Currency Trading For Dummies^®

by Mark Galant; Brian Dolan

• ISBN13: 9780470127636
• ISBN10: 0470127635
• Format: Paperback
• Copyright: 2007-08-01
• Publisher: For Dummies

Summary

Features forex market guidelines and sample trading plans The fun and easy way to get started in currency trading Want to capitalize on the growing forex market? This nuts-and-bolts guide gives you a step-by-step action plan for understanding and trading the forex market. It offers practical guidance and savvy tips in everything from comprehending currency quotes to using leverage, trading with fundamentals, and navigating technical analysis. Identify trading opportunities Understand what drives the market Choose a trading broker Execute a successful trade Minimize risk and maximize profit Analyze currency charts

Author Biography

Mark Galant founded GAIN Capital in 1999; today, the firm's proprietary trading platform is used by clients from 140 countries around the globe.

Brian Dolan has over 18 years of experience in the foreign exchange markets and oversees fundamental and technical research at FOREX.com.

Table of Contents

Introduction	p. 1
About This Book	p. 2
Conventions Used in This Book	p. 2
What You're Not to Read	p. 3
Foolish Assumptions	p. 3
How This Book is Organized	p. 4
Trading the World's Largest Financial Market	p. 4
Moving Currencies: Driving Forces Behind Forex Rates	p. 5
Developing a Trading Plan	p. 5
Executing a Plan	p. 5
The Part of Tens	p. 5
Icons Used in This Book	p. 5
Where to Go from Here	p. 6
Trading the World's Largest Financial Market	p. 7
Currency Trading 101	p. 9
What Is Currency Trading?	p. 9
Speculating as an enterprise	p. 10
Currencies as the trading vehicle	p. 10
What Affects Currency Rates?	p. 11
Fundamentals drive the currency market	p. 12
Unless it's the technicals that are driving the currency market	p. 12
Or it may be something else	p. 13
Developing a Trading Plan	p. 13
Finding your trading style	p. 14
Planning the trade	p. 14
Executing the Trading Plan from Start to Finish	p. 15
What Is the Forex Market?	p. 17
Getting Inside the Numbers	p. 18
Trading for spot	p. 19
Speculating in the currency market	p. 19
Getting liquid without getting soaked	p. 20
Around the World in a Trading Day	p. 20
The opening of the trading week	p. 21
Trading in the Asia-Pacific session	p. 22
Trading in the European/London session	p. 23
Trading in the North American session	p. 23
Key daily times and events	p. 24
The U.S. dollar index	p. 26
Currencies and Other Financial Markets	p. 26
Gold	p. 27
Oil	p. 28
Stocks	p. 28
Bonds	p. 29
Getting Started with a Practice Account	p. 29
Who Trades Currencies? Meet the Players	p. 31
The Interbank Market Is "The Market"	p. 31
Getting inside the interbank market	p. 32
Bank to bank and beyond	p. 33
Hedgers and Financial Investors	p. 34
Hedging your bets	p. 35
Global investment flows	p. 37
Speculators	p. 38
Hedge funds	p. 39
Day traders, big and small	p. 40
Governments and Central Banks	p. 41
Currency reserve management	p. 41
The Bank for International Settlements	p. 43
The Group of Seven	p. 43
The Mechanics of Currency Trading	p. 45
Buying and Selling Simultaneously	p. 45
Currencies come in pairs	p. 46
The long and the short of it	p. 49
Profit and Loss	p. 51
Margin balances and liquidations	p. 51
Unrealized and realized profit and loss	p. 52
Calculating profit and loss with pips	p. 52
Factoring profit and loss into margin calculations	p. 54
Understanding Rollovers and Interest Rates	p. 54
Currency is money, after all	p. 54
Value dates and trade settlement	p. 55
Market holidays and value dates	p. 56
Applying rollovers	p. 57
Understanding Currency Prices	p. 58
Bids and offers	p. 59
Spreads	p. 59
Executing a Trade	p. 60
Trading online	p. 60
Orders	p. 62
Moving Currencies: Driving Forces Behind Forex Rates	p. 69
Getting to Know the Major Currency Pairs	p. 71
The Big Dollar: EUR/USD	p. 72
Trading fundamentals of EUR/USD	p. 72
Trading behavior of EUR/USD	p. 75
Tactical trading considerations in EUR/USD	p. 78
East Meets West: USD/JPY	p. 79
Trading fundamentals of USD/JPY	p. 79
Price action behavior of USD/JPY	p. 82
Tactical trading considerations in USD/JPY	p. 85
The Other Majors: Sterling and Swissy	p. 86
The British pound: GBP/USD	p. 86
Safe haven or panic button: USD/CHF	p. 88
