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FOREX Investment and Trading

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FOREX Investment and Trading FOREX Investment and Trading An Interactive Qualifying Project Report submitted to the Faculty of WORCESTER POLYTECHNIC INSTITUTE in partial fulfillment of the requirements for the Degree of Bachelor of Science By Edgar Buenrostro Alberto Mateo Adrian Ramirez Date: September 25th, 2012 Approved By: Professor Hossein Hakim ii ABSTRACT The principal objective of this paper is to exhibit the most feasible method to establish a Forex firm successfully. The intent of this project is to provide a detailed explanation of the currency trading market for all kinds of audience. Thus, it provides the essentials of the Forex market as well as samples of trades from the group, in which is possible to appreciate the common risks and mistakes a person is susceptible to while trading. In addition, it includes an explanation of the methodology utilized by the group such as the use of technical and fundamental analysis. Furthermore, automated trading is introduced. iii Acknowledgement We would like to thank Hossein Hakim, Professor, Electrical & Computer Engineering Department, and Michael Radzicki, Professor of Economics, Worcester Polytechnic Institute for their guidance throughout the course of this project and their contributions to this project. iv Table of Contents Abstract……….……………………………………………………………………………………………………………………………..ii Acknowledgement……………….……………………………………………………………………………………............…........iii Table of Figures ......................................................................................................................................... vii Chapter 1. Introduction .......................................................................................................................... 1 1.1 Project Description .............................................................................................................................. 2 Chapter 2. Background ........................................................................................................................... 4 2.1 History of Financial Markets ............................................................................................................... 4 2.2 Types of Markets ................................................................................................................................. 4 2.2.1 Stock Market ................................................................................................................................ 5 2.2.2 Bond Market ................................................................................................................................ 5 2.2.3 Derivatives Market ....................................................................................................................... 5 2.3 Emergence of the Foreign Exchange Market ...................................................................................... 6 2.3.1 What is Forex? ............................................................................................................................. 9 2.4 Forex Trading .................................................................................................................................... 11 2.4.1Trading Terms ............................................................................................................................. 13 2.4.2 Technical Analysis ...................................................................................................................... 15 2.4.3 Fundamental Analysis ................................................................................................................ 18 2.4.4 Automated Trading .................................................................................................................... 21 Chapter 3. Methodology ....................................................................................................................... 26 Chapter 4. Project Execution ................................................................................................................ 28 4.1 Trading Plan ...................................................................................................................................... 28 4.1.1 Trade Set Ups ............................................................................................................................. 29 4.2 Risk Management ............................................................................................................................. 32 4.3 Money Management ........................................................................................................................ 32 v 4.4 Technical Indicators Research ........................................................................................................... 34 4.5 Fundamental Indicators Research .................................................................................................... 54 Chapter 5. Establishing a FOREX Firm ................................................................................................... 67 5.1 Corporate Structure .......................................................................................................................... 67 5.1.1 Different ways you can legally structure your company ........................................................... 67 5.1.2 Establishing your company in US vs off-shore ........................................................................... 71 5.2 Money Management ........................................................................................................................ 73 5.2.1 Different ways you can set up the money management aspect of your company ................... 73 5.3 Licenses and Regulations .................................................................................................................. 75 5.3.1 Regulating agencies ................................................................................................................... 75 5.3.2 Types of license needed ............................................................................................................. 75 5.4 Marketing .......................................................................................................................................... 78 5.4.1 Marketing of a firm .................................................................................................................... 78 5.4.2 Marketing for the Company ....................................................................................................... 81 Chapter 6. Results ................................................................................................................................. 84 6.1 Introduction to Results ................................................................................................................... 853 6.2 Team Program ................................................................................................................................... 85 Chapter 7. Conclusion & Recommendations ........................................................................................ 87 Citations………………………………………………………………………………………………………………………………………………….90 Appendices……………….. ............................................................................................................................... 91 Appendix A. Macroeconomic Issues that Influenced the FOREX Market .............................................. 91 Appendix B. Sample Gartman Letter ................................................................................................... 123 Appendix C. SUMMARY OF PIPS/DOLLAR MADE SINCE TERM B ......................................................... 130 Adrian’s Trades ................................................................................................................................. 130 Alberto’s Trades ................................................................................................................................ 138 vi Edgar’s Trades ................................................................................................................................... 139 Appendix D. Code of Program .............................................................................................................. 142 Ignition Bar EA ................................................................................................................................... 142 vii Table of Figures Figure 2-1. Peaks and Troughs / Resistance and Support Levels ................................................................ 16 Figure 4-1. Entry above 200MA .................................................................................................................. 30 Figure 4-2 Ignition Green Bar ...................................................................................................................... 30 Figure 4-3 RSI Graphs .................................................................................................................................. 35 Figure 4-4 Stochastic Graph ........................................................................................................................ 37 Figure 4-5 MACD Graph .............................................................................................................................. 39 Figure 4-6 Average True Range Graph .......................................................................................................
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