Published with the assistance of Admiral Markets CJSC

Translators A. Kunitsyn, A. Zalesova

Editor V. Grigorieva

Technical editor N. Lisitsyna

Corrector V. Muratkhanov

Computer layout E. Matusovskaya, Y. Yusupova

Cover design O. Belarusian

© Kathy Lien, 2006

© Publication in Russian, translation, design. Alpina Publisher LLC, 2012

Published under license from John Wiley & Sons, Inc.

Day trading on the Forex market. Strategies for making a profit / Ketty Lin; Per. from English – 5th ed. – M.: Alpina Publisher, 2012.

ISBN 978-5-9614-2351-8

All rights reserved. No part of the electronic copy of this book may be reproduced in any form or by any means, including posting on the Internet or corporate networks, for private or public use without the written permission of the copyright owner.

To the readers

The international brokerage company Admiral Markets has been publishing books on trading in financial markets, as well as methods of analysis and trading psychology for several years. Many books are written by our authors - professional economists, analysts, Forex specialists, whose main task is to offer the clearest information about financial markets to the widest audience.

The works published earlier were devoted mainly to general issues of Forex and various analysis techniques, bypassing, due to circumstances, some important aspects of the foreign exchange market. We would like to fill this gap by bringing to your attention the wonderful book “Day Trading in the Forex Market: Strategies for Making Profits” by Ketti Lin. On its pages, the author offered not just a broad view of Forex, considering it retrospectively, but also presented an analysis of the factors of its development, a number of strategies used in Forex, providing all this with a large number of understandable and practical ideas. We recommend this work to everyone who is interested in trading and currencies - regardless of whether he is an experienced trader or a person who has installed a trading terminal for the first time. We would like to invite readers not to limit themselves to one theory, but also to apply it in practice. Any Forex strategy may seem simple and even obvious, but you need to keep in mind that any information you come across is the result of individual experience described by an expert in his field. Of course, Forex involves a number of quoted strategies, but even with them, bypassing practice, any beginner is doomed to failure. A huge advantage of modern brokerage services is the ability to freely manage any financial instruments without any investment. With a small amendment: only in test mode. For beginners and those simply interested, this is a great opportunity to gain access to expert analytics, stock quotes, numerous trading strategies, and even make money on demo accounts. In this case, Admiral Markets offers to use its demo accounts.

The most convenient tool for working in financial markets is the MetaTrader information and trading platform, which can be downloaded on our company’s website. Designed for organizing dealing services in the Forex, CFD and Futures markets, it allows you to fully control transactions via the Internet, place pending orders, conduct graphical financial analysis, receive real-time market news from the world-famous Dow Jones Newswires, as well as develop your own automatic trading strategies.

All this is available even on demo accounts - market conditions are offered as they are, without distortion. Opening an account is no more difficult than creating a new e-mail, and you can start trading immediately after registration.

Modern technologies can turn an ordinary user into a real investor. People without special training, education, or skills, choosing Forex as a field of activity, after some time become experienced traders who earn money in financial markets.

Today we offer traders and companies some of the most favorable conditions for managing their capital: about 30 currency pairs, deposits in gold, access to quotes from the largest companies in real time, instant execution of transactions, a powerful monitoring and trading system, convenient and comprehensively developed partnerships programs, and this is far from limiting the list of our advantages. Admiral Markets is developing rapidly, while maintaining the quality of its services. The company has more than 10 years of experience and its offices are located in 37 countries.

An important aspect of the activities of any Forex company is the training system it offers: distance courses, webinars, books, periodicals, etc. In this regard, we try to provide everyone who trades or plans to trade in the foreign exchange market with the most reliable and complete information: We do not use training as a means of advertising and try to be as open as possible to clients. Therefore, they can be guaranteed to receive the most objective information, which is the result of the company’s many years of experience and is presented by experts in their field - professional analysts, economists and traders.

It is important to understand that practice is the best way to gain knowledge, especially in the field of online trading. The task of Admiral Markets in this case is to present the most comprehensive and useful works, while offering excellent conditions for practice and trading on Forex.

