TABLE OF 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