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E-book

Getting Started in Currency Trading: Winning in Today's Market, 4th Edition

ISBN: 978-1-118-28198-7
452 pages
April 2012
Getting Started in Currency Trading: Winning in Today
The definitive introduction to FOREX trading

Getting Started in Currency Trading, Fourth Edition is both an introduction and a reference manual for beginning and intermediate traders. Starting with a description of the Foreign Exchange (FOREX) market and a brief history, the book includes an invaluable section made up of relevant FOREX terms clearly defined using examples. The FOREX market has grown substantially and evolved dramatically in recent years, and this new edition is designed to help the reader to adapt and take advantage of these changes.

Including coverage of how to open a trading account, a step-by-step walk through the physical processes of placing and liquidating currency orders, and information on trading strategy and tactics complete with fundamental and technical analysis, the book has everything needed to assist the trader in the decision making process.

  • New edition is revised and expanded to take into account all of the recent changes in the currency market
  • Now includes a step-by-step introduction for the new trader and additional material on regulation
  • FOREX arithmetic calculations are presented in a clear, easy to understand way
  • Recommendations, guidelines, and caveats appear throughout the book

This new edition of Getting Started in Currency Trading contains significant new information, including a chapter on computers and FOREX, managed FOREX, and new information about regulation, alongside the author's successful trading plan, designed to help the reader put it all together.

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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

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MICHAEL DUANE ARCHER has been an active futures and FOREX trader for over thirty-five years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. Archer currently trades and is involved in several technical analysis research projects. He hosts the FOREX website www.goodmanworks.com.

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