Forex Trading Secrets: Trading Strategies for the Forex Market

Forex Trading Secrets: Trading Strategies for the Forex Market

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Book Details
 337 p
 File Size 
 3,341 KB
 File Type
 PDF format
 by The McGraw-Hill Companies, Inc 

There are many books on the market that cover the subject of FOREX trading.
But I believe that until now, there has never been a book on this unique
topic that has so vividly described the subject of the FOREX—a universe
completely of its own. The FOREX market is an anonymous entity that
bears many faces, and each individual who participates in it leaves a footprint
that just might change the course of their personal circumstances
based on their individual hopes and dreams for success.

This book was written with several purposes in mind. First of all, this
book is designed to inform and educate the potential FOREX trader about
a field that is growing exponentially around the world and is reaching millions
of individuals from all walks of life. It is a market that was reserved
for a select few just a decade ago but now is in the hands of anyone, even
those without a formal financial education. For this reason, it is very
important to include a qualified point of view from a real trader’s perspective,
a trader who has already traveled through all the steps and experienced
numerous pitfalls but now wants to share this information with you to help
you avoid or, at the very least, minimize any potential negative impact
through education and solid money management techniques.

This book also is intended to provide an overview of all the fundamentals
involved in the FOREX and of the trading process so that any new
trader can easily obtain all the tools needed to ensure a quick start. It is also
aimed at the intermediate trader who has already started the process but
could use some guidance and additional tools, with an emphasis on the
importance of a solid money management program and the right mind-set
to develop a successful trading career.

Written from the insider’s perspective of an experienced FOREX trader
who has gone through every step until reaching a stable and consistent
success, this book is focused on pointing out the potential hazards that
every trader will encounter at some point. In the beginning, it will offer
solutions to help you understand how to mitigate many of the risks involved
by centering on dedicated attention to the preliminary preparation, education,
and training needed to become a true professional in this field.
The overview includes a history of the FOREX and its basics, as well
as a thorough description of all the fundamental, technical, and psychological
aspects and how they merge and interact in the market’s behavior.

Finally, some of the preferred trading systems are described in detail
and discussed as additional elements to help you practice and build your trading toolbox.
I hope that you will enjoy this book and its concepts. May it bring you
a step closer to becoming a consistent winner and an educated and confident FOREX trader.

What is FOREX? FOREX (also known as FX) is the contracted name of
FOReign EXchange, an international trading market where banks, businesses,
and public and private investors of all the countries in the world can
obtain and exchange their respective currencies so as to perform commercial
transactions or simply speculate. This market functions in a different
way from the stock market; the stock exchange has a fixed daily schedule
for opening and closing, whereas the FOREX is open 24 hours a day, five
days a week nonstop. FOREX activities start on Sunday afternoon at 5 p.m.
Eastern Time (ET) and close on Friday at 4 p.m. ET. This continuous activity
is possible because there are always open markets around the world, and
today there is no need for the traders to be physically present at the exchange
location because the funds can be traded electronically from any country.

The main markets involved in the FOREX are New Zealand, Sydney,
Tokyo, China, Frankfurt, London, Zurich, and New York. The FOREX
market is the largest in the world, where more than $3.2 trillion is being
transacted every day (traditional daily turnover was reported to be over
US $3.2 trillion in April 2007 by the Bank for International Settlements.
Source: Triennial Central Bank Survey, BIS, December 2007), which is
many times larger than the combined volume of all U.S. equities and
futures markets, and thus the FOREX is also the market that possesses the
greatest liquidity. Late in 2008, with all the uncertainty in the equities markets,
the FOREX daily turnover surpassed US $6.5 trillion in a day. This
market will continue to attract more and more investors.

Currency trading used to be an exclusive activity reserved to government
central banks and commercial and investment banks. In recent years,
the market has opened up and become available to smaller investors and
speculators, thanks to computers and the Internet.

There is a broad electronic network that allows central banks from all
over the world to share their quotes and actual currency rates. This is known
as the Interbank. In this way, central banks are able to exchange and
convert their currencies one into another in real time. The currencies that
are traded most commonly are the U.S. dollar, the Japanese yen, the euro,
the British pound, the Swiss franc, the Canadian dollar, and the Australian
dollar. The Interbank’s activity being continuous, and thanks to decentralization
from any physical location or exchange, access to real quotes and
the speed at which transactions can be performed are greatly increased.
When you are transacting on the FOREX market, you are simultaneously
buying one currency and selling another. Currencies are always
traded in pairs, for example, pound sterling/U.S. dollar (GBP/USD) or U.S.
dollar/Canadian dollar (USD/CAD).

You would be executing a trade when there is an expectation that the
currency you are buying increases in respect to the one you are selling. If
the value of the currency you have bought effectively increases, you then
would sell the position and take a profit. Currency pairs are composed of
a base currency, which is the first on the quote, and a counter currency
(also called the quote or payment currency), which appears as second
on the quote. When the U.S. dollar is the base currency, quotes are given in
$1 USD per counter currency, for example USD/CAD or USD/JPY.

