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Contents

Introduction 1 About This Book 1 Foolish Assumptions 3 Icons Used in This Book 4 Beyond the Book 5 Where to Go from Here 5 Part 1: Getting Started with Currency Trading 7 Chapter 1: Currency Trading 101 9 What Is Currency Trading? 9 Speculating as an enterprise 10 Currencies as the trading vehicle 11 What Affects Currency Rates? 12 Fundamentals drive the currency market 12 But sometimes it's the technicals that are driving the currency market 13 Or something else may be a driving force 14 Developing a Trading Plan 14 Finding your trading style 14 Planning the trade 15 Executing the Trading Plan from Start to Finish 16 Chapter 2: What Is the Forex Market? 19 Getting Inside the Numbers 21 Trading for spot 21 Speculating in the currency market 21 Getting liquid without getting soaked 22 Around the World in a Trading Day 23 The opening of the trading week 23 Trading in the Asia-Pacific session 24 Trading in the European/London session 25 Trading in the North American session 26 Key daily times and events 27 The U.S dollar index 28 Looking at Currencies and Other Financial Markets 30 Gold 31 Oil 31 Stocks 32 Bonds 33 Getting Started with a Practice Account 34 Chapter 3: Who Trades Currencies? Meet the Players 37 The Interbank Market Is the Market 38 Getting inside the interbank market 38 Bank to bank and beyond 39 Hedgers and Financial Investors 41 Hedging your bets 42 Global investment flows 44 Speculators: Running the Forex Show 45 Hedge funds 45 Day traders, big and small 48 Governments and Central Banks 48 Currency reserve management 49 The Bank for International Settlements 50 The Group of Twenty 51 Chapter 4: The Mechanics of Currency Trading 53 Buying and Selling Simultaneously 53 Currencies come in pairs 54 The long and the short of it 57 Looking at Profit and Loss 59 Margin balances and liquidations 59 Unrealized and realized profit and loss 60 Calculating profit and loss with pips 61 Factoring profit and loss into margin calculations 62 Understanding Rollovers and Interest Rates 62 Currency is money, after all 63 Value dates and trade settlement 64 Market holidays and value dates 65 Applying rollovers 65 Checking Out Currency Prices 67 Bids and offers 67 Spreads 68 Executing a Trade 68 Trading online or on the phone 69 Orders 72 Part 2: Data and Details You Can Use to Trade Currencies 79 Chapter 5: Looking at the Big Picture 81 Currencies and Interest Rates 82 The future is now: Interest rate expectations 84 Relative interest rates 84 Monetary Policy 101 86 Looking at benchmark interest rates 87 Easy money, tight money 87 Unconventional easing 89 Watching the central bankers 90 Interpreting monetary policy communications 91 Official Currency Policies and Rhetoric 94 Currency policy or currency stance? 94 Calling the shots on currencies 95 Taking a closer look at currency market intervention 98 Financial stability 101 Debts, deficits, and growth 101 Gauging credit risk 102 Geopolitical Risks and Events 104 Gauging risk sentiment 105 Risk on or risk off? 106 Chapter 6: Cutting the Fog with Technical Analysis 109 The Philosophy of Technical Analysis 110 What is technical analysis? 110 What technical analysis is not 111 Forms of technical analysis 111 Finding support and resistance 112 Waiting for confirmation 114 The Art of Technical Analysis 115 Bar charts and candlestick charts 115 Drawing trend lines 117 Recognizing chart formations 118 Fibonacci retracements 128 The Science of Technical Analysis 130 Momentum oscillators and studies 130 Trend-identifying indicators 134 Trading with clouds: Ichimoku charts 136 Chapter 7: Getting Down and Dirty with Fundamental Data 139 Finding the Data 140 Economics 101 for Currency Traders: Making Sense of Economic Data 141 The labor market 141 The consumer 142 The business sector 143 The structural 143 Assessing Economic Data Reports from a Trading Perspective 144 Understanding and revising data history 144 Getting to the core 