Welcome to the second edition of Fast Break "Ask an Expert". Today's market expert is Jared F. Martinez.

Jared F. Martinez, one of the country's foremost experts in currency trading, has been taking that message to the public for over 10 years. "The currency market is widely considered one of the most challenging markets in the world, but I teach about it in a simplified, straightforward way," he explains. "I give individuals the information and the tools they need to trade successfully and take control of their own finances, rather than listening with ‘blind faith' to broker recommendations. Above all, I encourage traders to continue learning in an environment where knowledge is the key to power and success." ("FX Chief" 1999)

Market Traders Institute teaches individuals how to trade the FOREX. Utilizing a live mentoring process available to clients 6 days a week 20 hours a day this uncommon industry standard allows individuals to learn when they want and at their own pace.

Coupled with Market Traders Institutes MTI 4.0 Technical Analysis Charting Software designed and developed for FOREX Traders. This Charting Package is unique in that Martinez and his team of programmers not only improved on the current features of a standard Charting package, but they have added pre-configured proprietary FOREX trading indicators only available thru MTI.

Register here for a live trading demonstration!

Market Traders Institute is the world leader in FOREX training with 22 offices in 11 countries. You can see the potential of the MTI methodology and software in a live condition by attending a FREE webinar held 5 times a week.

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Fast Break "Ask an Expert"
Today's Expert: Jared F. Martinez

Dear Fast Break Readers,

Thanks to all who submitted questions for this week's newsletter. Today, I'll be responding to eight of your questions.

Tony from Georgia asks:

In currency trading they always say to have a stop in place, but if you do, you can lose because of the high swings. What can you do? Is there any other way to protect your trade position?

"FXChief" answers:

The greatest part about trading is you get to do whatever you want. The toughest part about trading is that you will be held accountable for your actions ... right or wrong! No one knows, I don't care how great of a trader or expert you are, where the next pip or tick will go. Trading without a stop is like showing up to a gunfight with a knife ... you will lose in the end. The art of successful trading is predominantly acquired from educating yourself first how the markets work. You must protect yourself in EVERY trade. However, placing your protective stoploss order in the way of the natural wave/movement of the market is doing nothing more than giving your money away.

Trading is a game between bulls & bears who both have clear objectives, and are fighting for control and trying to score points against each other! Knowing where the boundaries are allows you to place your stop out of the way of that natural movement/wave, or what you call "high swings". Knowing where these boundaries are is imperative to your success in not only currency trading, but in all trading.

The greatest way to protect your trade position is to properly educate yourself on the true value of support & resistance, and the impact they have on price movement. Understanding the effect that past support & resistance has on traders allows you to place your stop in the right location.

Jerry asks:

Nobody ever explains when to use what type of buy or sell orders under different market conditions and why?

"FXChief" answers:

There are three types of orders predominantly used in trading currencies: Stop orders, Limit orders and Market orders. Market Orders are used to enter the market at market prices, buying on the "ask" and selling on the "bid". The rule is, if you place a "buy order" to enter above the market, it is called a stop order. If you place a "sell order" to enter above the market, it is called a limit order. If you place a "buy order" to enter below the market, it is called a limit order. If you place a sell order to enter the market below the market it is called a stop order.

The average spread on the seven major world currencies, range between 3-5 pips. (GBP, JPY, USD, CHF, EUR, CAD, AUS) Most successful traders who have a well thought out methodology and trading system, lock themselves into the habit of creating a trading plan, and then trading that plan. A large part of that plan is to patiently wait for a signal, a sign, a confirmation from an indicator or group of indicators, a recognized pattern or a combination of some or all of the above. Then they enter the market using a Market order. They then use the Stop order to protect their position against potential loss and their Limit order to exit for profit.

Stop orders can be very effective for entering the market after the market has consolidated and a trader is anticipating a "break out" from the tight trading range. They would then "straddle" the market.

Vince from California asks:

When following an intraday price retracement, how can one determine if the move is a likely a pullback or reversal?

"FXChief" answers:

I think it is imperative to have an overview of the forest if you're going to study the tree. Looking at an intraday price retracement without understanding the overall direction of the market is like chopping the tree down with no gravity. It can swing anyway it wants when it falls, perhaps in your truck allowing you to haul it away for good firewood, or killing you before it gets there!

The key to understanding whether or not you are potentially involved in an intraday price retracement or trend reversal is to start off looking at a daily chart. Begin drawing your Trendlines and find the direction of the current trend, keeping in mind the market waves. Try to establish whether the market is retracing, or moving in the direction of the trend on the daily chart.

Now move to a 4-hour chart, drawing your Trendlines and look closer at the current wave movement from the daily chart. Now move down to an hourly chart or a 30-minute chart. If on a daily chart the market is retracing, there is a high probability that once the market hits Trendlines or convergences, it is going to bounce and reverse. Meaning, you should be getting a reversal on your intraday chart. If the market has just bounced in the direction of the trend on the daily chart and is now moving in the direction of the trend, you will then more than likely be getting a retracement.

You must remember the daily and 4-hour chart monitor the direction of the flowing river, while hourly and 30-min and under charts monitor the direction of the streams. Rivers are stronger than streams.

Sukhem from India asks:

How can a real breakout be identified from a false one, and what can be its strength?

"FXChief" answers:

Real breakouts usually happen after a posted fundamental announcement or a surprised fundamental announcement. Most successful currency traders constantly monitor the 14 scheduled monthly announcements that can move the market. Your weekly and monthly announcements the majority of the time have little effect on the market. It is the quarterly and yearly announcements that have the greatest effect of the market.

Whether it is a monthly, quarterly or yearly announcement, if there is no major change there will be no major price movement. However, if there is a major percent change, there will be a major price movement of perhaps a 150 - 300 pips over an 8-hour period or less.

