Day trading and swing trading the currency market (Kathy Lien, 2006)

• Why forex?
1. Foreign exchange is the largest market in the world and has growing liquidity. 
2. There is 24-hour around-the-clock trading. 
3. Traders can profit in both bull and bear markets. 
4. There are no trading curbs. 
5. Instant executable trading platform minimizes slippage and errors. 
6. Even though higher leverage increases risk, many traders see trading the FX market as getting more bang for the buck.
• In 1979 George Soros bet against the UK involvement in the Exchange Rate Mechanism (ERM).
• In 1993, Maastricht Treaty was set for countries if they were to join the ERM.
• Market move in the long term
1. goog_828089451Economic factor, social factor, political force, supply and demand
2. The balance of payments account is divided into two parts: the current account and the capital account. The current account measures trade in tangible, visible items such as cars and manufactured goods; the surplus or deficit between exports and imports is called the trade balance. The capital account measures flows of money, such as investments for stocks or bonds.
3. Purchasing Power Parity basket of goods.
• Market move in short term
1. Nonfarm Payrolls 
2. Interest Rates (FOMC Rate Decision) 
3. Inflation (Consumer Prices) 
4. etail Sales 
5. Producer Prices 
6. New Home Sales 
7. Existing Home Sales 
8. Durable Goods Orders 
9. Gross Domestic Product
• Trading timing
• ASIAN SESSION (TOKYO): 7 P.M.–4 A.M. EST
• U.S. SESSION (NEW YORK): 8 A.M.–5 P.M. EST
• EUROPEAN SESSION (LONDON): 2 A.M.–12 P.M. EST
• U.S.–EUROPEAN OVERLAP: 8 A.M.–12 P.M. EST
• EUROPEAN–ASIAN OVERLAP: 2 A.M.–4 A.M. EST
• Trading rules
1. Limit your losses. 
2. Let your profits run. 
3. Keep position sizes within reason. 
4. Know your risk-reward ratio. 
5. Be adequately capitalized. 
6. Don’t fight the trend. 
7. Never add to losing positions. 
8. Know market expectations. 
9. Learn from your mistakes—keep a trading journal. 
10. Have a maximum loss or retracement in profits.
• Strategy rule
• Long
1. First, locate a currency pair that is trading well below its intraday 20-period simple moving average on a 10- or 15-minute chart. 
2. Next, enter a long position several pips below the figure (no more than 10). 
3. Place an initial protective stop no more than 20 pips below the entry price. 
4. When the position is profitable by double the amount that you risked, close half of the position and move your stop on the remaining portion of the trade to breakeven. Trail your stop as the price moves in your favor. 
• Short
1. First, locate a currency pair that is trading well above its intraday 20-period simple moving average on a 10- or 15-minute chart. 
2. Next, short the currency pair several pips above the figure (no more than 10). 
3. Place an initial protective stop no more than 20 pips above the entry price. 
4. When the position is profitable by double the amount that you risked, close half of the position and move your stop on the remaining portion of the trade to breakeven. Trail your stop as the price moves in your favor.
• USD characteristic
• Over 90 percent of all currency deals involve the dollar.
• U.S. dollar was considered one of the world’s premier safe haven currencies.
• The U.S. dollar moves in the opposite direction from gold prices.
• Many emerging market countries peg their local currencies to the dollar.
• Interest rate differentials between U.S. Treasuries and foreign bonds are strongly followed.
• Keep an eye on the Dollar Index.
• U.S. currency trading is impacted by stock and bond markets.
• US fundamentals
• Employment—Nonfarm Payrolls
• Consumer Price Index
• Producer Price Index
• Gross Domestic Product
• International Trade
• Employment Cost Index
• Institute for Supply Management (Formerly NAPM)
• Industrial Production
• Consumer Confidence
• Retail Sales
• Treasury International Capital Flow Data (TIC Data)
• CHF characteristic
• Safe haven status.
• Swiss franc is closely correlated with gold.
• Carry trades effects.
• Interest rate differentials between Euro Swiss futures and foreign interest rate futures are closely followed.
• Potential changes in banking regulations.
• Merger and acquisition activity.
• Trading behavior, cross-currency characteristics.
• JPY characteristic
• Proxy for Asian strength/weakness.
• Bank of Japan intervention practices.
• JPY movements are sensitive to time.
• Banking stocks are widely watched.
• Carry trade effects.
• AUD characteristic
• Commodity-linked currency.
• Carry trade effects.
• Drought effects.
• Interest rate differentials.
• NZD characteristic
• Strong correlation with AUD.
• Commodity-linked currency.
• Carry trades.
• Interest rate differentials.
• Population migration.
• Drought effects.
• CAD characteristic
• Commodity-linked currency.
• Strong correlation with the United States.
• Mergers and acquisitions.
• Interest rate differentials.
• Carry trades.