145 Market-Moving Economic Data Reports from the United States 146 Labor-market reports 147 Consumer-level data reports 149 Business-level data reports 152 Structural data reports 155 Major International Data Reports 159 Eurozone 159 Japan 160 United Kingdom 161 Canada 162 Australia 162 New Zealand 162 China 163 Chapter 8: Getting to Know the Major Currency Pairs 165 The Big Dollar: EUR/USD 166 Trading fundamentals of EUR/USD 166 Trading behavior of EUR/USD 170 Tactical trading considerations in EUR/USD 172 East Meets West: USD/JPY 174 Trading fundamentals of USD/JPY 174 Price action behavior of USD/JPY 179 Tactical trading considerations in USD/JPY 181 The Other Majors: Sterling and Aussie 182 The British pound: GBP/USD 183 The new kid in town: Trading the Aussie 185 Understanding Forex Positioning Data 187 How to interpret the data 187 The FX fix 188 Forex and regulation 188 Chapter 9: Minor Currency Pairs and Cross-Currency Trading 189 Trading the Minor Pairs 190 Trading fundamentals of USD/CAD 190 Trading fundamentals of NZD/USD 194 Tactical trading considerations in USD/CAD, AUD/USD, and NZD/USD 196 Trading the Scandies: SEK, NOK, and DKK 199 Swedish krona: Stocky 199 Norwegian krone: Nokkie 199 Danish krone: Copey 200 Checking Out Cross-Currency Pairs 200 Understanding reasons for trading the crosses 201 Stretching the legs 202 Trading the JPY crosses 204 Trading the EUR crosses 204 Part 3: Executing a Trading Plan 207 Chapter 10: Pulling the Trigger 209 Getting into the Position 209 Buying and selling at the current market 210 Averaging into a position 211 Trading breakouts 215 Making the Trade Correctly 220 Buying and selling online 220 Placing your orders 222 Chapter 11: Managing the Trade 225 Monitoring the Market While Your Trade Is Active 226 Following the market with rate alerts 226 Staying alert for news and data developments 227 Keeping an eye on other financial markets 228 Updating Your Trade Plan as Time Marches On 230 Trend lines move over time 231 Impending events may require trade plan adjustments 233 Updating Order Levels as Prices Progress 234 Increasing take-profit targets 234 Tightening stop-loss orders to protect profits 235 Chapter 12: Tax Considerations 237 Determining Whether You Have Trader Tax Status 238 Understanding Ordinary Income, Capital Gains, and Capital Losses 240 Investigating ordinary income 240 Looking at long-term capital gains 241 Coping with capital losses 242 Evaluating scenarios of gains and losses 243 Buckling Down and Paying Taxes to the IRS 244 Tax notices 244 Tax forms 245 The softer side of the IRS: Tax deductions 246 Surveying Tax Specifics for Different Types of Currency-Related Activities 248 First things first: Do you use Internal Revenue Code 1256 or 988? 248 Taxes on currency ETFs 248 Taxes on futures and options 249 Taxes on cryptocurrencies 249 Taking Advantage of Tax-Advantaged Retirement Investing 250 IRAs 250 401(k) plans 252 Seeking Some Tax Resources 252 PART 4: FOREX ALTERNATIVES 253 Chapter 13: Currency Exchange-Traded Funds 255 Defining Currency ETFs 256 Picking Out the Pros of Currency ETFs versus Other Currency Vehicles 257 Currency ETF advantages 257 Other factors when choosing currency ETFs 258 Comparing U.S Dollar Bullish and Bearish ETFs 260 Feeling bullish 260 Being bearish 262 Examining Other Currency ETFs 263 Euro ETFs 263 Yen ETFs 264 Choosing Currency ETFs: Hedged or Unhedged? 265 Studying Some Currency ETF Resources 267 Chapter 14: Currency Futures 269 Defining Currency Futures 270 Comparing Currency Trading and Currency Futures 271 Focusing on the Fundamentals of Currency Futures Contracts 271 Basics included in a futures contract 272 Margin and maintenance requirements 272 Common currency futures contracts 273 Leverage: The double-edged sword 275 Surveying Basic Futures Trading Strategies 276 Going long 276 Other strategies 277 Reading Currency Futures Quotes 278 Sizing Up E-Minis and E-Micros 279 E-minis 101 279 Trading with the E-micro 280 Common currency E-mini and E-micro contracts 281 Checking Out Futures Trading Resources and Brokers 282 Chapter 15: Currency Options 283 Introducing the Basics of Options 283 Why consider options? 