Currency Trading for Dummies, 2Nd Edition
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Index market interest, 172–173 benchmark interest rates, • A • price action, 173 81–82 active trades tactical trading bid/cover ratio, 96 fi nancial markets and, considerations, 172–174 bids, 64 288–290 technical levels, 174 big fi gure, 64 market monitoring and, trading by the numbers, BIS (Bank of International 286–290 171–172 Settlements), 21, 47 news and data trading fundamentals, Bloomberg.com, 85, 103, 118 developments, 287–288 169–170 BOE (Bank of England), 137 rate alerts, 286–287 Australia, data reports, bond market active trading. See day 138, 170 forex market connection, trading Austrian dollar (Aussie), 169 32 adding to longs, 54 average daily trading range, government yields, 99 adding to shorts, 54 198–199 interest rates and, 107 ADP national employment Average Directional Index monitoring, 289 report, 125–126 (ADX), 242 The Book of Five Rings ADX (Average Directional averaging into positions (Musashi), 325 Index), 242 account size, 274 BRC (British Retail algorithms, 43 defi ned, 272 Consortium), 137 anticipation example, 273 breakout levels alternative outcome reversal setup, 276 identifying, 278 scenarios, 114–116 signs against, 274–275 time frame of, 280 event outcomes, 310 signs for, 275–277 trading retest of, 279–280 overshoots/false breaks, trade time frame, 273–274 breaks 162–163 volatility, 274 defi ned, 277 ascending triangles, 213 duration of, 281 Asia-Pacifi c session • B • in entering positions, 278 Chinese news in, 24 false, guarding against, market moves, 25 backing and fi lling 280–281 opening of, 24 defi ned, 146 GBP/USD, 161, 162–163 trading in, 24–25 COPYRIGHTEDEUR/USD, 146, 148 MATERIALof sloping trend lines, assets taking advantage of, 148 237–238 market overlap, 29 Bank of England (BOE), 137 support and resistance, risky versus safe, 99 Bank of International 205–206 AUD/USD. See also Settlements (BIS), 21, 47 in take-profi t objectives, currency pairs bar charts, 207 295 Australian events and base currencies, 53 trading, 277–281 data reports, 170 bear fl ags, 212 trading with stop-loss correlations, 168 bearish divergences, 223 orders, 278–279 defi ned, 51 bearish engulfi ng lines, 219 trend lines, 293 liquidity, 172–173 Beige Book, 131–132 USD/CHF, 161, 162–163 USD/JPY, 155 229_9781118018514-bindex.indd9_9781118018514-bindex.indd 327327 55/31/11/31/11 33:31:31 PMPM 328 Currency Trading For Dummies, 2nd Edition British currency policy, 91 intervention, 91–94 Chicago Purchasing British Retail Consortium Monetary Policy Managers Index (BRC), 137 Committees (MPCs), 86 (PMI), 130 brokers. See forex brokers policy statements or China budget and defi cit guidance, 84–85 data reports, 138–139 forecasts, 134 public speeches, 85 growth outlook, 139 bull fl ags, 212 rate decisions, 84 news and data, 24 bullish divergences, 223 short term interest rate click-and-deal trading, 282 bullish engulfi ng lines, 219 infl uence, 83 closing positions business sector, 121 transparency, 84 market triggers, 301 business-level data reports, watching, 84–85 at right time, 302–303 130–132 changing market squaring up, 301–302 buying/selling conditions, failure to stop losses, 300 online, 282–283 adapt to, 317–318 taking partial profi ts, 299 retests, 280 chart analysis, 203 taking profi ts, 298–299 simultaneously, 49–50 chart formations. See also trailing stop losses, 300 technical analysis when price is right, 303 basics, 211–214 CME (Chicago Mercantile • C • candlestick patterns, Exchange), 27 cable, 156 214–215 Come into My Trading Room Canada, data reports, consolidation and (Elder), 326 137–138 continuation patterns, commodity currencies, Canadian dollar (Loonie), 211 165–166, 167 166 defi ned, 210 Commodity Trading candlestick charts, 208–209 doji, 215–217 Advisor (CTAs), 43 candlestick patterns double tops and bottoms, concerted intervention, 93 defi ned, 214 211, 212 confi rmation, 206–207 features, 245–246 engulfi ng lines, 219 congestion zones formations, 214 fl ags, 212–213, 214 defi ned, 238 interpretation, 215 hammers, 217 in support and resistance trading on, 245–246 head and shoulders levels identifi cation, capital expenditures, 121 (H&S), 211–212 238–239 carry trades inverted H&S, 211–212, 213 consensus expectations defi ned, 177, 193 reversal patterns, 211 defi ned, 112 strategies, 193–194 shooting stars, 217, 218 role of, 112–113 cash market. See interbank spinning tops, 217, 218 consolidation market trading on, 210 counter-trend ranges, 275 CCI (consumer confi dence triangles, 213–214, 215 defi ned, 238 index), 126 tweezers top and bottom, zones, 204 central bankers 219, 220 consolidation and doves, 87 Chicago Mercantile continuation patterns, governments and, 45–48 Exchange (CME), 27 211 hawks, 87 consumer confi dence index infl ation