Getting Started in Currency Trading

Acknowledgments xix Introduction About This Book xxi Part 1 The Foreign Exchange Markets Chapter 1 The World of FOREX 3 Introduction--What Is FOREX? 3 What Is a Spot Market? 4 Which Currencies Are Traded? 4 Who Trades on the Foreign Exchange? 5 How Are Currency Prices Determined? 6 When Do Currencies Trade? 8 How Is Money Made in FOREX? 8 Why Trade Foreign Currencies? 9 What Tools Do I Need to Trade Currencies? 13 What Does It Cost to Trade Currencies? 13 FOREX versus Equities 14 FOREX versus Futures 14 Summary 15 Chapter 2 A Brief History of Currency Trading 17 Introduction 17 Ancient Times 17 The Gold Standard, 1816 to 1933 18 The Federal Reserve 18 Securities and Exchange Commission, 1933 to 1934 20 The Bretton Woods System, 1944 to 1973 21 The End of Bretton Woods and the Advent of Floating Exchange Rates 21 International Monetary Market 22 Into the Millennium 22 Arrival of the Euro 23 The CFTC and the NFA 25 Summary 25 Chapter 3 Five FOREX Markets 27 Introduction--Spot, Futures, Forwards, Options, Spread Betting 27 Currency Futures 29 Contract Specifications 29 Currencies Trading Volume 30 U.S. Dollar Index 30 Volume and Open Interest 31 Where to Trade Currency Futures 33 FOREX Futures 33 Summary 33 Chapter 4 Regulation: Past, Present, and Future 35 Introduction 35 Regulation in the FOREX Market 35 Regulation Past 36 Regulation Present 39 Regulation Future 43 Summary 44 Part 2 Getting Started Chapter 5 The Language of FOREX 47 Introduction 47 Currency Pairs 47 Major and Minor Currencies 48 Cross Currency 48 Exotic Currency 48 Base Currency 48 Quote Currency 49 Pips 49 Ticks 49 Margin 50 Leverage 51 Bid Price 52 Ask Price 52 Bid-Ask Spread 52 Quote Convention 52 Market Maker and ECN 53 Transaction Cost 53 Rollovers 54 Correlation 54 Summary 55 Chapter 6 FOREX by the Numbers 57 Introduction 57 Pips 58 Profit and Loss 59 Margin 60 Leverage 62 The Bid-Ask Spread 62 Profit Threshold 63 For Futures Traders 66 Summary 66 Chapter 7 A Guide to FOREX Trading Platforms 69 Introduction 69 Trading Platform Features 71 More Trading Platforms 79 Professional FX Platforms 80 Trading Platform Checklist 81 A Kid in the Candy Store 82 Summary 82 Chapter 8 Selecting a FOREX Broker 83 Introduction 83 Broker-Dealer Due Diligence 84 Demo Accounts 85 Market Maker or ECN? 86 Costs 87 Liquidity Providers 89 Customer Service 90 Trading Pair Palette 91 Financial Stability 91 Complaint and Error Resolution 92 Account Options 92 Games Brokers Play 93 Top Broker-Dealers 93 Popular Broker-Dealers 99 The Big Four Broker-Dealers 100 For the Professional and Non-U.S. Trader 101 Spread Betting 102 Fraud, Scams, and Off-Exchange 103 Broker-Dealer Checklist 103 Summary 103 Chapter 9 How to Open a FOREX Account 105 Introduction 105 The Demo Account 106 The Live Account 107 Redundancy 111 Summary 113 Chapter 10 Making the Trade 115 Introduction 115 Orders 115 Market Orders 117 Limit Orders 118 Stop Orders 118 Combination Orders 121 Specialty Orders 121 Order Placement 121 Order Execution 122 Order Confirmation 123 Open Orders 123 Open a Demo Account 124 Summary 125 Part 3 The Trader's Arsenal Chapter 11 The FOREX Marketplace 129 Introduction 129 Portals and Forums 130 Broker-Dealer Reviews 133 Educational Resources 133 News and Calendars 135 Management Tools 136 System Development Tools 137 Data Services 140 Programming Services 142 Advisory Services 142 References, Periodicals, and Books 143 Fun Stuff 145 Summary 146 Chapter 12 Technical Analysis 147 Introduction 147 Bar Charts 148 Trendlines 151 Support and Resistance 151 Recognizing Chart Patterns 152 Reversal Patterns 152 Continuation Patterns 153 Candlestick