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Kathleen Brooks. Currency Trading For Dummies
Currency Trading For Dummies® To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Currency Trading For Dummies 4th Edition Cheat Sheet” in the Search box. Table of Contents
List of Tables
List of Illustrations
Guide
Pages
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Getting Started with Currency Trading
Currency Trading 101
What Is Currency Trading?
Speculating as an enterprise
Currencies as the trading vehicle
What Affects Currency Rates?
Fundamentals drive the currency market
But sometimes it’s the technicals that are driving the currency market
Or something else may be a driving force
Developing a Trading Plan
Finding your trading style
Planning the trade
Executing the Trading Plan from Start to Finish
What Is the Forex Market?
SOME EYE-OPENING STATS ON TRADERS
Getting Inside the Numbers
Trading for spot
Speculating in the currency market
Getting liquid without getting soaked
Around the World in a Trading Day
The opening of the trading week
Trading in the Asia-Pacific session
Trading in the European/London session
Trading in the North American session
Key daily times and events
Expiring options
Setting the rate at currency fixings
Squaring up on the currency futures markets
The U.S. dollar index
THE RISE OF THE CHINESE RENMINBI
Looking at Currencies and Other Financial Markets
Gold
Oil
Stocks
RISK ON/RISK OFF: WAX ON, WAX OFF
Bonds
Getting Started with a Practice Account
INTERPRETING YOUR RESULTS REALISTICALLY
Who Trades Currencies? Meet the Players
The Interbank Market Is “the Market”
Getting inside the interbank market
Bank to bank and beyond
Trading in the interbank market
Stepping onto a currency trading floor
Hedgers and Financial Investors
Hedging your bets
Hedging for international trade purposes
Hedging for currency options
Global investment flows
Speculators: Running the Forex Show
Hedge funds
Speculating with black boxes, models, and systems
Trading with discretion
HIGH-FREQUENCY TRADING
Day traders, big and small
Governments and Central Banks
Currency reserve management
The Bank for International Settlements
The Group of Twenty
The Mechanics of Currency Trading
Buying and Selling Simultaneously
Currencies come in pairs
Major currency pairs
Major cross-currency pairs
The long and the short of it
BASE CURRENCIES AND COUNTER CURRENCIES
Going long
Getting short
Squaring up
Looking at Profit and Loss
Margin balances and liquidations
Unrealized and realized profit and loss
Calculating profit and loss with pips
Factoring profit and loss into margin calculations
Understanding Rollovers and Interest Rates
Currency is money, after all
Value dates and trade settlement
Market holidays and value dates
Applying rollovers
Checking Out Currency Prices
Bids and offers
Spreads
Executing a Trade
Trading online or on the phone
Clicking and dealing
TRADING USING SMARTPHONES
Phone dealing
Orders
Types of orders
TAKE-PROFIT ORDERS
LIMIT ORDERS
STOP-LOSS ORDERS
TRAILING STOP-LOSS ORDERS
WHEN STOPS DON’T LOSE, AND TAKE PROFITS DON’T PROFIT
ONE-CANCELS-THE-OTHER ORDERS
CONTINGENT ORDERS
Spreads and orders in online currency trading
Data and Details You Can Use to Trade Currencies
Looking at the Big Picture
Currencies and Interest Rates
UNDERSTANDING THE FEDERAL RESERVE DIRECTLY FROM ITS OWN SITES
The future is now: Interest rate expectations
Relative interest rates
Interest-rate differentials
Nominal and real interest rates
Monetary Policy 101
Looking at benchmark interest rates
Easy money, tight money
Expansionary monetary policy
Restrictive monetary policy
Changing rates incrementally
Unconventional easing
Watching the central bankers
Interpreting monetary policy communications
Not all central bankers are created equal
Birds of a feather: Hawks and doves
A BIRD’S-EYE VIEW OF THE FED: DOVES VERSUS HAWKS
Official Currency Policies and Rhetoric
Currency policy or currency stance?