Fundamental announcements offer great risk versus reward opportunities for those traders who understand how to properly straddle the market before the announcement. If you find consolidation and there is no fundamental announcement, you will probably get caught up in a "bull or bear trap", which is nothing more than a "false breakout".

Rehan from Iftikar asks:

If I trade with a fund of amount of $100,000, how much can I earn if I follow your instructions, and what is the risk factor?

"FXChief" answers:

It really doesn't matter whether you have a $100 thousand, $100 million or just a $1000. It all comes down to Equity Management. You must enter every trade with the confidence that you did your homework, you now have found comfort in the number you have chosen, but with the realization you can lose irrespective.

The first responsibility every trader has it to quantify their potential loss in any given trading opportunity, find the location of their protective stoploss, and then ask themselves if the trade does not work out, can they afford the loss? Successful self-directed traders risk no more than 2-5% maximum of their equity on any given trade. Money Managers are more conservative, and on average like to risk no more than ¼ percent to 1.5 percent of the total equity under Management.

Your focus as a trader is to receive a return on investment. You can lose 70% of the time and still deposit a hefty sum in your account. You do the math! Seven losses @ $300 each = $2,100 in losses. Three wins @ $900 each = $2,700. Imagine what your returns would be if you got in the habit of making $1,500 or $2,000 a trade! Keep your losses small and let your profits run!

Jeff from Illinois asks:

Back in March, your submission to Fast Break included a feature which discussed Financial Breakouts where a trader could straddle the market and take advantage of potentially 120-300 pip break-outs. During my days with a Demo account and into the first few weeks with a Live account, I had done this with great success. But now all of a sudden I'm being "locked-out" and eventually let in, but usually for a loss. The first occurrence was during Easter week, so I assumed the market was too thin in volume. But now it happens all the time to where I'm reluctant to ever try it again. What does being "locked-out" imply? I thought the Forex markets didn't suffer with what amounts to slippage."

"FXChief" answers:

Your first mistake was that you assumed the market was too thin in volume. Don't ever assume anything, EVER! The reason thousand of traders are moving to trade on the Forex, is that not only is it convenient (you can trade 24-hours a day) it is extremely liquid.

The majority of Forex Brokers that facilitate the small investor is a "Market Maker Broker." That means they get the set prices and make up their own set of rules. They must stay competitive and fair, or traders will not use them. However, if their rules do not fit your trading needs, you may consider shopping around for another Broker.

Do not feel awkward about interviewing your Broker to see if they can meet the needs of your Trading style. I have come to the realization that most traders are very willing to play by the rules. The saddest part is that most traders start trading without knowing the rules. When you start trading without knowing the rules, you have now entered the school of "hard knocks," which means loss of equity and loss of trading confidence, not to mention the ill feelings you create for your Broker.

As the saying goes ... you can pay me now, or you can pay me later ... but either way you're going to PAY! What does that really mean? If you can find a mentor that understands the game, who is willing to share their experience and knowledge for a reasonable price, you will be way ahead financially in investing in yourself and your education than paying along the way!

Howard from Alabama asks:

Is it possible to make a $1000 a day trading currencies, and how much money is required for the account?

"FXChief" answers:

It is possible to make over $1,000 a day trading currencies. It is also possible to lose $1,000 a day and MORE trading currencies. Please notice the sentence that I capitalized the word MORE.

The reality of currency trading is that 90% (if not more) of all novice traders lose! Clearly traders come to the market focused on greed rather than reality, and usually when your greed exceeds your need, it will take you down a path of self-destruction. We hate dealing with reality. That is why we struggled so much loving our parents as we were growing up.

Knowing we can make and lose a $1,000 a day (if not more) trading currencies, here is your reality check. You don't have a chance in the world at consistently making $10 a day if you do not properly educate yourself on how the markets work and have a clear understanding of Equity Management. Trading is a learned discipline, every bit as much as becoming a good doctor, lawyer, engineer, pilot etc. One of the greatest lies a trader tells himself is, if he had more money in his account, he would be a better trader. Your trading account balance has nothing to do with your returns.

I have seen ignorant traders lose their account balances of $3,000, $30,000 and $3,000,000. I have also seen humble, intelligent, educated traders turn their $3,000 account into $30,000 and $30,000 into $300,000. Worry more about getting the proper education in trading on the Forex than the required amount in margin to make a $1,000 a day.

Harry from Lancaster, Pennsylvania asks:

There are many resources out there for dealing with the psychological issues that go hand-in-hand with trading. Which resources have you found that rise above the rest?

"FXChief" answers:

I really appreciated Dr. Elder's book ("Trading for a Living") where he suggested every Trader should attend AA (Alcoholic Anonymous). I also think Mark Douglas' books ("Trading in the Zone and The Disciplined Trader") offer a starting wake up call to one's emotional responsibility when trading.

The hard fact in trading is that YOU are your own worst enemy when trading. The more emotional you are ... the less money you will make, and the smaller your margin account. All traders take their emotional "hang up's" or problems that have held them back from becoming successful in real life to the trading table. The average trader, who habitually self-destructs in every day life, will self-destruct at the trading table!

Your subconscious must be clear on your true objective when trading. The market will provide every trader with what they look for. If you want losses, it is there to be had! If you want to just get by, the market will allow you to constantly break even. But if you want to consistently make money, the market is there to give it to you! Which means, if you want success in trading, you will have to take on the responsibility of recognizing and addressing your emotional baggage and then purging yourself of all those bad habits.

Thanks for reading,
Jared F. Martinez

The views presented in this newsletter are not necessarily the views of FutureSource L.L.C.

Statement of Disclaimer: This report includes information from sources believed to be reliable but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report cannot be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.