Preface

Are you looking for a good book on forex trading? At all the currency trading seminars I teach, traders come up to me and ask me to recommend a good book. Day trading in the Forex market This is exactly the kind of publication not only because it talks about technical and fundamental trading strategies in the foreign exchange market, but also because it introduces in detail the infrastructure of the foreign exchange market. This book is written for both beginners and experienced traders. Everyone will find something useful in it. My goal was to talk about the basics of Forex trading and the characteristics of currencies that all traders, especially those who trade during the day, should know. In addition, I wanted to describe real trading strategies on the basis of which you can develop your own strategies. In the book Day trading in the Forex market interesting topics are touched upon: “What US economic indicators most strongly influence the exchange rate of the US dollar?” and “What are currency correlations and how do traders use them?”

I hope the summary of each chapter will encourage you to read the entire book.

Forex is the fastest growing market

If you're not sure whether you should trade Forex, read about the reasons why the biggest market in the world is always the choice of big players - hedge funds and institutional investors. Find out why currency trading volumes have increased several times in recent years, what are the advantages of the foreign exchange market over the stock and futures markets - something that the most experienced traders in the world have known for a long time.

Forex History

You cannot trade Forex effectively if you are not aware of the most significant events in its history that made the foreign exchange market what it is today. There are countless such events, they are still remembered, although many years have passed. This chapter covers Bretton Woods and its abrogation, the Plaza Accord, George Soros and how he became famous, the Asian financial crisis, the introduction of the euro, and how the dotcom bubble burst. .

What are the long-term factors of the foreign exchange market?

“What determines the movement of the foreign exchange market?” - This is probably one of the first questions that a novice trader needs to answer. Currency fluctuations can be divided into short-term and long-term. This chapter focuses on some of the macroeconomic factors that determine exchange rates over the long term. We included it in the book so that traders do not lose sight of the overall economic picture, to show how these long-term technical and fundamental factors affect the market. We also look at different exchange rate models that will help fundamental traders develop their own methodology for forecasting price fluctuations.

What are the short-term factors of the foreign exchange market?

Information about which US economic indicators most strongly influence the foreign exchange market can be useful to traders who specialize in intraday trading. System traders need to know when to shut down the system, and breakout traders make important trading decisions based on this information. The fourth chapter not only gives a rating of economic news, but also provides average changes in exchange rates immediately after the release of data and during the day.

When is the best time to perform transactions with individual currency pairs?

Timing your trade correctly is the key to success in Forex. To develop an effective investment strategy, you need to know what time of day the market is most active. Thanks to this, the trader will maximize the number of trading opportunities during his working day. This chapter provides an overview of typical trading activity for currency pairs in different time zones and attempts to identify when they are most volatile.

What are currency correlations and how do traders use them?

In the foreign exchange market, everything is interconnected to a certain extent, and by knowing the direction and extent of the relationship between certain currency pairs, traders can use this to their advantage. When choosing a strategy for trading the Forex market, you need to remember that all currency pairs are related. Calculating correlations between currencies in your portfolio allows you to assess investment risk. By investing in different currency pairs, many traders think that they are diversifying their portfolio, but few know that in fact many currency pairs can move in the same or opposite directions. Currency correlations can be strong or weak and can last for weeks, months or even years. That is why it is extremely important to be able to use and calculate them.

Trading parameters for various market conditions

The first, most important step of any trader, regardless of the market in which he trades, is to start a trading journal. But a Forex trading magazine is different from any other magazine. In addition to the usual list of your intentions and completed trades, the Forex Trading Journal includes currency pair quizzes that take approximately 10 minutes to answer and will almost immediately give you the characteristics of each pair you need for technical analysis. Trading effectively means developing a plan of action. This chapter offers such a plan to help you first determine your trading conditions and then select the trading indicators that are best used in those conditions.