Calling the shots on currencies
The United States
The Eurozone
Japan
The United Kingdom
Switzerland
Taking a closer look at currency market intervention
Financial stability
Debts, deficits, and growth
Gauging credit risk
Geopolitical Risks and Events
Gauging risk sentiment
Risk on or risk off?
Gauges of risk sentiment
Risky versus safe assets
Cutting the Fog with Technical Analysis
The Philosophy of Technical Analysis
What is technical analysis?
What technical analysis is not
Forms of technical analysis
Finding support and resistance
Not all support and resistance are created equal
Support and resistance are made to be broken
Waiting for confirmation
The Art of Technical Analysis
Bar charts and candlestick charts
Measuring markets with price bars
Lighting the way with candlesticks
Drawing trend lines
Connecting the dots
Looking for symmetry
Recognizing chart formations
Basic chart formations
DOUBLE TOPS AND DOUBLE BOTTOMS
HEAD AND SHOULDERS AND INVERTED HEAD AND SHOULDERS
FLAGS
TRIANGLES
Candlestick patterns
DOJI
HAMMERS AND SHOOTING STARS
SPINNING TOPS
ENGULFING LINES
TWEEZER TOPS AND TWEEZER BOTTOMS
Fibonacci retracements
The Science of Technical Analysis
Momentum oscillators and studies
Overbought and oversold
Divergences between price and momentum
Using momentum in ranges and trends
Trend-identifying indicators
Directional Movement Indicator system
Moving averages
Trading with clouds: Ichimoku charts
Getting Down and Dirty with Fundamental Data
Finding the Data
Economics 101 for Currency Traders: Making Sense of Economic Data
The labor market
The consumer
The business sector
The structural
Assessing Economic Data Reports from a Trading Perspective
Understanding and revising data history
Getting to the core
Market-Moving Economic Data Reports from the United States
Labor-market reports
U.S. monthly employment report
ADP national employment report
Weekly initial unemployment claims
OTHER LABOR-MARKET INDICATORS
Consumer-level data reports
Consumer sentiment
Personal income and personal spending
Retail sales
Durable goods orders
Housing-market indicators
Business-level data reports
Institute for Supply Management and Purchasing Managers Index
Regional Federal Reserve indices
Industrial production and capacity utilization
The Fed’s Beige Book
Structural data reports
Inflation gauges
Gross domestic product
Trade and current account balances
Government debt and budget deficits
Major International Data Reports
Eurozone
Japan
United Kingdom
Canada
Australia
New Zealand
China
Getting to Know the Major Currency Pairs
The Big Dollar: EUR/USD
Trading fundamentals of EUR/USD
Trading EUR/USD by the numbers
Swimming in deep liquidity
Watching the data reports
Trading behavior of EUR/USD
Trading tick by tick
Fewer price jumps and smaller price gaps
Backing and filling
Prolonged tests of technical levels
Looking at GBP/USD and USD/CHF as leading indicators
Tactical trading considerations in EUR/USD
Deciding whether it’s a U.S. dollar move or a euro move
Being patient in EUR/USD
Taking advantage of backing and filling
Allowing for a margin of error on technical levels
East Meets West: USD/JPY
Trading fundamentals of USD/JPY
Trading USD/JPY by the numbers
USD/JPY is heavily influenced by U.S. interest rates
It’s politically sensitive to trade
The Ministry of Finance is routinely involved in the forex market
Japanese asset managers tend to move together
Important Japanese data reports
THE ULTIMATE SAFE HAVEN
Price action behavior of USD/JPY
Prone to short-term trends, followed by sideways consolidations
Technical levels are critical in USD/JPY
Tactical trading considerations in USD/JPY
Actively trading trend-line and price-level breakouts
Jumping on spike reversals
Monitoring EUR/JPY and other JPY crosses
The Other Majors: Sterling and Aussie
The British pound: GBP/USD
Trading fundamentals of GBP/USD
Trading sterling by the numbers
Trading alongside EUR/USD, but with a lot more zip!
