Currency Trading For Dummies
3rd Edition
Published on 6. March 2015
Book
Paperback/Softback
384 pages
978-1-118-98980-7 (ISBN)
Description
Your plain-English guide to currency trading
Currency Trading For Dummies is a hands-on, user-friendly guide that explains how the foreign exchange (ForEx) market works and how you can become a part of it. Currency trading has many benefits, but it also has fast-changing financial-trading avenues. ForEx markets are always moving. So how do you keep up? With this new edition of Currency Trading For Dummies, you'll get the expert guidance you've come to know and expect from the trusted For Dummies brand--now updated with the latest information on the topic.
Inside, you'll find an easy-to-follow introduction to the global/ForEx market that explains its size, scope, and players; a look at the major economic drivers that influence currency values; and the lowdown on how to interpret data and events like a pro. Plus, you'll discover different types of trading styles and make a concrete strategy and game plan before you act on anything.
* Covers currency trading conventions and tools
* Provides an insider's look at key characteristics of successful currency traders
* Explains why it's important to be organized and prepared
* Offers guidance on trading pitfalls to avoid and risk management rules to live by
Whether you're just getting started out in the foreign exchange market or an experienced trader looking to diversify your portfolio, Currency Trading For Dummies sets you up for trading success.
Currency Trading For Dummies is a hands-on, user-friendly guide that explains how the foreign exchange (ForEx) market works and how you can become a part of it. Currency trading has many benefits, but it also has fast-changing financial-trading avenues. ForEx markets are always moving. So how do you keep up? With this new edition of Currency Trading For Dummies, you'll get the expert guidance you've come to know and expect from the trusted For Dummies brand--now updated with the latest information on the topic.
Inside, you'll find an easy-to-follow introduction to the global/ForEx market that explains its size, scope, and players; a look at the major economic drivers that influence currency values; and the lowdown on how to interpret data and events like a pro. Plus, you'll discover different types of trading styles and make a concrete strategy and game plan before you act on anything.
* Covers currency trading conventions and tools
* Provides an insider's look at key characteristics of successful currency traders
* Explains why it's important to be organized and prepared
* Offers guidance on trading pitfalls to avoid and risk management rules to live by
Whether you're just getting started out in the foreign exchange market or an experienced trader looking to diversify your portfolio, Currency Trading For Dummies sets you up for trading success.
More details
Other editions
New editions
Additional editions
Kathleen Brooks | Brian Dolan
Currency Trading For Dummies
E-Book
01/2015
3rd Edition
Wiley
€18.99
Available for download
Kathleen Brooks | Brian Dolan
Currency Trading For Dummies
E-Book
01/2015
3rd Edition
Wiley
€18.99
Available for download
Previous edition
Brian Dolan
Currency Trading For Dummies
Book
07/2011
2nd Edition
Wiley
€21.90
Article exhausted; check for reprint
Persons
Kathleen Brooks is research director at FOREX.com. She produces research on G10 and emerging-market currencies, providing her clients with actionable trading ideas. Brian Dolanhas more than 20 years of experience in the currency market and is a frequent commentator for major news media.