Technical Trading Strategies

This chapter will be of interest to experienced traders. It is dedicated to my favorite trading strategies for those who specialize in intraday and swing trading. Rules and examples are provided for each strategy, using unique characteristics of the foreign exchange market identified in the past. The chapter describes trading strategies for all types of traders: trend, range and breakout.

Fundamental Trading Strategies

The ninth chapter of the book is intended for traders specializing in medium-term swing trading. After reading it, you will learn how to use commodity prices, bond prices, options volatility, and risk reversals. It also covers trades based on bank interventions and international events, as well as the secret strategy of hedge funds in 2002–2004. – about a positional transaction with leverage.

Brief description and unique characteristics of the main currency pairs

The last chapter of this book is probably one of the most useful, as it examines the unique characteristics of the major currency pairs: when they are most active, what influences their rates, and which economic reports are most important to them. We offer a broad economic overview of each currency and the monetary policy of the respective central bank.

Acknowledgments

I thank my wonderful colleagues for their invaluable research and great support.

Boris Schlossberg

Richard Lee

Sam Shenker

Melissa Tuzzolo

Daniel Chen

Bosco Cheng

Jenny Tang

Vincent Ortiz

John Kicklighter

Ehren Goossens

Kristian Kerr

Randal Nishina

and all FXCM employees.

Chapter 1. Forex – the fastest growing market

The “Foreign Exchange Market” or “Forex/FX Market” is the general name given to institutions located around the world that exchange and trade currencies. Forex is an over-the-counter market, i.e. transactions on it are made outside the exchange and clearing house. Forex dealers and market makers around the world communicate with each other 24/7 via telephone, computer and fax to create a single market.

Over the past few years, currency has become one of the most popular financial instruments. No other market recorded a 57% increase in trading volume over three years. In September 2004, the Forex Market Study, conducted every three years by the Bank for International Settlements for central banks, was published. According to this study, foreign exchange market trading volume was $1.9 trillion in 2004, up from $1.2 trillion in 2001 ($1.4 trillion at constant exchange rates). By some estimates, this is about 20 times the trading volumes on the NYSE and NASDAQ combined. This surge in activity can be explained by several reasons, but the most interesting is the fact that the growth in Forex trading volume almost coincided with the emergence of the ability for individual investors to buy and sell currencies through electronic platforms.

The impact of currencies on stocks and bonds

The emergence of online trading is not the only reason for the increase in the volume of the foreign exchange market. Fluctuating rates in recent years have demonstrated to many traders that changes in the Forex market affect the stock and bond markets. Therefore, to make the right decision on transactions with stocks, bonds and commodities, a trader needs to monitor the situation in the foreign exchange markets. The following are some examples of how currency movements affect securities markets.

EUR/USD and corporate profitability

For stock market traders, especially those who invest in European corporations that export large quantities of goods to the United States, monitoring exchange rates is essential to forecasting company earnings and profits. In 2003–2004 European manufacturers were seriously concerned about the sharp rise in the euro exchange rate and the decline in the value of the dollar. The main reason for selling the dollar at that time was the growing US trade and budget deficits. The increase in the EUR/USD (euro to dollar) ratio has negatively impacted the profits of European corporations as their goods have become more expensive for American consumers. In 2003, inadequate hedging caused Volkswagen's profits to fall by €1 billion, and the Dutch chemicals company Dutch State Mines (DSM) warned of a possible profit decline of €7–11 billion if the EUR/USD exchange rate rose by 1% . Unfortunately, inadequate hedging continues to plague European exporters, so monitoring the EUR/USD exchange rate is especially important when forecasting their revenues and profits.

