Download Kathy Lien - Day Trading and Swing Trading the Currency Market.pdf PDF

TitleKathy Lien - Day Trading and Swing Trading the Currency Market.pdf
TagsDay Trading
LanguageEnglish
File Size6.5 MB
Total Pages308
Table of Contents
                            Day Trading & Swing Trading the Currency Market
	Contents
	Preface
		FOREIGN EXCHANGE—THE FASTEST-GROWING MARKET OF OUR TIME
		HISTORICAL EVENTS IN THE FX MARKET
		DIFFERENT WAYS TO TRADE THE FX MARKET
		WHAT MOVES THE CURRENCY MARKET?
		WHAT ARE THE BEST TIMES TO TRADE FOR INDIVIDUAL CURRENCY PAIRS?
		WHAT ARE THE MOST MARKET-MOVING ECONOMIC DATA?
		WHAT ARE CURRENCY CORRELATIONS AND HOW DO TRADERS USE THEM?
		HOW TO TRADE LIKE A HEDGE FUND MANAGER
		SEASONALITY IN THE CURRENCY MARKET
		TRADE PARAMETERS FOR DIFFERENT MARKET CONDITIONS
		TECHNICAL TRADING STRATEGIES
		FUNDAMENTAL TRADING STRATEGIES
		PROFILES AND UNIQUE CHARACTERISTICS OF THE MAJOR CURRENCY PAIRS
	Acknowledgments
	Chapter 1: Foreign Exchange—The Fastest-Growing Market of Our Time
		EFFECTS OF CURRENCIES ON STOCKS AND BONDS
		COMPARING THE FX MARKET WITH FUTURES AND EQUITIES
		DIFFERENT WAYS TO TRADE FX
		WHO ARE THE PLAYERS IN THE FX MARKET?
	Chapter 2: Historical Events in the FX Market
		BRETTON WOODS: ANOINTING THE DOLLAR AS THE WORLD CURRENCY (1944)
		END OF BRETTON WOODS: FREE MARKET CAPITALISM IS BORN (1971)
		PLAZA ACCORD—DEVALUATION OF U. S. DOLLAR (1985)
		GEORGE SOROS—THE MAN WHO BROKE THE BANK OF ENGLAND
		ASIAN FINANCIAL CRISIS (1997– 1998)
		INTRODUCTION OF THE EURO (1999)
	Chapter 3: What Moves the Currency Market in the Long Term?
		FUNDAMENTAL ANALYSIS
		TECHNICAL ANALYSIS
		CURRENCY FORECASTING—WHAT BOOKWORMS AND ECONOMISTS LOOK AT
	Chapter 4: What Moves the Market in the Short Term?
		NOT ALL ECONOMIC RELEASES ARE CREATED EQUAL
		RELATIVE IMPORTANCE OF ECONOMIC DATA CHANGES WITH TIME
		GROSS DOMESTIC PRODUCT—NO LONGER A BIG DEAL
		HOW CAN YOU USE THIS TO YOUR BENEFIT?
		RESOURCE
	Chapter 5: What Are the Best Times to Trade for Individual Currency Pairs?
		ASIAN SESSION (TOKYO): 7pm-4am est
		U. S. SESSION (NEW YORK): 8am-5pm est
		EUROPEAN SESSION (LONDON): 2am-12pm est
		U. S.– EUROPEAN OVERLAP: 8am-12pm est
		EUROPEAN– ASIAN OVERLAP: 2am-4am est
	Chapter 6: What Are Currency Correlations and How Do Traders Use Them?
		POSITIVE/NEGATIVE CORRELATIONS: WHAT THEY MEAN AND HOW TO USE THEM
		IMPORTANT FACT ABOUT CORRELATIONS: THEY CHANGE
		CALCULATING CORRELATIONS YOURSELF
		SAMPLE CORRELATIONS RESULTS
	Chapter 7: Seasonality—How It Applies to the FX Market
		SEASONALITY IN JANUARY
		SUMMER SEASONALITY
		OTHER CASES OF SEASONALITY
		INCORPORATING SEASONALITY INTO YOUR TRADING
	Chapter 8: Trade Parameters for Different Market Conditions
		KEEPING A TRADING JOURNAL
		HAVE A TOOLBOX—USE WHAT WORKS FOR THE CURRENT MARKET ENVIRONMENT
		STEP ONE—PROFILE TRADING ENVIRONMENT
		STEP TWO—DETERMINE TRADING TIME HORIZON
		RISK MANAGEMENT
		PSYCHOLOGICAL OUTLOOK
	Chapter 9: Technical Trading Strategies
		MULTIPLE TIME FRAME ANALYSIS
		FADING THE DOUBLE ZEROS
		WAITING FOR THE REAL DEAL
		INSIDE DAY BREAKOUT PLAY
		THE FADER
		FILTERING FALSE BREAKOUTS
		CHANNEL STRATEGY
		PERFECT ORDER
		HOW TO TRADE NEWS RELEASES
		20–100 SHORT-TERM MOMENTUM STRATEGY
		HIGH-PROBABILITY TURN STRATEGY
	Chapter 10: Fundamental Trading Strategies
		PICKING THE STRONGEST PAIRING
		LEVERAGED CARRY TRADE
		FUNDAMENTAL TRADING STRATEGY: STAYING ON TOP OF MACROECONOMIC EVENTS
		COMMODITY PRICES AS A LEADING INDICATOR
		USING BOND SPREADS AS A LEADING INDICATOR FOR FX
		FUNDAMENTAL TRADING STRATEGY: RISK REVERSALS
		USING OPTION VOLATILITIES TO TIME MARKET MOVEMENTS
		FUNDAMENTAL TRADING STRATEGY: INTERVENTION
		USING EQUITIES TO TRADE FX
		TRADING THE CORRELATION WITH FUNDAMENTALS
		TRADING THE CORRELATION WITH TECHNICALS
	Chapter 11: How to Trade Like a Hedge Fund Manager
		PROPERLY DEFINING THE TRADING STRATEGY
		THE ART OF ENTERING AND EXITING
		TEST DRIVE
		GETTING INTIMATE
		SELF-REFLECTION
	Chapter 12: Profiles and Unique Characteristics of Major Currency Pairs
		CURRENCY PROFILE: U.S. DOLLAR (USD)
		CURRENCY PROFILE: EURO (EUR)
		CURRENCY PROFILE: BRITISH POUND (GBP)
		CURRENCY PROFILE: SWISS FRANC (CHF)
		CURRENCY PROFILE: JAPANESE YEN (JPY)
		CURRENCY PROFILE: AUSTRALIAN DOLLAR (AUD)
		CURRENCY PROFILE: NEW ZEALAND DOLLAR (NZD)
		CURRENCY PROFILE: CANADIAN DOLLAR (CAD)
	About the Author
	Index
                        