Price action behavior in GBP/USD and USD/CHF	p. 90
Tactical trading considerations in GBP/USD and USD/CHF	p. 91
Minor Currency Pairs and Cross-Currency Trading	p. 95
Trading the Minor Pairs: USD/CAD, AUD/USD, and NZD/USD	p. 96
Trading fundamentals of USD/CAD	p. 96
Trading fundamentals of AUD/USD	p. 99
Trading fundamentals of NZD/USD	p. 101
Tactical trading considerations in USD/CAD, AUD/USD, and NZD/USD	p. 103
Cross-Currency Pairs	p. 106
Why trade the crosses?	p. 107
Calculating cross rates	p. 108
Stretching the legs	p. 109
Trading the JPY crosses	p. 110
Trading the EUR crosses	p. 111
Looking at the Big Picture	p. 113
Currencies and Interest Rates	p. 114
The future is now: Interest rate expectations	p. 115
Relative interest rates	p. 116
Monetary Policy 101	p. 117
Looking at benchmark interest rates	p. 118
Easy money, tight money	p. 118
Identifying monetary policy cycles	p. 119
Watching the central bankers	p. 122
Interpreting monetary policy communications	p. 124
Managing expectations	p. 126
Official Currency Policies and Rhetoric	p. 127
Currency policy or currency stance?	p. 127
Calling the shots on currencies	p. 129
Currency market intervention	p. 131
Geopolitical Risks and Events	p. 134
Understanding and Applying Market News, Data, and Information	p. 137
Sourcing Market Information	p. 138
The art of boarding a moving train	p. 138
Taking the pulse of the market	p. 139
Analysts, economists, and strategists: What's the difference?	p. 141
Rumors: Where there's smoke, there's fire	p. 142
Putting Market Information into Perspective: Focusing on Themes	p. 143
Driving fundamental themes	p. 143
Analyzing technical themes	p. 147
Reality Check: Expectations versus Actual	p. 148
The role of consensus expectations	p. 149
Pricing in and pricing out forecasts	p. 150
When good expectations go bad	p. 151
Anticipating alternative outcome scenarios	p. 151
Getting Down and Dirty with Fundamental Data	p. 153
Finding the Data	p. 154
Economics 101 for Currency Traders: Making Sense of Economic Data	p. 155
The labor market	p. 155
The consumer	p. 156
The business sector	p. 156
The structural	p. 157
Assessing Economic Data Reports from a Trading Perspective	p. 157
Understanding and revising data history	p. 158
Getting to the core	p. 159
Market-Moving Economic Data Reports from the United States	p. 160
Labor-market reports	p. 160
Inflation gauges	p. 163
Gross domestic product (Relevance: High)	p. 164
Trade and current account balances	p. 165
Leading economic indicators (Relevance: Low)	p. 166
Institute for Supply Management and purchasing managers reports	p. 166
Consumer sentiment reports	p. 167
Personal income and personal spending (Relevance: Medium)	p. 168
Retail sales (Relevance: High)	p. 168
Durable goods orders (Relevance: Medium)	p. 169
Housing-market indicators	p. 169
Regional Federal Reserve indices	p. 170
The Fed's Beige Book (Relevance: High)	p. 171
Major International Data Reports	p. 172
Eurozone	p. 172
Japan	p. 173
United Kingdom	p. 174
Canada	p. 174
Australia	p. 175
Switzerland	p. 175
New Zealand	p. 175
Cutting the Fog with Technical Analysis	p. 177
The Philosophy of Technical Analysis	p. 178
What is technical analysis?	p. 178
What technical analysis is not	p. 178
Forms of technical analysis	p. 179
Finding support and resistance	p. 179
Waiting for confirmation	p. 181
The Art of Technical Analysis	p. 182
Bar charts and candlestick charts	p. 182
Drawing trend lines	p. 183
Recognizing chart formations	p. 185
Fibonacci retracements	p. 196
The Science of Technical Analysis	p. 198
Momentum oscillators and studies	p. 198
Trend-identifying indicators	p. 202
Developing a Trading Plan	p. 205
Training and Preparing for Battle	p. 207
Finding the Right Trading Style for You	p. 207
Real-world and lifestyle considerations	p. 208
Making time for market analysis	p. 209
Technical versus fundamental analysis	p. 209
Different Strokes for Different Folks	p. 210
Short-term, high-frequency day trading	p. 211
Medium-term directional trading	p. 214
Long-term macroeconomic trading	p. 216
Developing Trading Discipline	p. 219
Taking the emotion out of trading	p. 220
Managing your expectations	p. 221
Keeping your ammunition dry	p. 222
Identifying Trade Opportunities	p. 225
Developing a Routine for Market Analysis	p. 225