Content
Introduction 1
About This Book 1
Foolish Assumptions 3
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part I: Getting Started with Currency Trading 5
Chapter 1: Currency Trading 101 7
What Is Currency Trading? 7
Speculating as an enterprise 8
Currencies as the trading vehicle 8
What Affects Currency Rates? 10
Fundamentals drive the currency market 10
Unless it's the technicals that are driving the currency market 11
Or it may be something else 11
Developing a Trading Plan 12
Finding your trading style 12
Planning the trade 13
Executing the Trading Plan from Start to Finish 14
Chapter 2: What Is the Forex Market? 17
Getting Inside the Numbers 19
Trading for spot 19
Speculating in the currency market 19
Getting liquid without getting soaked 20
Around the World in a Trading Day 21
The opening of the trading week 21
Trading in the Asia-Pacific session 22
Trading in the European/London session 23
Trading in the North American session 24
Key daily times and events 25
The U.S. dollar index 26
Currencies and Other Financial Markets 28
Gold 28
Oil 29
Stocks 29
Bonds 30
Getting Started with a Practice Account 31
Chapter 3: Who Trades Currencies? Meet the Players 33
The Interbank Market Is "The Market" 33
Getting inside the interbank market 34
Bank to bank and beyond 35
Hedgers and Financial Investors 37
Hedging your bets 37
Global investment flows 39
Speculators 40
Hedge funds 41
Day traders, big and small 43
Governments and Central Banks 44
Currency reserve management 44
The Bank for International Settlements 45
The Group of Twenty 46
Chapter 4: The Mechanics of Currency Trading 47
Buying and Selling Simultaneously 47
Currencies come in pairs 48
The long and the short of it 52
Profit and Loss 53
Margin balances and liquidations 53
Unrealized and realized profit and loss 54
Calculating profit and loss with pips 54
Factoring profit and loss into margin calculations 55
Understanding Rollovers and Interest Rates 56
Currency is money, after all 56
Value dates and trade settlement 57
Market holidays and value dates 58
Applying rollovers 59
Understanding Currency Prices 61
Bids and offers 61
Spreads 62
Executing a Trade 62
Trading online 62
Orders 65
Part II: Driving Forces behind Currencies 71
Chapter 5: Looking at the Big Picture 73
Currencies and Interest Rates 74
The future is now: Interest rate expectations 75
Relative interest rates 76
Monetary Policy 101 77
Looking at benchmark interest rates 78
Easy money, tight money 78
Unconventional easing 80
Watching the central bankers 81
Interpreting monetary policy communications 82
Official Currency Policies and Rhetoric 84
Currency policy or currency stance? 84
Calling the shots on currencies 85
Taking a closer look at currency market intervention 88
Financial stability 91
Debts, deficits, and growth 91
Gauging credit risk 92
Geopolitical Risks and Events 94
Gauging risk sentiment 95
Risk on or risk off? 95
Chapter 6: Understanding and Applying Market News and Information 99
Sourcing Market Information 100
The art of boarding a moving train 100
Taking the pulse of the market 101
Rumors: Where there's smoke, there's fire 103
Putting Market Information into Perspective: Focusing on Themes 104
Driving fundamental themes 104
Analyzing technical themes 108
Reality Check: Expectations versus Actual 110
The role of consensus expectations 111
Pricing in and pricing out forecasts 112
When good expectations go bad 112
Anticipating alternative outcome scenarios 113
Chapter 7: Getting Down and Dirty with Fundamental Data 115
Finding the Data 116
Economics 101 for Currency Traders: Making Sense of Economic Data 116
The labor market 117
The consumer 118
The business sector 118
The structural 119
Assessing Economic Data Reports from a Trading Perspective 120
Understanding and revising data history 120
Getting to the core 121
Market-Moving Economic Data Reports from the United States 122
Labor-market reports 122
Consumer-level data reports 125
Business-level data reports 128
Structural data reports 130
Major International Data Reports 133
Eurozone 133
Japan 134
United Kingdom 135
Canada 136
Australia 136
New Zealand 137
