FROMTHEBESTSELLINGAUTHOR0FFOREXMADEEASY FOREXTRADINGSECRETS TRADINGSTRATEGIES

FOREX SECRETS
JAMESDICKS

TRADING

TRADINGSTRATEGIESFORTHEFOREX MARKET

NewYorkChicagoSanFranciscoLisbonLondonMadridMexicoCityMilanNewDelhiSanJuanSeoulSingapore SydneyToronto

Copyright 2010 by The McGrawHill Companies, Inc. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of thispublicationmay bereproducedordistributedin anyformorbyany means,orstored ina databaseorretrievalsystem,withoutthepriorwrittenpermissionofthepublisher. ISBN:9780071747097 MHID:0071747095 ThematerialinthiseBookalsoappearsintheprintversionofthistitle:ISBN:9780071664226,MHID:007166422X. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringementofthetrademark.Wheresuchdesignationsappearinthisbook,theyhavebeenprintedwithinitialcaps. McGrawHill eBooks are availableatspecialquantity discountstouseaspremiumsand salespromotions, or for use incorporate trainingprograms.Tocontactarepresentativepleaseemailusatbulksales@mcgrawhill.com. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional service.Iflegaladviceorotherexpertassistanceisrequired,theservicesofacompetentprofessionalpersonshouldbesought. FromaDeclarationofPrinciplesjointlyadoptedbyaCommitteeoftheAmericanBarAssociationandaCommitteeof Publishers. TERMSOFUSE This is a copyrighted work and The McGrawHill Companies,Inc.(McGrawHill)and itslicensors reserveallrights inandto the work. Use of this work is subject totheseterms. ExceptaspermittedundertheCopyright Actof1976andtheright tostore and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, trans mit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGrawHills priorconsent.You mayusethework for your ownnoncommercialandpersonaluseany otheruseofthework is strictlyprohibited.Yourrighttousetheworkmaybeterminatedifyoufailtocomplywiththeseterms. THE WORK IS PROVIDED AS IS. McGRAWHILL AND ITS LICENSORS MAKE NO GUARAN TEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BEACCESSEDTHROUGHTHEWORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGrawHill and its licensors do not warrant or guaranteethatthefunctions containedin thework will meet your requirements or that its operation will be uninterrupted orerrorfree.NeitherMcGrawHillnorits licensorsshall be liable to you oranyoneelse for anyinaccuracy,errororomission, regardlessofcause,inthework or for anydamagesresulting therefrom. McGrawHill has no responsibility for the content of any information accessed through the work. Under no circum stances shall McGrawHill 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 them has beenadvisedofthe possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoeverwhethersuchclaim or causearises incontract, tortorotherwise.

To be successful you have to have a mentor. Someone who can inspire you, someone that will listen to you, someone that will give you sound advice whether you want to hear it or not. If you dont have a mentor, that some one to help you get to the top, then keep looking. For me its MyUncleJack. I know there weremany timesthat hefeltIwasnotlisteningbutIalwayswas.Thanksfor everything youdo,this bookisdedicatedyou.

Thispageintentionallyleftblank

Contents
PrefacexiAcknowledgmentsxiiiDisclaimerxvIntroductionxvii Part1TheBasics1 1WhatYouMustKnowtoGetStarted3 BacktotheBasics:AHistoryoftheFOREX3FOREXversusStocks7FOREXversusFutures9 2MajorCurrenciesandPairs11 TheU.S.Dollar11TheEuro12TheAustralianDollar12TheCanadianDollar13TheBritishPound13 TheSwissFranc14TheJapaneseYen14TheNewZealandDollar15TheDollarIndex15TheDow JonesIndustrialAverage(DJIA)16GoldCFDs16CrudeOil17CrossRateCurrencyPairs17Exotic CurrencyPairs18ChineseYuanorRenminbi18SwedishKrona18NorwegianKrone19TheIraqiDinar 19
v

viC ONTENTS

3AnyoneCanLearntheFOREX21 FOREX10121OpeningaPosition21TradingonMargin23ManagingaPosition23ClosingaPosition24 PipsandLots24TheLot27OrderTypes27WhereIstheMarketGoing?29StopsandTargets32 SpreadsandSwaps33TechnicalversusFundamental34 4PreparingYourselfAdequatelybeforeJumping intotheMarket37FOREXTradingAccounts37ChoosingaBroker38Tools47WhoTradesthe FOREX?49WhatKindofTraderAmI?50TradingTechniques51TheTradersLevelsofAscension55 Part2MoneyManagement59 5TheSecrettoMakingMoney61 AreYouReallyFittoTradeintheFOREXMarket?61TradingPlans62RulesandDiscipline67How theMarketWorks73RulesforWorkingwiththeMarket74PaperTrading77 6HowtoKeepYourProfits81MoneyManagement81ManagingRisk86LeverageandTrueLeverage 87OvertradingandOverconfidence89Overleveraging91TradeExpectations92

C ONTENTS

Part3TradingPsychology93 7MasteringEmotions95TradingPsychology95EmotionsofTrading99HowtoGetOutofaBadTrade 105BecomeaPro110 8MindoverMatterforHugeProfits113 Affirmations113PowerofNetworking117 Part4FundamentalAnalysis1219Economics123 WhatDoesEconomicReleaseMean?123FundamentalAnalysis123DowTheory125Fundamental Indicators127JapansMonetaryPolicy137FOREXCurrencyCarryTrade139Interventions140Gross DomesticProduct(GDP)142TradingtheNews143WhatAreContrarianIndicators?145 Part5TechnicalAnalysis147 10TechnicalIndicators149 TechnicalAnalysis149TypesofChartsShowingPriceAction150TrendIndicators162Marketand VolatilityIndicators168UnderstandingOscillators173AUniqueIndicator:IchimokuKinkoHyo176 Divergences177 11TechnicalPatterns181Candlesticks181ChartismPatterns185ReversalPatterns186Continuation Patterns192
vii

viiiC ONTENTS

ElliottWaves203HarmonicPricePatterns208Fractals214TradingNaked(OnlyPriceAction)215 12SupportandResistance217 Support217Resistance218Trendlines219MovingAverages219OtherIndicators220EnteringPositions 221ExitingPositions222PivotPoints:DoTheyWork?222PsychologicalLevels226UsingMultipleTime Frames228TrendIsYourFriend231 13AutomatedTrading233 ExpertAdvisorsandAutomaticProgramming Interfaces(APIs)233AdvancedRobots:NeuralNetworksintheFOREX235 Part6BuildingYourPortfolio239 14SecretstoFOREXDiversification241 FOREXOptions241SpotFOREXOptions246FOREXFutures247FOREXExchangeTradedFunds (ETFs)248ContractsforDifference(CFDs)249Commodities250Indices(Securities)251 15MyFavoriteWaystoTrade253 Breakouts253Channeling258Hedging261BasicOscillatorBasedStrategy262BasicMovingAverage Crosses263TradingGaps264DailyHighLow265

C ONTENTS

CONCLUSION269APPENDIX273GLOSSARY289BIBLIOGRAPHY299INDEX301
ix