The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start

208 Pages·2012·3.27 MB·English

by  Cliff Wachtel

Contents
Cover
More Praise for The Sensible Guide to Forex
Series
Title Page
Copyright
Dedication
Read This First
CURRENCY RISK: EVERY INVESTOR'S DILEMMA
THE SOLUTION
SOME BACKGROUND
WHY ANY TRADER OR INVESTOR NEEDS THIS BOOK
VISIT THESENSIBLEGUIDETOFOREX.COM FOR
ADDITIONAL ONLINE CONTENT
Acknowledgments
Chapter 1: Three Must-Know Forex Facts
FACT 1: EVERYONE NEEDS FOREX DIVERSIFICATION
EVEN IF YOU DON'T TRADE ACTIVELY
FACT 2: POTENTIAL FOR BETTER RISK-ADJUSTED
RETURNS
FACT 3: YOU CAN DO THIS
Chapter 2: Forex Basics
BASICS OF CURRENCIES AND CURRENCY PAIRS
CURRENCIES TRADE IN PAIRS AND WHY THAT
MATTERS
SIZE MATTERS: TYPES OF CURRENCY PAIRS
PIPS: THE UNIVERSAL CURRENCY OF CURRENCIES
LEVERAGE AND MARGIN: THEIR RELATIONSHIP AND
IMPACT ON RISK
THE THREE FACETS OF RISK AND RISK CONTROL
THE CORE FOUR: THE MOST IMPORTANT SKILLS FOR
SUCCESS
Chapter 3: Technical Analysis (TA) Basics
CANDLE CHART BASICS
SUPPORT AND RESISTANCE (S/R) BASICS
CANDLE CHART TIME FRAMES: LENGTH MATTERS
IDENTIFYING SUPPORT AND RESISTANCE (S/R) TO BUY
LOW, SELL HIGH, OR VICE VERSA
Chapter 4: Technical Analysis
PRICE LEVELS
TRENDS AND TREND LINES
FIBONACCI RETRACEMENTS (FIBs): THESE FIBs DON'T
LIE
BOLLINGER BANDS (BBs): USE AS S/R IN RANGE-
BOUND MARKETS
INTRODUCTION TO JAPANESE CANDLE CHART
PATTERNS
INTRODUCTION TO WESTERN CHART PATTERNS
THE MORE S/R INDICATORS, THE BETTER
Chapter 5: Trader Psychology and Risk and Money
Management (RAMM)
RAMM: PRESERVING CAPITAL IS YOUR TOP PRIORITY
THE INNER GAME: TRADER PSYCHOLOGY BASICS
WHY TRADE LONGER TIME FRAMES
THE ESSENCE OF GOOD RAMM
THE THREE PILLARS OF RAMM
ACCOUNT SIZE AND AFFORDABLE LOSS PER TRADE
SETTING STOP LOSSES: BASIC TECHNIQUE AND
PSYCHOLOGY
LEVERAGE AND MARGIN
POSITION SIZING
AVOID HAVING TOO MANY OPEN POSITIONS
ENTRIES NEAR STRONG SUPPORT, EXITS NEAR
STRONG RESISTANCE
ENTRIES AND EXITS: SINGLE VERSUS MULTIPLE
RISK-REWARD RATIOS (RRRS)
IF YOU FAIL TO PLAN, YOU PLAN TO FAIL
WHAT CONDITIONS DO YOU NEED FOR SUCCESS?
SAFETY IN NUMBERS: BUILD A TEAM
Chapter 6: Essentials of Fundamental Analysis
USING FUNDAMENTAL ANALYSIS (FA) AND
TECHNICAL ANALYSIS (TA) TOGETHER
AN OVERVIEW OF FA: MAIN FUNDAMENTAL DRIVERS
OF FOREX TRENDS
MACROECONOMIC DATA AND INDICATORS
NEWS TRADING: DAY TRADING BASED ON SHORT-
TERM FUNDAMENTALS
FA BASICS: EASY TO UNDERSTAND AND HARD TO
APPLY
THEREFORE, GET THEE TO AN ANALYST
COMBINING FA AND TA: AN EXAMPLE
Chapter 7: Pulling It All Together with Trade Examples
IDENTIFYING AND EXECUTING LOW-RISK, HIGH
POTENTIAL YIELD TRADES
TYPES OF TRADES
TRADE EXAMPLE 1: A SWING TRADE
TRADE EXAMPLE 2: A BREAKOUT TRADE
MORE KEY TRADER PSYCHOLOGY: DISTINGUISHING
BETWEEN GOOD TRADES AND WINNING TRADES
Chapter 8: Technical Analysis
DOUBLE BOLLINGER BANDS (DBBS)—USE AS
MOMENTUM INDICATORS
MOVING AVERAGE CROSSOVERS
OSCILLATORS
MOVING AVERAGE LAYERING INDICATES TREND
STRENGTH
Chapter 9: Technical Analysis
CATCH A WAVE: TIMING OR CYCLE INDICATORS
COMBINING TECHNICAL INDICATORS: WHICH ONES
AND HOW MANY?
BACK TESTING: LEARNING FROM THE PAST
INTERMARKET ANALYSIS: READING INTERMARKET
CORRELATIONS AND DIVERGENCES
WHY THESE RELATIONSHIPS MATTER
CURRENCIES VERSUS COMMODITIES
THINKING LIKE A PRO, ONE STEP BEYOND TECHNICAL
ANALYSIS
Chapter 10: Alternatives to Traditional Methods
AUTO-TRADING SYSTEMS: WELCOME TO THE
MACHINE
CURRENCY FUNDS: FOREX ETFS, ETNS, AND MORE
MANAGED ACCOUNTS: SHOULD YOU SEEK
PROFESSIONAL HELP?
Chapter 11: Newer, Smarter Methods
FOLLOW THE LEADERS: FOREX SOCIAL NETWORKS
AND TRADING
GREAT TOOL, BUT REQUIRES SKILL TO USE
BINARY OPTIONS: TRADING MADE EASIER
Chapter 12: Forex for Income
RIDE LONG-TERM FOREX TRENDS FOR LOWER RISK,
HIGHER INCOME
CASE STUDY: CANADA 2000–2011: APPLYING FOREX
TRENDS TO EQUITIES INVESTING
THE CARRY TRADE: USING DIRECT FOREX TRADES AS
AN INCOME VEHICLE
Chapter 13: Now What? Next Steps
WHERE YOU’VE BEEN
WHERE YOU’RE GOING
Appendix A: Recommended Free Online Resources
FOREX SITES
OTHER FAVORITE FINANCIAL SITES
INDIVIDUAL ANALYSTS
Appendix B: How to Calculate Pip Values and Examples
DEFINITION
CALCULATION
EXAMPLE: EURUSD
HANDY RULE OF TENS
EXAMPLE USDCAD
EXAMPLE USDJPY: RULE OF TENS DOESN'T APPLY
WITH THE JPY
Appendix C: Forex Trading Time Zones, Liquidity, and
Why These Matter
THREE MAJOR TRADING SESSIONS AND WHY THEY
MATTER
MARKETS TEND TO FOLLOW EACH OTHER
WHAT STOPS THE FOLLOW-THROUGH?