China 137
Chapter 8: Getting to Know the Major Currency Pairs 139
The Big Dollar: EUR/USD 140
Trading fundamentals of EUR/USD 140
Trading behavior of EUR/USD 143
Tactical trading considerations in EUR/USD 146
East Meets West: USD/JPY 147
Trading fundamentals of USD/JPY 148
Price action behavior of USD/JPY 152
Tactical trading considerations in USD/JPY 154
The Other Majors: Sterling and Aussie 155
The British pound: GBP/USD 155
The new kid in town: Trading the Aussie 157
Understanding Forex Positioning Data 159
How to interpret the data 159
The FX fix 160
Forex and regulation 160
Chapter 9: Minor Currency Pairs and Cross-Currency Trading 163
Trading the Minor Pairs 163
Trading fundamentals of USD/CAD 165
Trading fundamentals of NZD/USD 167
Tactical trading considerations in USD/CAD, AUD/USD, and NZD/USD 169
Trading the Scandies: SEK, NOK, and DKK 171
Swedish krona - "Stocky" 172
Norwegian krone - "Nokkie" 172
Danish krone - "Copey" 173
Cross-Currency Pairs 173
Why trade the crosses? 174
Stretching the legs 175
Trading the JPY crosses 176
Trading the EUR crosses 177
Part III: Developing a Trading Plan 179
Chapter 10: Training and Preparing for Battle 181
Finding the Right Trading Style for You 181
Real-world and lifestyle considerations 182
Making time for market analysis 183
Technical versus fundamental analysis 183
Different Strokes for Different Folks 184
Short-term, high-frequency day trading 185
Medium-term directional trading 187
Long-term macroeconomic trading 189
Trading on Auto-Pilot 192
Potential inputs to drive an EA system 192
Caveat emptor on models 193
Using social media for trading: The power of the crowd 194
Developing Trading Discipline 195
Taking the emotion out of trading 196
Managing your expectations 197
Keeping your ammunition dry 198
Chapter 11: Cutting the Fog with Technical Analysis 201
The Philosophy of Technical Analysis 202
What is technical analysis? 202
What technical analysis is not 203
Forms of technical analysis 203
Finding support and resistance 204
Waiting for confirmation 206
The Art of Technical Analysis 207
Bar charts and candlestick charts 207
Drawing trend lines 209
Recognizing chart formations 210
Fibonacci retracements 220
The Science of Technical Analysis 221
Momentum oscillators and studies 221
Trend-identifying indicators 225
Trading with clouds - Ichimoku charts 227
Chapter 12: Identifying Trade Opportunities 229
Developing a Routine for Market Analysis 229
Performing Multiple-Time-Frame Technical Analysis 230
Identifying Support and Resistance Levels 234
Trend lines 235
Highs and lows 236
Congestion zones 236
Fibonacci retracements 237
Ichimoku levels 237
Looking for Symmetry with Channels 238
Drawing price channels 238
Listening to Momentum 239
Factoring momentum analysis into your routine 240
Looking at momentum in multiple time frames 241
Trading on divergences between price and momentum 241
Using momentum for timing entry and exit 243
Trading on Candlestick Patterns 243
Building a Trade Strategy from Start to Finish 244
Chapter 13: Risk-Management Considerations 249
Managing Risk Is More Than Avoiding Losses 249
Leverage amplifies gains and losses - and expectations 250
Knowing your margin requirements 251
Market liquidity, volatility, and gap risk 252
We have a winner here! Protecting your profits 255
Placing your orders effectively 256
Applying Risk Management to the Trade 259
Analyzing the trade setup to determine position size 259
Doing the math to put the risk in cash terms 260
Devising the trading plan in terms of risk 261
Choosing Your Trading Broker 263
Different business models of brokers 263
Financial risks of brokers 265
Technology Issues and Contingency Planning 265
Part IV: Executing a Trading Plan 267
Chapter 14: Pulling the Trigger 269
Getting into the Position 269
Buying and selling at the current market 270
Averaging into a position 271
Trading breakouts 275
Making the Trade Correctly 279
Buying and selling online 280
Placing your orders 281
Chapter 15: Managing the Trade 283
Monitoring the Market while Your Trade Is Active 284
Following the market with rate alerts 284
Staying alert for news and data developments 285