Document Text Contents
Page 1

ColophonWileyVert .ai


Director of Currency Research at GFT

S E C O N D E D I T I O N

$70.00 USA/$77.00 CAN

I
n only a few short years, the currency/foreign ex-
change (FX) market has grown signifi cantly. With
institutions and individuals driving daily average

volume past the $3 trillion mark, there are many profi t-
able opportunities available in this arena—but only if
you understand how to operate within it.

That’s why Kathy Lien—Director of Currency Re-
search for one of the most popular Forex providers in
the world—has created Day Trading and Swing Trad-
ing the Currency Market, Second Edition. Written for
both the experienced and aspiring trader, this updated
guide outlines the essential elements of the FX market
and reveals the latest trends, data, and strategies that
all traders, particularly day and swing traders, need to
be aware of in order to excel in this fast-moving fi eld.

After an engaging introduction to how the foreign ex-
change market has evolved over the last few years and
a look at some of its historical milestones, this book
quickly moves on to address the innovative trading
insights that will enhance your profi tability within
today’s FX market. Page by page, you’ll become
familiar with:

• New technical trading strategies, which include how
to trade news, effectively time market turns, and
capture new shifts in momentum

• Proven fundamental trading strategies, which involve
trading off commodity prices, fi xed income instru-
ments, and option volatilities; as well as intervention-
based trades and macro event-driven trades

• The unique characteristics of each major currency
pair—from when they are most active to what drives
their price action

• Trading through different market conditions, by fi rst
profi ling a trading environment and then applying
specifi c indicators for that environment

• And much more

Both informative and accessible, the Second Edition of
Day Trading and Swing Trading the Currency Market

S E C O N D E D I T I O N
DAY TRADING & SWING TRADING the CURRENCY MARKET

Praise for the First Edition

“I thought this was one of the best books that I had read on FX. The book should
be required reading not only for traders new to the foreign exchange markets,
but also for seasoned professionals. I’ll defi nitely be keeping it on my desk for
reference. The book is very readable and very educational. In fact, I wish that
Kathy’s book had been around when I had fi rst started out in FX. It would have
saved me from a lot of heartache from reading duller books, and would have
saved me a lot of time from having to learn things the hard way. I look forward to
reading other books from her in the future.”