284 What assets have options on them? 285 Buying a Call Option for Big Gains 285 Understanding how buying a call option works 286 Looking at the features of a call option 287 Distinguishing the moneyness of call options 287 Writing a Call Option to Generate Income 289 What if the security goes to the strike price or higher? 290 What if you don't want to sell at the strike price? 290 What if the security's price stays flat or moves sideways? 291 What if the security's price goes down? 291 How often can you write a covered call? 291 Using a Call Option for Safety or Hedging 292 Picking Apart Put Options 293 Use #1: Bearish speculation 293 Use#2: Generating income 293 Use#3: For hedging and protection 294 Considering Some Combination Trades 295 Debit spreads and credit spreads 295 Diagonal and vertical calendar spreads 295 The bull call spread 296 The bear put spread 298 Breaking Down the Mechanics of Making Options Trades 299 Choosing a brokerage firm and gaining approval for options 299 Placing an order 300 Reading an options table 301 Getting a Few Golden Rules for Options Beginners 303 Trying Options Tutorials and Resources 305 Chapter 16: Trading Cryptocurrencies 307 Describing Cryptocurrencies 308 Considering the Main Benefits and Issues of Cryptocurrencies 308 It's Your Choice: Participating in the Cryptocurrency World in Three Ways 309 The greatest control: A cryptocurrency wallet 310 The simplest approach: A brokerage account 310 The safest approach: Business transactions 310 Looking at Leading Cryptocurrencies 311 Bitcoin (The mother of all cryptos) 313 Ethereum 314 Dogecoin 314 Taking the First Steps to Buying Cryptocurrencies 315 Choosing a platform or broker 316 Selecting storage 317 Examining Cryptocurrency ETFs 318 Getting a Few Golden Rules about Cryptocurrencies 319 Digging into Cryptocurrency Resources 321 Part 5: The Part of Tens 323 Chapter 17: Ten Habits of Successful Currency Traders 325 Trading with a Plan 325 Anticipating Event Outcomes 326 Staying Flexible 326 Being Prepared for Trading 326 Keeping Technically Alert 327 Going with the Flow (Trading the Range) 327 Focusing on a Few Pairs 328 Protecting Profits 328 Trading with Stop Losses 329 Watching Other Markets 329 Chapter 18: Ten Rules of Risk Management 331 Trade with Stop-Loss Orders 332 Leverage to a Minimum 332 Trade with a Plan 332 Stay on Top of the Market 333 Look for the Right Opportunities 333 Step Back from the Market 333 Take Profit Regularly 333 Understand Currency-Pair Selection 334 Double-Check for Accuracy 334 Take Money Out of Your Trading Account 335 Chapter 19: Ten Great Resources for Currency Trading 337 Technical Analysis of the Financial Markets 338 Japanese Candlestick Charting Techniques 338 Elliott Wave Principle 338 Technical Analysis For Dummies 339 The Book of Five Rings 339 Market Wizards: Interviews with Top Traders 339 FOREX.com 340 Zero Hedge 340 BabyPips.com 340 Forex Factory 341 Chapter 20: Ten (Or So) Golden Rules for Currency Trading Beginners 343 Read, Read, Read 343 Simulate Trading First 344 Start Small 344 Keep a Ceiling on Your Total Speculating 344 Be Diversified 345 Have a Rule on Profits (and Losses!) 345 Analyze the Trade That Went Bad 345 Learn from Others 346 Recognize That History May Not Repeat, but It Does Rhyme 346 Specialize If Possible (In Other Words, Focus!) 347 Know That Successful Trading Isn't Just What You Do but How You Do It 347 Finally, Don't Stop Educating Yourself 348 Chapter 21: Ten Alternatives to Currencies 349 Gold 349 Silver 350 Cryptocurrencies 350 Common Stocks 351 The I Bond 351 Commodities 352 Mutual Funds 352 Country Exchange-Traded Funds 353 Collectibles 353 Real Estate Investment Trusts 354 Appendix: Trading Strategies 355 Index 379

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