Keeping an eye on other financial markets 286
Updating Your Trade Plan as Time Marches On 288
Trend lines move over time 289
Impending events may require trade plan adjustments 290
Updating Order Levels as Prices Progress 291
Increasing take-profit targets 292
Tightening stop-loss orders to protect profits 293
Chapter 16: Closing the Position and Evaluating Your Results 295
Closing Out the Trade 296
Taking profit and stopping out 296
Setting it and forgetting it: Letting the market trigger your order 299
Squaring up after events have happened 299
Exiting at the right time 300
Getting out when the price is right 301
Assessing Your Trading Strategy 301
Identifying what you did right and wrong 302
Updating your trading record 302
Part V: The Part of Tens 305
Chapter 17: Ten Habits of Successful Currency Traders 307
Trading with a Plan 307
Anticipating Event Outcomes 308
Staying Flexible 308
Being Prepared for Trading 308
Keeping Technically Alert 309
Going with the Flow/Trading the Range 309
Focusing on a Few Pairs 310
Protecting Profits 310
Trading with Stop Losses 310
Watching Other Markets 311
Chapter 18: Ten Rules of Risk Management 313
Trade with Stop-Loss Orders 313
Leverage to a Minimum 314
Trade with a Plan 314
Stay on Top of the Market 314
Trade with an Edge 314
Step Back from the Market 315
Take Profit Regularly 315
Understand Currency-Pair Selection 315
Double-Check for Accuracy 316
Take Money out of Your Trading Account 316
Chapter 19: Ten Great Resources 317
Technical Analysis of the Financial Markets 317
Japanese Candlestick Charting Techniques 318
Elliott Wave Principle 318
Technical Analysis For Dummies 318
The Book of Five Rings 318
Market Wizards: Interviews with Top Traders 319
Come into My Trading Room 319
Zero Hedge 319
BabyPips.com 320
Forex Factory 320
Appendix: Trading Strategies 321
What's Your Sign? Determining Your Trader Type 321
Looking at Trading Strategies Based on Trader Type 322
Strategies for the scalper 322
Strategies for the swing trader 329
Strategies for the position trader 340
Index 343
About This Book 1
Foolish Assumptions 3
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part I: Getting Started with Currency Trading 5
Chapter 1: Currency Trading 101 7
What Is Currency Trading? 7
Speculating as an enterprise 8
Currencies as the trading vehicle 8
What Affects Currency Rates? 10
Fundamentals drive the currency market 10
Unless it's the technicals that are driving the currency market 11
Or it may be something else 11
Developing a Trading Plan 12
Finding your trading style 12
Planning the trade 13
Executing the Trading Plan from Start to Finish 14
Chapter 2: What Is the Forex Market? 17
Getting Inside the Numbers 19
Trading for spot 19
Speculating in the currency market 19
Getting liquid without getting soaked 20
Around the World in a Trading Day 21
The opening of the trading week 21
Trading in the Asia-Pacific session 22
Trading in the European/London session 23
Trading in the North American session 24
Key daily times and events 25
The U.S. dollar index 26
Currencies and Other Financial Markets 28
Gold 28
Oil 29
Stocks 29
Bonds 30
Getting Started with a Practice Account 31
Chapter 3: Who Trades Currencies? Meet the Players 33
The Interbank Market Is "The Market" 33
Getting inside the interbank market 34
Bank to bank and beyond 35
Hedgers and Financial Investors 37
Hedging your bets 37
Global investment flows 39
Speculators 40
Hedge funds 41
Day traders, big and small 43
Governments and Central Banks 44
Currency reserve management 44
The Bank for International Settlements 45
The Group of Twenty 46
Chapter 4: The Mechanics of Currency Trading 47
Buying and Selling Simultaneously 47
Currencies come in pairs 48
The long and the short of it 52
Profit and Loss 53
Margin balances and liquidations 53
Unrealized and realized profit and loss 54
Calculating profit and loss with pips 54
Factoring profit and loss into margin calculations 55
Understanding Rollovers and Interest Rates 56
Currency is money, after all 56
Value dates and trade settlement 57
Market holidays and value dates 58
Applying rollovers 59
