Table Of Content

DAY TRADING AND SWING TRADING THE CURRENCY MARKET The Wiley Trading series features books by traders who have survived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional, or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future. For more on this series, visit our Web site at www.WileyTrading.com. Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. DAY TRADING AND SWING TRADING THE CURRENCY MARKET Technical and Fundamental Strategies to Profit from Market Moves Third Edition Kathy Lien Copyright C 2016 by Kathy Lien. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. The first edition was published as Day Trading the Currency Market by John Wiley & Sons, Inc. in 2005. The second edition was published as Day Trading and Swing Trading the Currency Market by John Wiley & Sons, Inc. in 2008. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 572-4002. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. Library of Congress Cataloging-in-Publication Data: Names: Lien, Kathy, 1980- | Lien, Kathy, 1980- . Day trading the currency market. Title: Day trading and swing trading the currency market : technical and fundamental strategies to profit from market moves / Kathy Lien. Description: Third edition. | Hoboken : Wiley, 2015. | Series: Wiley trading | Revised edition of the author’s Day trading and swing trading the currency market, 2009. | Includes index. Identifiers: LCCN 2015031925 | ISBN 9781119108412 (paperback) | ISBN 9781119220107 (ePDF) | ISBN 9781119220091 (ePub) Subjects: LCSH: Foreign exchange futures. | Foreign exchange market. | Speculation. | BISAC: BUSINESS & ECONOMICS / Investments & Securities. Classification: LCC HG3853 .L54 2015 | DDC 332.4/5—dc23 LC record available at http://lccn.loc.gov/2015031925 Cover Design: Wiley Cover Image: C John Lund/Getty Images Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 Dedicated to My Son Jackson, Who I Hope Will Share His Momma’s Love for the Markets And to My Husband and Wonderful Family, for Their Love and Support vii C O N T E N T S Preface ix About the Author xi CHAPTER 1 Foreign Exchange—The Fastest Growing Market of Our Time 1 CHAPTER 2 Historical Events in the FX Markets 17 CHAPTER 3 What Moves the Currency Market? 31 CHAPTER 4 A Deeper Look at the FX Market 53 CHAPTER 5 What Are the Most Market Moving Economic Data? 61 CHAPTER 6 What Are Currency Correlations, and How Can We Use Them? 67 CHAPTER 7 Trade Parameters for Various Market Conditions 73 CHAPTER 8 Technical Trading Strategy: Multiple Time Frame Analysis 91 CHAPTER 9 Technical Strategy: Trading with Double Bollinger Bands 101 CHAPTER 10 Technical Trading Strategy: Fading the Double Zeros 111 CHAPTER 11 Technical Trading Strategy: Waiting for the Deal 117 CHAPTER 12 Technical Trading Strategy: Inside Days Breakout Play 123 CONTENTS viii CHAPTER 13 Technical Trading Strategy: Fader 129 CHAPTER 14 Technical Trading Strategy: 20-Day Breakout Trade 135 CHAPTER 15 Technical Trading Strategy: Channels 139 CHAPTER 16 Technical Trading Strategy: Perfect Order 143 CHAPTER 17 Fundamental Trading Strategy: Pairing Strong with Weak 149 CHAPTER 18 Fundamental Trading Strategy: The Leveraged Carry Trade 153 CHAPTER 19 Fundamental Trading Strategy: Macro Event Driven Trade 161 CHAPTER 20 Quantitative Easing and Its Impact on Forex 169 CHAPTER 21 Fundamental Trading Strategy: Commodity Prices as a Leading Indicator 177 CHAPTER 22 Fundamental Strategy: Using Bond Spreads as a Leading Indicator for FX 181 CHAPTER 23 Fundamental Trading Strategy: Risk Reversals 187 CHAPTER 24 Fundamental Trading Strategy: Using Option Volatilities to Time Market Movements 191 CHAPTER 25 Fundamental Trading Strategy: Intervention 195 CHAPTER 26 Currency Profiles and Outlook 203 CHAPTER 27 Currency Profile: Euro (EUR) 213 CHAPTER 28 Currency Profile: British Pound (GBP) 223 CHAPTER 29 Currency Profile: Swiss Franc (CHF) 231 CHAPTER 30 Currency Profile: Japanese Yen (JPY) 239 CHAPTER 31 Currency Profile: Australian Dollar (AUD) 247 CHAPTER 32 Currency Profile: New Zealand Dollar (NZD) 255 CHAPTER 33 Currency Profile: Canadian Dollar (CAD) 263 Index 269 ix P R E F A C E D ay Trading and Swing Trading the Currency Market is one of the most popular books for new and experienced forex traders. In the third edition, all of the content has been updated with new chapters