—Farooq Muzammal, Head of Foreign Exchange, MAREX Capital

“Kathy’s book is an indispensable tool for Forex traders, whether you are a pro-
fessional or novice. It not only lays the groundwork for an in-depth understanding
of Forex trading, it also contains numerous fundamental and technical strategies
. . . . I suspect that many traders will be keeping Kathy’s book within arm’s reach
for many years to come.”

—Eddie Kwong, Executive VP/Editor in Chief, Tradingmarkets.com

“In Day Trading the Currency Market, Kathy Lien provides traders with unique,
thoughtful, and profi table insight on trading this exciting market. This book
should be required reading for all traders, whether they are novices to Forex or
experienced professionals.”

—Cory Janssen, cofounder, Investopedia.com

“There are aspects to trading currencies that are different from trading equities,
options, or futures. In this book, Kathy Lien provides deep insight into all the
mechanisms that take place in the currency markets. Any currency trader will
gain more confi dence in their trading after reading this book.”

—Jayanthi Gopalakrishnan, Editor,
Technical Analysis of Stocks & Commodities

“Kathy has done a brilliant job with this book. She speaks directly to traders
and gives them guidance to improve their performance as Forex traders. I took
some notes and ideas from the book myself that are going to be very useful for
my business.”

—Francesc Riverola, CEO and founder, FXstreet.com

EAN: 9780470377369 ISBN 978-0-470-37736-9

goes far beyond what other currency trading books
cover. It delves into consistently critical questions such
as “What Are the Most Market-Moving Indicators for the
U.S. Dollar” and “What Are Currency Correlations and
How to Use Them,” while touching on topics like “How
to Trade like a Hedge Fund Manager” and “The Impact
of Seasonality in the Currency Market” that could give
you a distinct edge in this competitive arena.

Filled with proven trading strategies as well as detailed
statistical analysis, the Second Edition of Day Trad-
ing and Swing Trading the Currency Market will help
you achieve unparalleled success in the most actively
traded market in the world.

KATHY LIEN is the Director of
Currency Research at Global Forex
Trading, Division of Global Futures
& Forex, Ltd. She is responsible for
providing research and analysis, in-
cluding technical and fundamental
research reports, market commen-
taries, and trading strategies. Prior

to joining GFT, Lien was the chief strategist of DailyFX.
com and an associate at JPMorgan Chase, where
she worked in cross-markets and foreign exchange
trading. She has vast experience within the interbank
market using both technical and fundamental analysis
to trade FX spot and options. She also has experience
trading a number of products outside of FX, includ-
ing interest rate derivatives, bonds, equities, and fu-
tures. Lien has written for Active Trader, Futures, and
SFO magazines and is frequently quoted on CNBC,
Bloomberg, Fox Business, and Reuters. She is also
the author of the fi rst edition of Day Trading the Cur-
rency Market as well as Millionaire Traders, both of
which are published by Wiley.

Jacket Design: Loretta Leiva

Jacket Photograph: © Getty Images

DAY TRADING & SWING TRADING the CURRENCY M
ARKET

Te
chnical and

Fund
am

e
ntal Strate

g
ies to

P
rofit fro

m
M

arke
t M

oves

LIEN
( c o n t i n u e d f r o m f r o n t f l a p )

( c o n t i n u e d o n b a c k f l a p )

Page 2

http://www.traders-software.com/
http://www.forex-warez.com/
http://www.trading-software-collection.com/
http://www.tradestation-download-free.com/
mailto:[email protected]
mailto:[email protected]

Page 154

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Technical Trading Strategies 137

30 pips. In accordance with our strategy, we place entry orders 10 pips
above and below the channel at 1.2395 and 1.2349. The order to go long
gets triggered first and almost immediately we place a stop order 10 pips
under the upper channel line at 1.2375. USD/CAD then proceeds to rally
and reaches our target of double the range at 1.2455. A trailing stop also
could have been used, similar to the ones that we talked about in our risk
management section in Chapter 8.