Nikkei and US dollar

Investors in Japanese stocks should monitor fluctuations in the US dollar and their impact on the Nikkei index. Until Japan emerged from a decade of stagnation, U.S. mutual funds and hedge funds made virtually no investments in Japanese stocks. As the country's economy began to pick up, these funds rushed to review their portfolios for fear of missing out on gains from Japan's economic growth. Hedge funds used large borrowings to finance the deals, but the problem is that these loans are extremely sensitive to US interest rates and the monetary policy of the Federal Reserve System (Fed). Higher dollar borrowing costs could wipe out gains from the Nikkei's gains as high rates push up the cost of financing deals. However, due to the huge negative balance, it is possible that the Fed will raise interest rates to make dollar assets more attractive. Consequently, persistently rising rates and slowing economic growth in Japan may reduce the returns of funds with significant exposure to Japanese companies' leveraged shares. Thus, fluctuations in the exchange rate of the US dollar play an important role in changes in the Nikkei index.

George Soros

One of the most famous people in Forex history is George Soros. He is known as "the man who broke the Bank of England." This is covered in more detail in Chapter 2 of this book. Let's put it briefly here: in 1990, the UK decided to join the exchange rate mechanism within the European Monetary System (EMS), which ensures low inflation and economic stability. The EMU was under the control of the German central bank. After accession, the British pound was pegged to the German mark, i.e. Great Britain became dependent on the monetary policy of the German central bank. (In the early 1990s, Germany sharply raised interest rates to reduce inflation after the country's reunification.) National pride and fixed exchange rates under the EMU prevented Britain from devaluing the pound. On Wednesday, September 16, 1992 (“Black Wednesday”), George Soros sold pounds worth $10 billion on the foreign exchange market. This “broke” the Bank of England and led to the devaluation of the pound. Within 24 hours, its rate fell by approximately 5%, or 5,000 pips. To encourage traders to buy the pound, the Bank of England promised to raise interest rates. As a result, the bond market also experienced significant fluctuations. The London Interbank Offered Rate (LIBOR) initially rose 1% before returning to its previous level within 24 hours. If traders in the bond market did not know what was happening in the Forex market, such sharp fluctuations in yields would take them by surprise.

Revaluation of the Chinese yuan and bonds

Traders specializing in US Treasury debt should monitor the currency markets. For several years, experts have been actively discussing the revaluation of the Chinese yuan. Despite rapid economic growth and a strong trade balance with many countries, China artificially maintains the exchange rate of its national currency within a certain range in order to ensure further economic growth and modernization. This causes extreme dissatisfaction among manufacturers and official representatives of many countries, including the USA and Japan. According to some estimates, the Chinese yuan is artificially undervalued by about 15–40%. To keep the currency at a low level, the Chinese government has to sell yuan and buy dollars every time the value of the national currency exceeds a certain value. China then spends the dollars to buy US Treasury debt. Thanks to this policy, China has become the second largest holder of US Treasuries. Demand from China allowed the US government to set interest rates at record lows. Although there have been some changes in the Chinese government's monetary policy, revaluations since then have been fairly modest. Therefore, more significant changes are possible in the future. A significant revaluation of the yuan would have a negative impact on the US bond market, as a large buyer would leave the market, and such an announcement could lead to a sharp rise in yields and a fall in prices. Therefore, to effectively manage risk, bond traders need to monitor changes in the foreign exchange markets so that they are not completely surprised by such a situation.

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The book talks about technical and fundamental trading strategies in the foreign exchange market, the basics of Forex trading, the characteristics of currencies, the infrastructure of the foreign exchange market, and the application of technical and fundamental analysis. The author of the book, an experienced trader, shares his knowledge and offers real trading strategies that can be used by both beginners and experienced traders. Much space in the book is devoted to leading currencies, the most important economic indicators that influence the movement of the foreign exchange market.

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It is unlikely that anyone who has been interested in the foreign exchange market for some time has not heard the name Ketty Lin, since this woman has rightfully earned herself respect among traders by actively trading on financial markets, teaching and developing trading strategies. At the same time, she wrote a very good book called “Day Trading in the Forex Market,” which is primarily intended for beginners, helping them gain basic, systematic knowledge about the functioning of the foreign exchange market and the work of a trader. Useful information will also be found by those who already have sufficient experience, but for some reason still cannot reach a more or less stable level.