Understanding Currency Prices 61
Bids and offers 61
Spreads 62
Executing a Trade 62
Trading online 62
Orders 65
Part II: Driving Forces behind Currencies 71
Chapter 5: Looking at the Big Picture 73
Currencies and Interest Rates 74
The future is now: Interest rate expectations 75
Relative interest rates 76
Monetary Policy 101 77
Looking at benchmark interest rates 78
Easy money, tight money 78
Unconventional easing 80
Watching the central bankers 81
Interpreting monetary policy communications 82
Official Currency Policies and Rhetoric 84
Currency policy or currency stance? 84
Calling the shots on currencies 85
Taking a closer look at currency market intervention 88
Financial stability 91
Debts, deficits, and growth 91
Gauging credit risk 92
Geopolitical Risks and Events 94
Gauging risk sentiment 95
Risk on or risk off? 95
Chapter 6: Understanding and Applying Market News and Information 99
Sourcing Market Information 100
The art of boarding a moving train 100
Taking the pulse of the market 101
Rumors: Where there's smoke, there's fire 103
Putting Market Information into Perspective: Focusing on Themes 104
Driving fundamental themes 104
Analyzing technical themes 108
Reality Check: Expectations versus Actual 110
The role of consensus expectations 111
Pricing in and pricing out forecasts 112
When good expectations go bad 112
Anticipating alternative outcome scenarios 113
Chapter 7: Getting Down and Dirty with Fundamental Data 115
Finding the Data 116
Economics 101 for Currency Traders: Making Sense of Economic Data 116
The labor market 117
The consumer 118
The business sector 118
The structural 119
Assessing Economic Data Reports from a Trading Perspective 120
Understanding and revising data history 120
Getting to the core 121
Market-Moving Economic Data Reports from the United States 122
Labor-market reports 122
Consumer-level data reports 125
Business-level data reports 128
Structural data reports 130
Major International Data Reports 133
Eurozone 133
Japan 134
United Kingdom 135
Canada 136
Australia 136
New Zealand 137
China 137
Chapter 8: Getting to Know the Major Currency Pairs 139
The Big Dollar: EUR/USD 140
Trading fundamentals of EUR/USD 140
Trading behavior of EUR/USD 143
Tactical trading considerations in EUR/USD 146
East Meets West: USD/JPY 147
Trading fundamentals of USD/JPY 148
Price action behavior of USD/JPY 152
Tactical trading considerations in USD/JPY 154
The Other Majors: Sterling and Aussie 155
The British pound: GBP/USD 155
The new kid in town: Trading the Aussie 157
Understanding Forex Positioning Data 159
How to interpret the data 159
The FX fix 160
Forex and regulation 160
Chapter 9: Minor Currency Pairs and Cross-Currency Trading 163
Trading the Minor Pairs 163
Trading fundamentals of USD/CAD 165
Trading fundamentals of NZD/USD 167
Tactical trading considerations in USD/CAD, AUD/USD, and NZD/USD 169
Trading the Scandies: SEK, NOK, and DKK 171
Swedish krona - "Stocky" 172
Norwegian krone - "Nokkie" 172
Danish krone - "Copey" 173
Cross-Currency Pairs 173
Why trade the crosses? 174
Stretching the legs 175
Trading the JPY crosses 176
Trading the EUR crosses 177
Part III: Developing a Trading Plan 179
Chapter 10: Training and Preparing for Battle 181
Finding the Right Trading Style for You 181
Real-world and lifestyle considerations 182
Making time for market analysis 183
Technical versus fundamental analysis 183
Different Strokes for Different Folks 184
Short-term, high-frequency day trading 185
Medium-term directional trading 187
Long-term macroeconomic trading 189
Trading on Auto-Pilot 192
Potential inputs to drive an EA system 192
Caveat emptor on models 193
Using social media for trading: The power of the crowd 194
Developing Trading Discipline 195
Taking the emotion out of trading 196
Managing your expectations 197
Keeping your ammunition dry 198
Chapter 11: Cutting the Fog with Technical Analysis 201
The Philosophy of Technical Analysis 202
What is technical analysis? 202
What technical analysis is not 203
Forms of technical analysis 203
Finding support and resistance 204
Waiting for confirmation 206
The Art of Technical Analysis 207