The next example, shown in Figure 9.23, is a 30-minute chart of
EUR/GBP. The total range between the two lines is 15 pips. In accordance
with our strategy, we place entry orders 10 pips above and below the chan-
nel at 0.6796 and 0.6763. The order to go long gets triggered first and almost
immediately we place a stop order 10 pips under the upper channel line at
0.6776. EUR/GBP then proceeds to rally and reaches our target of double
the range at 0.6826.

Figure 9.24 is a 5-minute chart of the EUR/USD. The total range be-
tween the two lines is 13 pips over the course of four hours. The channel
actually also occurs between the European and U.S. open ahead of the U.S.
retail sales report. In accordance with our strategy, we place entry orders
10 pips above and below the channel at 1.2785 and 1.2752. The order to go
short gets triggered first, and almost immediately we place a stop order 10
pips above the lower channel line at 1.2772. The EUR/USD then proceeds to
sell off significantly and hits our target of double the range of 26 pips. More

FIGURE 9.23 EUR/GBP Channel Example
(Source: www.eSignal.com)

Page 155

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138 DAY TRADING AND SWING TRADING THE CURRENCY MARKET

FIGURE 9.24 EUR/USD Channel Example
(Source: www.eSignal.com)

aggressive traders also could have trailed their stops to take advantage of
what eventually became a much more extensive move lower.

PERFECT ORDER

A perfect order in moving averages is defined as a set of moving averages
that are in sequential order. For an uptrend, a perfect order would be a situ-
ation in which the 10-day simple moving average (SMA) is at a higher price
level than the 20-day SMA, which is higher than the 50-day SMA. Mean-
while, the 100-day SMA would be below the 50-day SMA, while the 200-day
SMA would be below the 100-day SMA. In a downtrend, the opposite is
true, where the 200-day SMA is at the highest level and the 10-day SMA is
at the lowest level. Having the moving averages stacked up in sequential
order is generally a strong indicator of a trending environment. Not only
does it indicate that the momentum is on the side of the trend, but the
moving averages also serve as multiple levels of support. To optimize the
perfect order strategy, traders should also look for ADX to be greater than
20 and trending upward. Entry and exit levels are difficult to determine
with this strategy, but we generally want to stay in the trade as long as the
perfect order holds and exit once the perfect order no longer holds. Perfect

Page 307

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290 INDEX

U.S. Dollar (USD) (cont.)
leading import markets, 217
market-moving indicators for,

61–2
monetary and fiscal policy makers-

The Federal Reserve, 217–18
relationship with gold, 219
as safe haven, 219
stock and bond market impacts,

221–2
Treasuries and FX bonds, 221

U.S. Federal Reserve (FED), 10
U.S. non-farm payroll releases,

60
U.S. session (New York),

70–71
U.S. Treasury, 218
U.S. War in Iraq, 179–80

U.S.-Asian overlap, 74
U.S.-European overlap, 74

Value of multiple time frame analysis,
113, 115

Variant perception, 43
Volatility tracking, 194–5
Volcker, Paul, 24

Waiting for real deal, 120–124
about, 120–121
examples of, 121–4
strategy rules, 121–4

Wars, 179–80
Weekend positions, 209–10
World Bank, 22

Yen example, 56–7

Page 308

ColophonWileyVert .ai


Director of Currency Research at GFT

S E C O N D E D I T I O N

$70.00 USA/$77.00 CAN

I
n only a few short years, the currency/foreign ex-
change (FX) market has grown signifi cantly. With
institutions and individuals driving daily average

volume past the $3 trillion mark, there are many profi t-
able opportunities available in this arena—but only if
you understand how to operate within it.

That’s why Kathy Lien—Director of Currency Re-
search for one of the most popular Forex providers in
the world—has created Day Trading and Swing Trad-
ing the Currency Market, Second Edition. Written for
both the experienced and aspiring trader, this updated
guide outlines the essential elements of the FX market
and reveals the latest trends, data, and strategies that
all traders, particularly day and swing traders, need to
be aware of in order to excel in this fast-moving fi eld.