Table of Contents
Preface xi
Acknowledgments xiii
Disclaimer xv
Introduction xvii
Part 1 The Basics 1
1 What You Must Know to Get Started 3
Back to the Basics: A History of the FOREX 3
FOREX versus Stocks 7
FOREX versus Futures 9
2 Major Currencies and Pairs 11
The U.S. Dollar 11
The Euro 12
The Australian Dollar 12
The Canadian Dollar 13
The British Pound 13
The Swiss Franc 14
The Japanese Yen 14
The New Zealand Dollar 15
The Dollar Index 15
The Dow Jones Industrial Average (DJIA) 16
Gold CFDs 16
Crude Oil 17
Cross-Rate Currency Pairs 17
Exotic Currency Pairs 18
Chinese Yuan or Renminbi 18
Swedish Krona 18
Norwegian Krone 19
The Iraqi Dinar 19
3 Anyone Can Learn the FOREX 21
FOREX 101 21
Opening a Position 21
Trading on Margin 23
Managing a Position 23
Closing a Position 24
Pips and Lots 24
The Lot 27
Order Types 27
Where Is the Market Going? 29
Stops and Targets 32
Spreads and Swaps 33
Technical versus Fundamental 34
4 Preparing Yourself Adequately before Jumping
into the Market 37
FOREX Trading Accounts 37
Choosing a Broker 38
Tools 47
Who Trades the FOREX? 49
What Kind of Trader Am I? 50
Trading Techniques 51
The Trader’s Levels of Ascension 55
Part 2 Money Management 59
5 The Secret to Making Money 61
Are You Really Fit to Trade in the FOREX Market? 61
Trading Plans 62
Rules and Discipline 67
How the Market Works 73
Rules for Working with the Market 74
Paper Trading 77
6 How to Keep Your Profits 81
Money Management 81
Managing Risk 86
Leverage and True Leverage 87
Overtrading and Overconfidence 89
Overleveraging 91
Trade Expectations 92
Part 3 Trading Psychology 93
7 Mastering Emotions 95
Trading Psychology 95
Emotions of Trading 99
How to Get Out of a Bad Trade 105
Become a Pro 110
8 Mind over Matter for Huge Profits 113
Affirmations 113
Power of Networking 117
Part 4 Fundamental Analysis 121
9 Economics 123
What Does Economic Release Mean? 123
Fundamental Analysis 123
Dow Theory 125
Fundamental Indicators 127
Japan’s Monetary Policy 137
FOREX Currency Carry Trade 139
Interventions 140
Gross Domestic Product (GDP) 142
Trading the News 143
What Are Contrarian Indicators? 145
Part 5 Technical Analysis 147
10 Technical Indicators 149
Technical Analysis 149
Types of Charts Showing Price Action 150
Trend Indicators 162
Market and Volatility Indicators 168
Understanding Oscillators 173
A Unique Indicator: Ichimoku Kinko Hyo 176
Divergences 177
11 Technical Patterns 181
Candlesticks 181
Chartism Patterns 185
Reversal Patterns 186
Continuation Patterns 192
Elliott Waves 203
Harmonic Price Patterns 208
Fractals 214
Trading Naked (Only Price Action) 215
12 Support and Resistance 217
Support 217
Resistance 218
Trendlines 219
Moving Averages 219
Other Indicators 220
Entering Positions 221
Exiting Positions 222
Pivot Points: Do They Work? 222
Psychological Levels 226
Using Multiple Time Frames 228
Trend Is Your Friend 231
13 Automated Trading 233
Expert Advisors and Automatic Programming
Interfaces (APIs) 233
Advanced Robots: Neural Networks in the FOREX 235
Part 6 Building Your Portfolio 239
14 Secrets to FOREX Diversification 241
FOREX Options 241
Spot FOREX Options 246
FOREX Futures 247
FOREX Exchange-Traded Funds (ETFs) 248
Contracts for Difference (CFDs) 249
Commodities 250
Indices (Securities) 251
15 My Favorite Ways to Trade 253
Breakouts 253
Channeling 258
Hedging 261
Basic Oscillator-Based Strategy 262
Basic Moving-Average Crosses 263
Trading Gaps 264
Daily High-Low 265

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The role of the FOREX in the world economy is very important
because there is always an increasing need of currency exchange owing to
the development of technology, communications, and general international
commerce. Countries need the FOREX market to be able to sell their products
to other countries and receive payment in their own currency or pay for
their imported goods to the foreign producer in its own currency.
In addition to commercial turnover, though, plenty of money is used
for speculation, and thus the great liquidity of the FOREX allows traders
to profit at any moment, provided they are using the right techniques and strategies.

Over the last few years, the FOREX market has gained significant
ground in the U.S. retail marketplace. Through my many Web sites, such as
the James Dicks FOREX Network (www.JamesDicks.com), educational
tools and services, I have introduced millions of individual investors to the
retail FOREX marketplace.

The CNBC “Million-Dollar Portfolio Challenge” is well known among
retail investors. To see firsthand how exciting, how popular, and how big
the FOREX market is getting, just check out the results of the past challenges.
The winner and top investors all dominated the challenge, trading the FOREX.