Bar charts and candlestick charts 207
Drawing trend lines 209
Recognizing chart formations 210
Fibonacci retracements 220
The Science of Technical Analysis 221
Momentum oscillators and studies 221
Trend-identifying indicators 225
Trading with clouds - Ichimoku charts 227
Chapter 12: Identifying Trade Opportunities 229
Developing a Routine for Market Analysis 229
Performing Multiple-Time-Frame Technical Analysis 230
Identifying Support and Resistance Levels 234
Trend lines 235
Highs and lows 236
Congestion zones 236
Fibonacci retracements 237
Ichimoku levels 237
Looking for Symmetry with Channels 238
Drawing price channels 238
Listening to Momentum 239
Factoring momentum analysis into your routine 240
Looking at momentum in multiple time frames 241
Trading on divergences between price and momentum 241
Using momentum for timing entry and exit 243
Trading on Candlestick Patterns 243
Building a Trade Strategy from Start to Finish 244
Chapter 13: Risk-Management Considerations 249
Managing Risk Is More Than Avoiding Losses 249
Leverage amplifies gains and losses - and expectations 250
Knowing your margin requirements 251
Market liquidity, volatility, and gap risk 252
We have a winner here! Protecting your profits 255
Placing your orders effectively 256
Applying Risk Management to the Trade 259
Analyzing the trade setup to determine position size 259
Doing the math to put the risk in cash terms 260
Devising the trading plan in terms of risk 261
Choosing Your Trading Broker 263
Different business models of brokers 263
Financial risks of brokers 265
Technology Issues and Contingency Planning 265
Part IV: Executing a Trading Plan 267
Chapter 14: Pulling the Trigger 269
Getting into the Position 269
Buying and selling at the current market 270
Averaging into a position 271
Trading breakouts 275
Making the Trade Correctly 279
Buying and selling online 280
Placing your orders 281
Chapter 15: Managing the Trade 283
Monitoring the Market while Your Trade Is Active 284
Following the market with rate alerts 284
Staying alert for news and data developments 285
Keeping an eye on other financial markets 286
Updating Your Trade Plan as Time Marches On 288
Trend lines move over time 289
Impending events may require trade plan adjustments 290
Updating Order Levels as Prices Progress 291
Increasing take-profit targets 292
Tightening stop-loss orders to protect profits 293
Chapter 16: Closing the Position and Evaluating Your Results 295
Closing Out the Trade 296
Taking profit and stopping out 296
Setting it and forgetting it: Letting the market trigger your order 299
Squaring up after events have happened 299
Exiting at the right time 300
Getting out when the price is right 301
Assessing Your Trading Strategy 301
Identifying what you did right and wrong 302
Updating your trading record 302
Part V: The Part of Tens 305
Chapter 17: Ten Habits of Successful Currency Traders 307
Trading with a Plan 307
Anticipating Event Outcomes 308
Staying Flexible 308
Being Prepared for Trading 308
Keeping Technically Alert 309
Going with the Flow/Trading the Range 309
Focusing on a Few Pairs 310
Protecting Profits 310
Trading with Stop Losses 310
Watching Other Markets 311
Chapter 18: Ten Rules of Risk Management 313
Trade with Stop-Loss Orders 313
Leverage to a Minimum 314
Trade with a Plan 314
Stay on Top of the Market 314
Trade with an Edge 314
Step Back from the Market 315
Take Profit Regularly 315
Understand Currency-Pair Selection 315
Double-Check for Accuracy 316
Take Money out of Your Trading Account 316
Chapter 19: Ten Great Resources 317
Technical Analysis of the Financial Markets 317
Japanese Candlestick Charting Techniques 318
Elliott Wave Principle 318
Technical Analysis For Dummies 318
The Book of Five Rings 318
Market Wizards: Interviews with Top Traders 319
Come into My Trading Room 319
Zero Hedge 319
BabyPips.com 320
Forex Factory 320
Appendix: Trading Strategies 321
What's Your Sign? Determining Your Trader Type 321
Looking at Trading Strategies Based on Trader Type 322
Strategies for the scalper 322
Strategies for the swing trader 329
Strategies for the position trader 340
Index 343