After an engaging introduction to how the foreign ex-
change market has evolved over the last few years and
a look at some of its historical milestones, this book
quickly moves on to address the innovative trading
insights that will enhance your profi tability within
today’s FX market. Page by page, you’ll become
familiar with:

• New technical trading strategies, which include how
to trade news, effectively time market turns, and
capture new shifts in momentum

• Proven fundamental trading strategies, which involve
trading off commodity prices, fi xed income instru-
ments, and option volatilities; as well as intervention-
based trades and macro event-driven trades

• The unique characteristics of each major currency
pair—from when they are most active to what drives
their price action

• Trading through different market conditions, by fi rst
profi ling a trading environment and then applying
specifi c indicators for that environment

• And much more

Both informative and accessible, the Second Edition of
Day Trading and Swing Trading the Currency Market

S E C O N D E D I T I O N
DAY TRADING & SWING TRADING the CURRENCY MARKET

Praise for the First Edition

“I thought this was one of the best books that I had read on FX. The book should
be required reading not only for traders new to the foreign exchange markets,
but also for seasoned professionals. I’ll defi nitely be keeping it on my desk for
reference. The book is very readable and very educational. In fact, I wish that
Kathy’s book had been around when I had fi rst started out in FX. It would have
saved me from a lot of heartache from reading duller books, and would have
saved me a lot of time from having to learn things the hard way. I look forward to
reading other books from her in the future.”

—Farooq Muzammal, Head of Foreign Exchange, MAREX Capital

“Kathy’s book is an indispensable tool for Forex traders, whether you are a pro-
fessional or novice. It not only lays the groundwork for an in-depth understanding
of Forex trading, it also contains numerous fundamental and technical strategies
. . . . I suspect that many traders will be keeping Kathy’s book within arm’s reach
for many years to come.”

—Eddie Kwong, Executive VP/Editor in Chief, Tradingmarkets.com

“In Day Trading the Currency Market, Kathy Lien provides traders with unique,
thoughtful, and profi table insight on trading this exciting market. This book
should be required reading for all traders, whether they are novices to Forex or
experienced professionals.”

—Cory Janssen, cofounder, Investopedia.com

“There are aspects to trading currencies that are different from trading equities,
options, or futures. In this book, Kathy Lien provides deep insight into all the
mechanisms that take place in the currency markets. Any currency trader will
gain more confi dence in their trading after reading this book.”

—Jayanthi Gopalakrishnan, Editor,
Technical Analysis of Stocks & Commodities

“Kathy has done a brilliant job with this book. She speaks directly to traders
and gives them guidance to improve their performance as Forex traders. I took
some notes and ideas from the book myself that are going to be very useful for
my business.”

—Francesc Riverola, CEO and founder, FXstreet.com

EAN: 9780470377369 ISBN 978-0-470-37736-9

goes far beyond what other currency trading books
cover. It delves into consistently critical questions such
as “What Are the Most Market-Moving Indicators for the
U.S. Dollar” and “What Are Currency Correlations and
How to Use Them,” while touching on topics like “How
to Trade like a Hedge Fund Manager” and “The Impact
of Seasonality in the Currency Market” that could give
you a distinct edge in this competitive arena.

Filled with proven trading strategies as well as detailed
statistical analysis, the Second Edition of Day Trad-
ing and Swing Trading the Currency Market will help
you achieve unparalleled success in the most actively
traded market in the world.

KATHY LIEN is the Director of
Currency Research at Global Forex
Trading, Division of Global Futures
& Forex, Ltd. She is responsible for
providing research and analysis, in-
cluding technical and fundamental
research reports, market commen-
taries, and trading strategies. Prior

to joining GFT, Lien was the chief strategist of DailyFX.
com and an associate at JPMorgan Chase, where
she worked in cross-markets and foreign exchange
trading. She has vast experience within the interbank
market using both technical and fundamental analysis
to trade FX spot and options. She also has experience
trading a number of products outside of FX, includ-
ing interest rate derivatives, bonds, equities, and fu-
tures. Lien has written for Active Trader, Futures, and
SFO magazines and is frequently quoted on CNBC,
Bloomberg, Fox Business, and Reuters. She is also
the author of the fi rst edition of Day Trading the Cur-
rency Market as well as Millionaire Traders, both of
which are published by Wiley.

Jacket Design: Loretta Leiva

Jacket Photograph: © Getty Images

DAY TRADING & SWING TRADING the CURRENCY M
ARKET

Te
chnical and

Fund
am

e
ntal Strate

g
ies to

P
rofit fro

m
M

arke
t M

oves

LIEN
( c o n t i n u e d f r o m f r o n t f l a p )

( c o n t i n u e d o n b a c k f l a p )

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