The Forex Trading Course

A Self-Study Guide to Becoming a Successful Currency Trader

Abe Cofnas

• Publisher: Wiley
• Year: 2015
• ISBN:
  9781118998687
• Edition: 2
• Topic: Business
• Subtopic: Foreign Exchange
• Index: Business

EXPERT, DEPENDABLE FOREX COACHING—UPDATED TO KEEP YOU AHEAD IN AN EVOLVING MARKET

The Forex Trading Course is the systematic guide aspiring traders need to enter the market with the confidence and skills necessary to generate wealth. Masterfully written so both basic and complex concepts are readily accessible, this all-inclusive training tool outlines a practical course of action to develop strategies integrating fundamental and technical analysis. It also demonstrates how to identify high-probability patterns and trades, adjust your trading plan for different account sizes, use emotional intelligence to improve trading performance, and much more. Thissecond editionis fully revised to address:

•Changes brought about by quantitative easing and central bank intervention—including greater spikes and disruptions in the forex and the influence of global growth and inflation on the market

•Using binary options with forex trades to make accurate predictions on direction, targets, and stops

•Social media trading and how to navigate herding behavior and swarming patterns

•The latest insights and trends in cryptocurrencies such as Bitcoin

Complete with practice assignments to reinforce the material and a supplemental website to enhance your knowledge, The Forex Trading Course, Second Edition unlocks your optimal potential for profitable currencytrading.

Part I
What Drives the Forex Market?

Part I of this book offers a look at the “big picture” in foreign exchange (forex) trading, that is, what forces influence currency price movements. These forces are accepted by economists and traders around the world as responsible catalysts for changes in the value of currencies. Readers learning to trade forex or trying to improve their trading will benefit from a gain of knowledge of these fundamentals. In fact, as you will see, fundamental forces act as leading indicators of currency movement future direction.

US and global interest rates, economic growth, and market sentiment toward the dollar are the key ingredients that shape trading opportunities. Part I provides basic knowledge on how these factors impact forex prices and how they can be used in selecting trading opportunities.

In getting acquainted with the forex market, most people start by looking only at price charts. This is called technical analysis. Those who focus on technical analysis are often called chartists. But the study and analysis of what moves those charts is called fundamental analysis. The goal of Part I is to identify the components of fundamental analysis in regard to forex and then provide a recipe for developing your own fundamental analysis of a currency pair.

Chapter 1
The Fundamentals of Forex

We begin in this chapter with an exploration of the forces that move the prices: the fundamentals. The reader will learn why fundamentals are important to foreign exchange (forex) traders as well as what kinds of economic activity are most important in affecting price movements. These include interest rates, interest rate differentials, economic growth, and sentiment regarding the US dollar.

Why Fundamentals Are Important

In many ways, forex trading is similar to playing a game. You have an opponent (the market). In games of chance, the key feature is that everyone faces the same odds and therefore the same level of information. In these games, no player can change the odds.

Playing forex, however, is not a game of odds. It might feel like gambling, but it is not gambling. In a fair game, like the roll of a dice, the person rolling the dice does not affect the outcome. Everyone has the same probabilities of winning. However, participants in forex trading do not share the same amount of information. Asymmetry of information results in advantages and disadvantages. Some players have more information than the others. In forex, information about fundamental aspects of economies does not arrive simultaneously to all participants. The important question is, what kind of knowledge and information can improve trading performance? The search for an edge starts with a fundamental understanding of the nature of the forex market. Having a foundation of knowledge in fundamentals is a first step in evolving into a winning trader.

Why take time to look at forex fundamentals? Why should fundamentals matter if a trade is done in a short-term time interval such as the five-minute chart? The short answer is that one cannot separate the fundamentals from the technical analysis without exposing oneself to great distortions in understanding the forex market and avoidable losses. The five-minute trader who is on the side of the longer trend is likely to be more profitable. Foreign exchange is by its nature both fundamental and technical and reflects the increased globalization of the world economy.

It is worthwhile to note the comments of the late, great Milton Friedman in a 2005 conversation with Dallas Fed president Richard Fisher:

The really remarkable thing about the world is how people cooperate together. How somebody in China makes a little bit of your television set. Or somebody in Malaysia produces some rubber. And that rubber is used by somebody in the United States to put on the tip of a pencil, or in some other way. What has happened has been an enormous expansion in the opportunities for cooperation.¹

Consider the following: Every transaction in the world settles in a currency. Whether it is a consumer purchase, an imported or exported item, an investment in an equity, or even cash under the mattress, the world's economic activity is ...