Table of Contents
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
