging-in-Publication Data:Nekritin, Alex, 1980Naked Forex : high-probability techniques for trading without indicators / Alex Nekritin,Walter Peters.p. cm. – (Wiley trading ; 534)Includes index.ISBN 978-1-118-11401-8 (cloth); ISBN 978-1-118-22435-9 (ebk);ISBN 978-1-118-26244-3 (ebk); ISBN 978-1-118-23749-6 (ebk)1. Foreign exchange market. 2. Foreign exchange futures. 3. Speculation.I. Peters, Walter, 1973- II. Title.HG3821.N45 2012332.4 5–dc232011043306Printed in the United States of America10 9 8 7 6 5 4 3 2 1iv

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier WestfordFor all gun traders as well as those rude andcute possums of the world.v

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 2012vi21:10Printer: Courier Westford

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier PART ONExiiiNaked Forex Trading RevealedCHAPTER 1 The Fundamentals of Forex Trading3CHAPTER 2 Avoiding a Trading Tragedy9CHAPTER 3 Back-Testing Your System25CHAPTER 4 Identifying Support and ResistanceZones39PART TWONaked-Trading MethodologyCHAPTER 5 The Last Kiss73CHAPTER 6 The Big Shadow95CHAPTER 7 Wammies and Moolahs111CHAPTER 8 Kangaroo Tails131CHAPTER 9 The Big Belt151vii

P1: OTA/XYZJWBT642-fmP2: ABCJWBT642-NekritinJanuary 11, 201221:10Printer: Courier WestfordviiiCONTENTSCHAPTER 10 The Trendy Kangaroo163CHAPTER 11 Exiting the Trade177PART THREETrading PsychologyCHAPTER 12 The Forex Cycle203CHAPTER 13 Creating Your Trading System209CHAPTER 14 Becoming an Expert229CHAPTER 15 Gaining Confidence239CHAPTER 16 Managing Risk249About the Trading Software and Video Tutorial261About the Authors263Index265

P1: OTA/XYZP2: ABCJWBT642-ForewordJWBT642-NekritinJanuary 7, 201211:24Printer: Courier WestfordForewordhe Internet engendered the online trading phenomenon. One cantrade anywhere there is a connection to the World Wide Web. The result has also been the creation of instant experts, trading gurus whooffer modern versions of snake-oil cures for traders. The web is floodedwith trading alerts, systems, and blogs that promise returns that will leadto instant wealth. Most of the books in the field fail to provide actionableknowledge. In this environment, Alex Nekritin and Walter Peters in NakedForex: High-Probability Techniques for Trading without Indicators provide an honest and effective presentation about forex trading that certainlybeginners need, and that more experienced traders forget they need.Naked Forex makes some powerful points about trading forex that really apply to other markets as well. First and foremost, price is the most important indicator of all. All indicators are derived from price. Many tradershave forgotten this fact because computerization has made it easy to generate new indicators. Indicators work more like training wheels for learningto ride a bicycle. They are temporary in their capacity to help traders buildtheir skills. They actually limit the evolution of a trader’s performance because they provide a disincentive to “listen” to the market. Naked Forexgoes into detail on how a trading signal that is indicator-based is inferior towhat Nekritin and Peters call a “naked” signal.Another key insight that the book provides is the importance of knowing one’s personality in trading. Trading systems that are based on untestedalgorithms that are purely technical will surely fail. Nekritin and Peters argue that trading systems should reflect decisions that traders would makethat are based on looking at charts. Manual backtesting, they suggest, is aneffective way to identify a trading system’s strengths and weaknesses.A third major focus of Naked Forex is the concept of identifying support and resistance zones. The fact is that with the trillions of dollars thatfloat each hour through the currency markets, prices reach certain levelsand stop. One can try to figure out why they stop rising or stop falling. Butthe job of the trader is to observe accurately where the price is and where itcame from. Price zones provide the naked truth about market sentiment. IfTix

P1: OTA/XYZP2: ABCJWBT642-ForewordJWBT642-NekritinxJanuary 7, 201211:24Printer: Courier WestfordFOREWORDa price breaks through a zone, no matter what the reason, it is a signal—anda more powerful signal than any indicator. Nekritin and Peters call thesepoints of price action market scars. It is a good metaphor because marketshave memory and so do traders. The authors introduce the “last-kiss trade”as a powerful tool in identifying when breakouts have occurred. The bookis filled with gems that provide visualizations of price action, such as thebig shadow, kangaroo tails, and the big belt.As someone who has been training people on how to trade forex fornearly 13 years, I welcome this book as one that stands out as a basic manual on how to evaluate and trade the increasingly chaotic forex markets. Iwill use it for my students.Abe Cofnasauthor of Trading Binary Options (Bloomberg) andeditor of The Fear and Greed Trader Newsletter,Agora Financial, Inc.