Appendix D: More on Leverage and Margin
Appendix E: How the Mathematics of Loss Demands
Keeping Losses Per Trade Low
Appendix F: Choosing a Forex Broker
SUGGESTED SEARCH TERMS TO FIND BROKER
REVIEWS
Appendix G: Low Correlations to Other Markets via
Social Trading Means There's Always a Bull Market
Somewhere
TRADE LEADER NONCORRELATIONS TO THE
MARKETS
MARKET CORRELATIONS
LOOKING AT THE TRADE LEADERS
DIVERSIFICATION OF APPROACH
About the Author
Index
More Praise for The Sensible Guide to Forex
“This is the one forex book aimed at conservative mainstream investors who
might never otherwise consider forex, but should because we all need currency
diversification. Even those who never plan to trade will find a wealth of
information that will make them better investors. This step-by-step guide to less
demanding and lower-risk ways to trade or build a currency-diversified
investment portfolio offers a less intimidating path to forex profits.”
—Yohay Elam, Founder of Forex Crunch
“Cliff Wachtel's book provides pragmatic counsel and guidance. A must read for
serious investors seeking to diversify beyond stocks, bonds, and gold.”
—Dave Lemont, CEO, Currensee
“A must read for any informed investor or trader that deserves to become the
classic introduction to forex. This book is the ideal shortcut to simpler, safer
forex trading or investing. As Cliff succinctly puts it, ‘The need for currency
diversification is one of the most important lessons of the Great Financial
Crisis.’ This book details—with genuine respect for his readers' money and
intelligence—a range of solutions, offering something for readers of every skill
level and risk tolerance. Wachtel provides full details and illustrations to show
you how to actually make money, without overloading you with secondary
details or information you can find elsewhere.”
—Eric Harbor, CEO, Caesartrade.com
“One of the best starting points I have read about forex. Understanding both the
big picture and the essential, practical details of how to identify, plan, and
execute a profitable trade is the manna of successful traders. Cliff delivers both.
He explains what e. e. cummings called ‘the root of the root and the bud of the
bud and the sky of the sky of a tree called life,’ but applied to the forex world. A
really good tool, whether you're a newbie forex trader or a long-term traditional
investor trying to build a diversified portfolio. Read it and you will get
‘forexpertise.’”
—Mauricio Carrillo, FXstreet.com U.S. Manager, @MCarrilloFX
“This book is an insightful introduction to the world of forex. Wachtel leads the
novice trader on a journey of discovery from the most basic concepts in the forex
market to more sophisticated trading strategies. What stands out is his honesty.
Wachtel doesn't sugarcoat the FX market; instead he shares the idiosyncrasies of
this market and debunks a few FX myths along the way. He also introduces
some of the latest developments in the retail forex market, from social trading to
binary options. Wachtel's broad knowledge of this market makes this book an
interesting read for those who want a thorough insight into the world of FX.”
—Kathleen Brooks, Research Director, Forex.com
“In an ever-evolving field, it's rare to find a guidebook so helpful and timeless as
Cliff Wachtel's Sensible Guide to Forex. This book gives both current traders
and new traders the perspective they need to take their forex trading to the next
level.”
—Tal Holtzer, CEO, DailyForex.com
“This is a fantastic, comprehensive, and up-to-date overview and practical guide
to succeeding in the foreign exchange market, with an insightful, qualitative, and
nonintimidating approach. Whether you are a novice considering a move into the
foreign exchange market or an experienced trader looking for a deeper
understanding of various concepts or some new approaches, Cliff's book does a
stellar job of covering all the bases.”
—Joel Kruger, Currency Strategist, FXCM
“Cliff's book is a must-read, cogent, cohesive compendium of the realities of
forex. I've been in the trading business for 35+ years and believe that success is
all about intelligent risk management. The book's relentless emphasis on risk and
money management is the reason that this is the first investment book I've
bothered to finish in the past 20 years. For the novice, first he arms you with the
relevant information to keep you from immediately losing your shirt, so that you