and strategies. After having taught seminars across the country on how to trade currencies, I am repeatedly approached about recommendations for good books on currency trading. Day Trading Strategies for the FX Market addresses that need by not only providing technical and fundamental strategies for trading FX, but also giving traders more detailed insight into how the currency market works. This book is designed for both the beginner and advanced trader. There is something for every type of reader. Aside from the basic market overview, the book covers the best times to trade currencies, the most market moving economic data cross-market correlations, and unique currency characteristics just to name a few. For technical traders, there are strategies for both breakouts and range trading that work particularly well in the FX market. xi A B O U T T H E A U T H O R K athy Lien is managing director of FX strategy for BK Asset Management and co-founder of BKForex.com. As a financial market prodigy,she graduated from New York University’s Stern School of Business at the age of 18. After graduation, she joined JPMorgan Chase’s interbank foreign exchange trading desk. This early start has given Kathy more than 15 years of experience in the foreign exchange market. At JPMorgan, she helped to make markets in G20 currencies and later moved to the bank’s cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures. In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As chief strategist, she managed a team of 10 analysts dedicated to providing research and commentary on the foreign exchange market. In 2008, Kathy joined Global Futures & Forex Ltd as director of Currency Research, where she provided research and analysis to clients and managed a global foreign exchange research team with analysts in the United States, London, and Japan. In 2012, she became an official CNBC contributor and served as a guest host for Money in Motion. As an expert in G20 currencies, Kathy travels around the world teaching investors to trade forex. She is often quoted in the Wall Street Journal, UK Telegraph, and Sydney Morning Herald, and by Reuters, Bloomberg, Marketwatch, Associated Press, AAP, and other leading news sources. She also appears regularly on CNBC US, Asia, and Europe, and on Sky Business. Kathy is an internationally published author of the best-selling book Day Trading and Swing Trading the Currency Market; The Little Book of Currency Trading; and Millionaire ABOUT THE AUTHOR xii Traders: How Everyday People Beat Wall Street at Its Own Game—all published through Wiley. Kathy’s extensive experience in cross-markets analysis, trading strategy devel- opment, and predicting economic data surprises has made her known in the forex community as the ‘‘queen of the macro forex trade.’’ 1 C H A P T E R 1 Foreign Exchange— The Fastest Growing Market of Our Time T he foreign exchange market is the largest and fastest growing market in the world. Traditionally, it is the platform through which governments, businesses, investors, travelers, and other interested parties convert or ‘‘exchange’’ currency. At its most fundamental level, the foreign exchange market is an over-the-counter (OTC) market with no central exchange and clearing house where orders are matched. FX dealers and market makers around the world are linked to each other around-the-clock via telephone, computer, and fax, creating one cohesive market. Through the years, this has changed with many institutions offering exchange traded FX instruments, but all of the prices are still derived from the underlying or spot forex market. In the past two decades, foreign exchange, also known as forex or FX, became available to trade by individual retail investors, and this access caused the market to explode in popularity. In the early 2000s, the Bank of International Settlements reported a 57% increase in volume between April 2001 and 2004. At the time more than $1.9 trillion were changing hands on a daily basis. After the financial crisis in 2008, the pace of growth eased to a still-respectable 32% between 2010 and 2013, but the actual volume that changed hands was significantly larger at an average of $5.3 trillion per day. To put this into perspective, it is 50 times greater than the daily trading volume of the New York Stock Exchange and the NASDAQ combined.