Important UK data reports
The new kid in town: Trading the Aussie
Trading fundamentals of AUD/USD
Trading Aussie by the numbers
Important Australian data reports
Understanding Forex Positioning Data
How to interpret the data
The FX fix
Forex and regulation
Minor Currency Pairs and Cross-Currency Trading
Trading the Minor Pairs
Trading fundamentals of USD/CAD
THE (NOT JUST) COMMODITY CURRENCIES
Trading USD/CAD by the numbers
Canadian events and data reports to watch
Trading fundamentals of NZD/USD
New Zealand events and data reports to watch
Trading Aussie and Kiwi by the numbers
Tactical trading considerations in USD/CAD, AUD/USD, and NZD/USD
Liquidity and market interest are lower
Price action is highly event driven
All politics (and economic data) is local
Technical levels can be blurry
Trading the Scandies: SEK, NOK, and DKK
Swedish krona: “Stocky”
Norwegian krone: “Nokkie”
Danish krone: “Copey”
Checking Out Cross-Currency Pairs
Understanding reasons for trading the crosses
Stretching the legs
Trading the JPY crosses
Trading the EUR crosses
Executing a Trading Plan
Pulling the Trigger
Getting into the Position
Buying and selling at the current market
Averaging into a position
Signs that averaging into a trade is not a good idea
When averaging into a position makes sense
Trading breakouts
Identifying potential breakout levels
Trading breaks with stop-loss entry orders
Trading the retest of a breakout level
Guarding against false breaks
Making the Trade Correctly
Buying and selling online
Placing your orders
Managing the Trade
Monitoring the Market While Your Trade Is Active
Following the market with rate alerts
Staying alert for news and data developments
Keeping an eye on other financial markets
U.S. Treasury yields
Gold and silver prices
Oil
Stocks
Updating Your Trade Plan as Time Marches On
Trend lines move over time
Impending events may require trade plan adjustments
Updating Order Levels as Prices Progress
Increasing take-profit targets
Tightening stop-loss orders to protect profits
Tax Considerations
Determining Whether You Have Trader Tax Status
Understanding Ordinary Income, Capital Gains, and Capital Losses
Investigating ordinary income
Dividends
Short-term capital gains
Looking at long-term capital gains
Coping with capital losses
Evaluating scenarios of gains and losses
Buckling Down and Paying Taxes to the IRS
Tax notices
Tax forms
The softer side of the IRS: Tax deductions
Investment interest
Miscellaneous expenses
Surveying Tax Specifics for Different Types of Currency-Related Activities
First things first: Do you use Internal Revenue Code 1256 or 988?
Taxes on currency ETFs
Taxes on futures and options
Taxes on cryptocurrencies
Taking Advantage of Tax-Advantaged Retirement Investing
IRAs
Traditional IRA
Roth IRA
401(k) plans
Seeking Some Tax Resources
Forex Alternatives
Currency Exchange-Traded Funds
Defining Currency ETFs
Picking Out the Pros of Currency ETFs versus Other Currency Vehicles
Currency ETF advantages
Other factors when choosing currency ETFs
Comparing U.S. Dollar Bullish and Bearish ETFs
Feeling bullish
Being bearish
Examining Other Currency ETFs
Euro ETFs
A bullish euro ETF
A bearish euro ETF
Yen ETFs
Choosing Currency ETFs: Hedged or Unhedged?
Studying Some Currency ETF Resources
Currency Futures
Defining Currency Futures
Comparing Currency Trading and Currency Futures
Focusing on the Fundamentals of Currency Futures Contracts
Basics included in a futures contract
Margin and maintenance requirements
Common currency futures contracts
Leverage: The double-edged sword
Surveying Basic Futures Trading Strategies
Going long
Other strategies
Reading Currency Futures Quotes
Sizing Up E-Minis and E-Micros
E-minis 101
Trading with the E-micro
Common currency E-mini and E-micro contracts
Checking Out Futures Trading Resources and Brokers
Currency Options
Introducing the Basics of Options
Why consider options?
What assets have options on them?
Buying a Call Option for Big Gains
Understanding how buying a call option works
Looking at the features of a call option
Distinguishing the “moneyness” of call options
Writing a Call Option to Generate Income
What if the security goes to the strike price or higher?