Performing Multiple-Time-Frame Technical Analysis	p. 226
Identifying Relevant Support and Resistance Levels	p. 231
Trend lines	p. 232
Highs and lows	p. 232
Congestion zones	p. 232
Retracements	p. 233
Looking for Symmetry with Channels and Retracements	p. 233
Drawing price channels	p. 233
Finding support and resistance with Fibonacci retracements	p. 235
Listening to Momentum	p. 237
Factoring momentum analysis into your routine	p. 237
Looking at momentum in multiple time frames	p. 238
Trading on divergences between price and momentum	p. 239
Using momentum for timing entry and exit	p. 240
Trading on Candlestick Patterns	p. 242
Building a Trade Strategy from Start to Finish	p. 243
Risk-Management Considerations	p. 247
Managing Risk Is More Than Avoiding Losses	p. 247
Market liquidity, volatility, and gap risk	p. 248
Leverage amplifies gains and losses - and expectations	p. 251
Knowing your margin requirements	p. 252
We have a winner here! Protecting your profits	p. 253
Placing your orders effectively	p. 253
Applying Risk Management to the Trade	p. 256
Analyzing the trade setup to determine position size	p. 256
Doing the math to put the risk in cash terms	p. 258
Devising the trading plan in terms of risk	p. 258
Choosing Your Trading Broker	p. 261
Different business models of brokers	p. 261
Financial risks of brokers	p. 262
Technology Issues and Contingency Planning	p. 263
Executing a Plan	p. 265
Pulling the Trigger	p. 267
Getting into the Position	p. 267
Buying and selling at the current market	p. 268
Averaging into a position	p. 268
Trading breakouts	p. 272
Making the Trade Correctly	p. 277
Buying and selling online	p. 277
Placing your orders	p. 279
Managing the Trade	p. 281
Monitoring the Market while Your Trade Is Active	p. 282
Following the market with rate alerts	p. 282
Staying alert for news and data developments	p. 283
Keeping an eye on other financial markets	p. 284
Updating Your Trade Plan as Time Marches On	p. 286
Trend lines move over time	p. 287
Impending events may require trade plan adjustments	p. 289
Updating Order Levels as Prices Progress	p. 290
Increasing take-profit targets	p. 290
Tightening stop-loss orders to protect profits	p. 291
Closing Your Position and Evaluating Your Trading Results	p. 293
Closing Out the Trade	p. 294
Taking profit and stopping out	p. 294
Setting it and forgetting it: Letting the market trigger your order	p. 296
Squaring up after events have happened	p. 297
Exiting at the right time	p. 298
Getting out when the price is right	p. 299
Assessing Your Trading Strategy	p. 299
Identifying what you did right and wrong	p. 300
Updating your trading record	p. 301
The Part of Tens	p. 303
Ten Habits of Successful Currency Traders	p. 305
Trading with a Plan	p. 305
Anticipating Event Outcomes	p. 306
Staying Flexible	p. 306
Being Prepared for Trading	p. 306
Keeping Technically Alert	p. 307
Going with the Flow/Trading the Range	p. 307
Focusing on a Few Pairs	p. 308
Protecting Profits	p. 308
Trading with Stop Losses	p. 308
Watching Other Markets	p. 309
Ten Beginner Trading Mistakes	p. 311
Running Losers, Cutting Winners	p. 311
Trading without a Plan	p. 312
Trading without a Stop Loss	p. 312
Moving Stop-Loss Orders	p. 312
Overtrading	p. 313
Overleveraging	p. 313
Failing to Adapt to Changing Market Conditions	p. 313
Being Unaware of News and Data Events	p. 314
Trading Defensively	p. 314
Keeping Realistic Expectations	p. 314
Ten Rules of Risk Management	p. 315
Trade with Stop-Loss Orders	p. 315
Leverage to a Minimum	p. 316
Trade with a Plan	p. 316
Stay on Top of the Market	p. 316
Trade with an Edge	p. 316
Step Back from the Market	p. 317
Take Profit Regularly	p. 317
Understand Currency Pair Selection	p. 317
Double-Check for Accuracy	p. 318
Take Money Out of Your Trading Account	p. 318
Ten Great Resources	p. 319
Technical Analysis of the Financial Markets	p. 319
Japanese Candlestick Charting Techniques	p. 320
Elliott Wave Principle	p. 320
Technical Analysis Explained	p. 320
Technical Analysis For Dummies	p. 321
The Book of Five Rings	p. 321
Reminiscences of a Stock Operator	p. 321
Market Wizards: Interviews with Top Traders	p. 322
Thirty Days of Forex Trading	p. 322
Come into My Trading Room	p. 322
Index	p. 323
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