Forex Trading Secrets: Trading Strategies for the …

1 FOREXTRADINGSECRETSTRADING STRATEGIESFOR THE Forex MARKETJAMES DICKSNew York Chicago San Francisco Lisbon LondonMadrid Mexico City Milan New Delhi San JuanSeoul Singapore Sydney TorontoCopyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Except as permitted underthe United States Copyright Act of 1976, no part of this publication may be reproduced or distributed inany form or by any means, or stored in a database or retrieval system, without the prior written permission of the : 978-0-07-174709-7 MHID: 0-07-174709-5 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-166422-6, trademarks are trademarks of their respective owners.

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5 Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy,error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hillhas no responsibility for the content of any information accessed through the work. Under no circum-stances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, con-sequential or similar damages that result from the use of or inability to use the work, even if any of themhas been advised of the possibility of such damages. This limitation of liability shall apply to any claim orcause whatsoever whether such claim or cause arises in contract, tort or be successful you have to have a mentor.

6 Someone who can inspire you,someone that will listen to you, someone that will give you sound advicewhether you want to hear it or not. If you don t have a mentor, that some-one to help you get to the top, then keep looking. For me it s My UncleJack. I know there were many times that he felt I was not listening but I always was. Thanks for everything you do, this book is dedicated page intentionally left blank vContentsPreface xiAcknowledgments xiiiDisclaimer xvIntroduction xviiPart 1 The Basics 11 What You Must Know to Get Started 3 Back to the Basics: A History of the Forex 3 Forex versus Stocks 7 Forex versus Futures 92 Major Currencies and Pairs 11 The Dollar 11 The Euro 12 The Australian Dollar 12 The Canadian Dollar 13 The British Pound 13 The Swiss Franc 14 The Japanese Yen 14 The New Zealand Dollar 15 The Dollar Index 15 The Dow Jones Industrial Average (DJIA)

7 16 Gold CFDs 16 Crude Oil 17 Cross-Rate Currency Pairs 17 Exotic Currency Pairs 18 Chinese Yuan or Renminbi 18 Swedish Krona 18 Norwegian Krone 19 The Iraqi Dinar 193 Anyone Can Learn the Forex 21 Forex 101 21 Opening a Position 21 Trading on Margin 23 Managing a Position 23 Closing a Position 24 Pips and Lots 24 The Lot 27 Order Types 27 Where Is the Market Going? 29 Stops and Targets 32 Spreads and Swaps 33 Technical versus Fundamental 344 Preparing Yourself Adequately before Jumping into the Market 37 Forex Trading Accounts 37 Choosing a Broker 38 Tools 47 Who Trades the Forex ? 49 What Kind of Trader Am I? 50 Trading Techniques 51 The Trader s Levels of Ascension 55 Part 2 Money Management 595 The Secret to Making Money 61 Are You Really Fit to Trade in the Forex Market?

8 61 Trading Plans 62 Rules and Discipline 67 How the Market Works 73 Rules for Working with the Market 74 Paper Trading 776 How to Keep Your Profits 81 Money Management 81 Managing Risk 86 Leverage and True Leverage 87 Overtrading and Overconfidence 89 Overleveraging 91 Trade Expectations 92viCONTENTSPart 3 Trading Psychology 937 Mastering Emotions 95 Trading Psychology 95 Emotions of Trading 99 How to Get Out of a Bad Trade 105 Become a Pro 1108 Mind over Matter for Huge Profits 113 Affirmations 113 Power of Networking 117 Part 4 Fundamental Analysis 1219 Economics 123 What Does Economic Release Mean? 123 Fundamental Analysis 123 Dow Theory 125 Fundamental Indicators 127 Japan s Monetary Policy 137 Forex Currency Carry Trade 139 Interventions 140 Gross Domestic Product (GDP) 142 Trading the News 143 What Are Contrarian Indicators?

9 145 Part 5 Technical Analysis 14710 Technical Indicators 149 Technical Analysis 149 Types of Charts Showing Price Action 150 Trend Indicators 162 Market and Volatility Indicators 168 Understanding Oscillators 173A Unique Indicator: Ichimoku Kinko Hyo 176 Divergences 17711 Technical Patterns 181 Candlesticks 181 Chartism Patterns 185 Reversal Patterns 186 Continuation Patterns 192 CONTENTSviiElliott Waves 203 Harmonic Price Patterns 208 Fractals 214 Trading Naked (Only Price Action) 21512 Support and Resistance 217 Support 217 Resistance 218 Trendlines 219 Moving Averages 219 Other Indicators 220 Entering Positions 221 Exiting Positions 222 Pivot Points: Do They Work?

10 222 Psychological Levels 226 Using Multiple Time Frames 228 Trend Is Your Friend 23113 Automated Trading 233 Expert Advisors and Automatic Programming Interfaces (APIs) 233 Advanced Robots: Neural Networks in the Forex 235 Part 6 Building Your Portfolio 23914 secrets to Forex Diversification 241 Forex Options 241 Spot Forex Options 246 Forex Futures 247 Forex Exchange-Traded Funds (ETFs) 248 Contracts for Difference (CFDs) 249 Commodities 250 Indices (Securities) 25115My Favorite Ways to Trade 253 Breakouts 253 Channeling 258 Hedging 261 Basic Oscillator-Based Strategy 262 Basic Moving-Average Crosses 263 Trading Gaps 264 Daily High-Low 265viiiCONTENTSCONCLUSION 269 APPENDIX 273 GLOSSARY 289 BIBLIOGRAPHY 299 INDEX 301 CONTENTSixThis page intentionally left blank PrefaceThere are many books on the market that cover the subject of Forex trad-ing.