Charts 155 Point and Figure Charts 157 Charting Caveat--Prediction versus Description 160 Indicators and Oscillators 161 Relative Strength Indicator 161 Momentum Analysis 163 Moving Averages 164 Bollinger Bands 165 Indicator Caveat--Curve-Fit Data 167 Wave and Swing Analysis 169 Cycle Analysis 170 Trading Systems 171 The Technician's Creed 171 The Technician's Caveat 171 Summary 172 Chapter 13 News Trading 173 Introduction 173 Fundamental Analysis 174 Fundamental Problems 174 Fundamental Factors 175 A Fundamental Discussion 181 FOREX News 186 Key News Releases 186 Reality versus Expectation 187 News Trading 187 Shockwave Analysis 189 Strategy and Tactics of News Trading 189 Summary 191 Part 4 Winning Is the Name of the Game Chapter 14 Trading Spaces 195 Introduction 195 Charts, Bars, and Trading Spaces 196 Trading Profiles 199 Selecting a Trading Profile 201 The Market as a Process 202 Summary 203 Chapter 15 Setting Up Shop 205 Introduction 205 The Plan Components 206 The Trading Platform Plan 207 Pre-Trade Plan 209 Trading Session Plan 212 Pulling the Trigger 213 Post-Trade Plan 214 Summary 216 Chapter 16 A Simple System 217 Introduction 217 General Principles 218 A KIS Toolbox 219 A Simple System 220 Not So Simple 227 Pairs to Trade 228 Summary 228 Part 5 The Goodman Method of Trading Chapter 17 Goodman Wave Theory 231 Introduction 231 The Basic Market Paradigm 232 Goodman Wave Theory 234 The Basic Goodman Setup 243 Summary 244 Chapter 18 The Propagation Trade Setup 245 Introduction 245 The PTS 245 Summary 251 Chapter 19 The Dagger, the Waltz, and the Line 253 Introduction 253 The Belgian Dentist 254 Enter the Dagger 254 Waltzing the Trade 257 The Line! The Line! 264 Summary 267 Chapter 20 The Proactive Trader 269 Introduction 269 Laydowns 270 Bathtub Analysis 271 The Propagation Lens 272 Looking Inward and Outward 273 Multiple 3-C Counts 276 Stations 276 Ghost Trading 277 Sitting On Your Hands 278 Summary 279 Chapter 21 The 30-Trade Campaign Program 281 Introduction 281 Capital Allocation 282 The Tracks of Your Trades 286 Pre-Trade Checklist 286 Diagnostics 288 Characteristics of Successful Traders 291 Summary 293 Chapter 22 Goodmanisms 295 Goodmanisms 295 Summary 298 Part 6 Over the FOREX Rainbow Chapter 23 Tools for Traders 301 Introduction 301 Techniques 302 Time Studies 315 Fear and Greed, Greed and Fear 317 Summary 318 Chapter 24 Options and Exotics 321 Introduction 321 Options 322 A Primer on Options 322 Basic Options Terms 323 Options: Pros and Cons 324 The Four Basic Options Strategies 325 Purchase or Write Options? 325 Advanced Options Strategies 326 The Greeks 326 The Retail FOREX Options Landscape 327 Options or Spot FOREX? 328 Risk Management with Options 328 Exotics 330 Trading Exotics 332 Summary 332 Chapter 25 Managed FOREX 335 Introduction 335 Why Managed FOREX? 336 Pros and Cons 336 Types of Managers 337 Types of Managed Accounts 338 Trading Methods 340 Performance Analysis 342 Two Methods of Performance Analysis 345 The Due Diligence Process 346 Costs and Fees 350 Spotlight on Managers 352 Research and Resources 354 Summary 355 Chapter 26 Computer Trading 357 Introduction 357 Technical Analysis 357 Expert Advisors 358 Automated Trading, Agents, and BOTS 359 Get on My Cloud 359 High-Frequency and Ultra-High-Frequency Trading 360 Into the Future of FOREX 362 The Trend Machine 363 Grid and Pac Man Programs 364 Arbitrage 365 Pros and Cons of Arbitrage 370 Summary 371 Appendix A: List of World Currencies and Symbols 373 Appendix B: Time Zones and Global FX Trading Hours 379 Appendix C: Central Banks and Regulatory Agencies 381 Appendix D: Resources 385 Glossary 389 About the Author 403 Index 405