and, 107 (CCI), 126 229_9781118018514-bindex.indd9_9781118018514-bindex.indd 328328 55/31/11/31/11 33:31:31 PMPM Index 329 consumer price index (CPI), commodity, 165–166, 167 price action, 141 123, 132 counter, 53 as relative values, 54 consumer sentiment, 127 higher-yield, 78 selection, understanding, consumer-level data interest rates and, 78–81 321 reports, 127–129 lower-yield, 78 in take-profi t objectives, consumption, 120 safe haven, 29 295 contingency planning, as trading vehicle, 11–12 technical levels, 110 267–268 currency fi xings U.S. dollar (USD), 51 contingent orders. See also defi ned, 27, 40 USD/CAD, 51, 166–169, orders month-end, 27 172–174 defi ned, 71 quarter-end, 27 USD/CHF, 51, 156, 158–163 as if/then orders, 71 setting the rate at, 27 USD/DKK, 176 OCO, 71–72 in trade-related hedging, 40 USD/JPY, 149–156 conventions, this book, 2–3 currency forecasts, 104 USD/NOK, 175–176 conversion, currency, 58 currency futures markets, volatility, 256, 281 core positions, trading 27–28 currency policies around, 192–193 currency markets currency stance versus, core reading, 123–124 asset market overlap, 29 88–89 correlation coeffi cients, forward, 38 defi ned, 87 167–168 fundamentals as driver of, Eurozone, 90 counter currencies, 53 12–13 Great Britain, 91 counter-trend consolidation geopolitics and, 97 Japan, 90–91 ranges, 275 intervention, 91–94 in long-term trends, 192 CPI (consumer price index), speculation in, 21 responsibility for, 89–91 123, 132 staying on top of, 320 Switzerland, 91 credit stepping back from, 321 United States, 89–90 default swaps (CDS), 96 technicals as driver of, 13 currency prices ratings, 95 currency pairs bid, 64 risk, gauging, 95–96 base currencies, 53 momentum divergence cross-currency pairs counter currencies, 53 between, 243–245 AUD/USD, 51, 168–174 cross-currency, 51–53, offer, 64 defi ned, 51, 176 176–180 online brokerage EUR, 51, 180 defi ned, 50 display, 64 JPY, 51, 179–180 EUR/DKK, 176 routine fl uctuations, 272 popular, 176 EUR/JPY, 156, 176–177 spreads, 64–65 reasons for trading, EUR/NOK, 175–176 understanding, 63–64 177–178 EUR/SEK, 175 currency rates Sterling crosses, 51 EUR/USD, 51, 142–149, information affect on, trading, 176–180 157, 161 12–14 cross-rate movements, 178 fi ve digits, 57 interest rates and, 60 cross-trade opportunities, focus, 312 currency reserve 179 GBP/USD, 51, 156–158, management currencies 160–163 activities, 47 base, 53 major, 51, 141–163 defi ned, 45 buying and selling minor, 165–174 market prominence, 46 simultaneously, 49–50 NZD/USD, 51, 168, 171–174 currency reserves, 88 229_9781118018514-bindex.indd9_9781118018514-bindex.indd 329329 55/31/11/31/11 33:31:31 PMPM 330 Currency Trading For Dummies, 2nd Edition currency traders current account balance, 134 industrial production and event/data, 190 current market capacity utilization, 131 fl ow, 38 buying at, 271–272 infl ation, 121, 132–133 forward, 38 selling at, 271–272 international, 135–139 option, 38 stop-loss orders, 69 ISM, 130 proprietary, 38 Japan, 136–137, 152 successful, habits of, labor-market, 124–126 309–313 • D • low-impact, 118 technical, 190 Danish krone, 176 market-moving, 124–135 currency trading. See also data monthly employment, 125 trades fi nding, 118 New Zealand, 138, 171 in Asia-Pacifi c session, history, 122–123 personal income and 24–25 prior-period, 123 spending, 127–128 on auto-pilot, 194–196 data reports regional Federal Reserve breakouts, 277–281 ADP national employment, indices, 130–131 defensive, 318 125 retail sales, 128 defi ned, 9–10 alternative outcome structural, 121–122, with discretion, 44 scenarios, 114–116 132–135 with an edge, 320–321 assessing from trading Switzerland, 160 in European-London perspective, 122–124 trade, 121, 133–134 session, 25 Australia, 138, 170 United Kingdom, 137, 158 fl oor, stepping onto, 38 Beige Book, 131–132 U.S., 124–135 in interbank market, 37–38 business-level, 130–132 weekly initial key daily times and Canada, 137–138, 169 unemployment events, 27–28 China, 138–139 claims, 126 leveraged nature, 2 consensus expectations day trading long-term, 191–194 and, 113 defi ned, 10, 44 mechanics of, 49–73 consumer sentiment, 127 as liquidity source, 44–45 medium-term, 189–191 consumer-level, 127–129 trading volumes and, 45 mistakes, 315–318 core reading, 123–124 dealing price, 64 in North American data miss, 114 debt auction results, 96 session, 25–26 durable goods orders, debt to GDP ratio, 95 online, rise of, 20 128–129 defensive trading, 318 preparation for, 310–311 Eurozone, 135–136 defi cits as serious business, 10 for EUR/USD, 144–145 as percent of GDP, 95 short-term, 187–189 expectations and, 111–112 structural, 192 as speculation, 9 GDP, 121, 133 as structural theme, 109 for spot, 20–21 government debt and trade, 121 statistics, 20–21 budget and defi cits, defl ation,