What if you don’t want to sell at the strike price?
What if the security’s price stays flat or moves sideways?
What if the security’s price goes down?
How often can you write a covered call?
Using a Call Option for Safety or Hedging
Picking Apart Put Options
Use #1: Bearish speculation
Use#2: Generating income
Use#3: For hedging and protection
Considering Some Combination Trades
Debit spreads and credit spreads
Diagonal and vertical calendar spreads
The bull call spread
The bear put spread
Breaking Down the Mechanics of Making Options Trades
Choosing a brokerage firm and gaining approval for options
Placing an order
Reading an options table
Column 1
Column 2
Column 3
Columns 4 and 5
Columns 6 and 7
Column 8
Getting a Few Golden Rules for Options Beginners
Trying Options Tutorials and Resources
Trading Cryptocurrencies
Describing Cryptocurrencies
Considering the Main Benefits and Issues of Cryptocurrencies
It’s Your Choice: Participating in the Cryptocurrency World in Three Ways
The greatest control: A cryptocurrency wallet
The simplest approach: A brokerage account
The safest approach: Business transactions
Looking at Leading Cryptocurrencies
Bitcoin (The mother of all cryptos)
Ethereum
Dogecoin
Taking the First Steps to Buying Cryptocurrencies
Choosing a platform or broker
Selecting storage
Examining Cryptocurrency ETFs
Getting a Few Golden Rules about Cryptocurrencies
ARE BITCOIN FUTURES IN YOUR PRESENT?
Digging into Cryptocurrency Resources
The Part of Tens
Ten Habits of Successful Currency Traders
Trading with a Plan
Anticipating Event Outcomes
Staying Flexible
Being Prepared for Trading
Keeping Technically Alert
Going with the Flow (Trading the Range)
Focusing on a Few Pairs
Protecting Profits
Trading with Stop Losses
Watching Other Markets
Ten Rules of Risk Management
Trade with Stop-Loss Orders
Leverage to a Minimum
Trade with a Plan
Stay on Top of the Market
Look for the Right Opportunities
Step Back from the Market
Take Profit Regularly
Understand Currency-Pair Selection
Double-Check for Accuracy
Take Money Out of Your Trading Account
Ten Great Resources for Currency Trading
Technical Analysis of the Financial Markets
Japanese Candlestick Charting Techniques
Elliott Wave Principle
Technical Analysis For Dummies
The Book of Five Rings
Market Wizards: Interviews with Top Traders
FOREX.com
Zero Hedge
BabyPips.com
Forex Factory
Ten (Or So) Golden Rules for Currency Trading Beginners
Read, Read, Read
Simulate Trading First
Start Small
Keep a Ceiling on Your Total Speculating
Be Diversified
Have a Rule on Profits (and Losses!)
Analyze the Trade That Went Bad
Learn from Others
Recognize That History May Not Repeat, but It Does Rhyme
Specialize If Possible (In Other Words, Focus!)
Know That Successful Trading Isn’t Just What You Do but How You Do It
Finally, Don’t Stop Educating Yourself
Ten Alternatives to Currencies
Gold
Silver
Cryptocurrencies
Common Stocks
The “I” Bond
Commodities
Mutual Funds
Country Exchange-Traded Funds
Collectibles
Real Estate Investment Trusts
Trading Strategies
What’s Your Sign? Determining Your Trader Type
Looking at Trading Strategies Based on Trader Type
For the scalper: The Red Zone strategy
How it works
The Red Zone strategy in action
For the scalper: The Opening Range Breakout strategy
How it works
The Opening Range Breakout strategy in action
For the swing trader: The Favorite Fib strategy
A FIBONACCI REFRESHER
How it works
The Favorite Fib strategy in action
For the swing trader: The Moving Average Crossover strategy
How it works
The Moving Average Crossover strategy in action
For the position trader: Trading the Ichimoku cloud
How it works
The strategy in action
Index. A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
Y
Z
About the Authors
Dedication
Authors’ Acknowledgments
WILEY END USER LICENSE AGREEMENT