P1: OTA/XYZP2: ABCJWBT642-bprefaeJWBT642-NekritinJanuary 11, 201221:12Printer: Courier WestfordPrefacenfortunately, most forex traders lose out. Profitable trading is reserved for the select few. Expectations drive reality for many thingsin life, and successful trading is no different. Most forex traders havethree preconceptions about successful trading. These are the three mythsof successful trading, and the structure of this book is based on each ofthese myths.Myth 1: Successful trading must be indicator based. The first part ofthis book dispels this myth. There are many ways to profit in forex, someof them do involve indicators, but indicators are not necessary for successful trading. There are professional traders around the globe, many ofthem good friends of mine, who use “naked” charts to make trading decisions. In some ways, indicators delay the progression of the trader becausethe focus is on the indicator, rather than price action. Indicators becomethe scapegoat for losing streaks and often keep losing traders in a holding pattern. It is much easier for the novice trader to begin trading withoutindicators from the beginning.Myth 2: Successful trading must be complex. The second part of thisbook is about naked trading systems. These systems are incredibly simple. Do not confuse simplicity with ineptitude. Although these systems aresimple when applied correctly, they may also yield big profits and buildconfidence in your trading. You may view this as the meat of the book, themost important section, but I disagree. I think the third section is the mostcritical to your trading success.Myth 3: Successful trading is dependent on the trading system. This isprobably the most widely held belief among traders. This is precisely whythere are thousands of trading systems on the market, all promising greatriches to the brave traders who pony up the money for the next Holy Grail.Many veteran traders understand the importance of trading psychology.Personal beliefs and attitudes toward risk are the greatest predictors oftrading success, and the trading system is not nearly as important as manytraders assume. For most traders, after years of trading, this fact becomesapparent. The third section of the book concerns trading psychology andUxi

P1: OTA/XYZP2: ABCJWBT642-bprefaeJWBT642-NekritinxiiJanuary 11, 201221:12Printer: Courier WestfordPREFACEhow you may both identify and change your thinking, because this is thereal driving factor in your trading success.Many readers will continue to hold onto these myths. In fact, somereaders (those who believe trading success depends on the trading system)will simply read the second section and begin trading the naked tradingsystems. This is unfortunate. The first section is critical because it offersreasons for price action trading (a new belief system) and a course of action for becoming an expert at naked trading (new trading habits). Thethird section is where breakeven and slightly profitable traders will learnto move into the realm of the true professional trader. All sections of thebook are important, and it is my hope that by reading it you will find simplemethods for extracting profits from the market.You can trade successfully without indicators. For many traders,naked trading is both refreshing and easy to apply. You can trade successfully with simple trading systems. Simple systems are robust and powerful.However, ultimately, your success as a trader will depend, not on the trading system, but on how you incorporate your beliefs and attitudes aboutrisk into your trading routine. I hope this book will aid you in your journeyto trading success.I also hope that you keep in touch by stopping by the companion web site for this book, complete with live market trades, additionaltools, and new naked trading systems. You will find this on the Web atwww.fxjake.com/book.Walter Peters, PhDSydney, AustraliaOctober 2011

P1: OTA/XYZJWBT642-backP2: ABCJWBT642-NekritinJanuary 7, 201211:28Printer: Courier WestfordAcknowledgmentshere are many people who deserve acknowledgment for this book.The list includes but is not limited to the following: Meg Freeborn forpatience and unique ability to turn rough stones into polished gems(I know because I have seen her do it). Eddie Kwong deserves credit forputting this book idea in front of the right people. Sean Lydiard is livingproof that six degrees of separation is fact. Arshia Bolour, who is a truebrother in every sense of the word. Abe Cofnas, for his patience and kindness in helping me with the conversion from trader to trading author. EvanBurton for believing in the book idea and making it happen. Colin Jessupfor his unique perspective on naked trading. My brother Ashkan Bolour,who introduced me to the world of forex so many years ago. My parentsfor unconditionally supporting me in every endeavor. My dissertation committee (and Dr. David Estes in particular) who taught me years ago how towrite so that others could understand me. My sister for always being therefor me. And to the first-line editor Melissa McConaghy—without your help,I am

trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future. For a list of available titles, please visit our Web site at www.WileyFinance.com. ii. P1: OTA/XYZ P2: ABC JWBT642-fm JWBT642-Nekritin January 11, 2012 21:10 Printer: Courier Westford Naked Forex High-Probability Techniques for Trading without .