In addition, Ketty Lin describes the simplest and most effective analysis strategies with which you can work confidently and receive a stable income from speculative activities. The author pays attention to both fundamental and technical analysis, giving readers the correct view of trading. However, although the book is called Day Trading, indicating that the main focus will be on intraday trading, it also contains a lot of practical solutions for medium-term Forex trading, which also has a term for swing trading.

Author's words to readers

Ketty Lin herself, in the preface to the book “Day Trading in the Forex Market,” which you can DOWNLOAD from our cloud storage, says the following:

“If you have been looking for a good textbook on intraday trading on Forex for a long time, then I hope my work is exactly what you need. At each of my webinars and meetings at seminars, beginners and more experienced traders ask me to suggest a worthy book about the world of finance, where it will be explained in simple and understandable language where to start and how to further develop.

This request puzzled me for a long time, although there are not so few good books about Forex. But it was difficult for me to give an exact recommendation so that it would clearly satisfy the needs of a person who has begun to master day trading.

So I decided to put my experience into words by writing a book about day trading, in which everyone will undoubtedly find useful information for themselves, having received only relevant theoretical and practical knowledge about the Forex currency market.

My main goal was to convey information about the basics of Forex functioning and how a trader who does not want to lose money should act. Practical and personally tested systems will allow you to easily develop your own trading style, based on a clear understanding of fundamental and technical factors.”

Ketty Lin's textbook “Day Trading in the Forex Market” can be read and re-read many times, as it is written in simple, lively language. In order to accurately understand what will be discussed in it, we will briefly describe each chapter.

Forex today

Many newcomers at the beginning of their career have doubts about which market to work in. Therefore, they must know exactly what Forex is at its current stage of development, and today it is the fastest growing market in the world!

This is where the interests of all major corporations, banks, hedge funds and other large and small players intersect. In this regard, trading volumes are constantly growing, and today not a single trading platform can even come close to the turnover that Forex demonstrates.

Well, in turn, the abundance of money gives rise to many situations both in day trading and at longer distances, in which you can and should make money. All that remains is to find out how, but before that it wouldn’t hurt to take a brief excursion into history.

How Forex was formed

Next, the book “Day Trading on the Forex Market” introduces the reader to how the formation of the currency system took place. This is an important learning step that is not recommended to be skipped because history helps you understand how the market works and why.

This chapter will tell you about the times of rigid exchange rate pegs, about the various agreements of key persons on the planet that determined changes in the world monetary system, as well as about large speculators who, through their actions, are capable of undermining the established order.

Therefore, in addition to dry facts, traders will learn interesting stories about Soros’s speculation, about various “bubbles” in the market, and so on.

What affects prices in the long term?

It is no secret that global trends in the foreign exchange market arise and develop under the influence of the policies of the largest central banks in the world. Therefore, in this chapter of her book, Ketti Lin provides a description of the main fundamental indicators that are important to take into account in order to understand where the exchange rate of a particular currency is heading in the long term.

Of course, since the work is called “Day Trading in the Forex Market,” the influence of global trends within the day is not particularly noticeable, but this information is required to be learned, since it is important to understand the meaning of news and the reaction to it.

What factors have a short-term impact?

If in the last chapter Ketty Lin paid more attention to long-term goals and global trends, then in this chapter she specifically describes the fundamental factors that influence exchange rates within a day.

After reading this chapter from “Day Trading in the Forex Market,” speculators will learn what operating systems to use during news periods, how to read the current situation, where to look for important breakthroughs, how to evaluate the possible potential of a move, and so on.

The role of timing when working in the foreign exchange market

Not everyone understands how important it is to choose the right time period for opening a trade. And we are talking not only about trading sessions, but also about the intervals within them. Market activity develops according to a cyclical pattern; in addition, interesting moments arise at the openings of various sites, during lunch breaks, etc.

Learning to see connections

The main mistake of many beginners, due to which they lose a lot of money, is the inability to see the relationships between individual financial instruments. Therefore, in this chapter, Ketty Lin introduces readers to the concept of correlation, showing how a trader can take advantage of the movements of various assets of the currency and commodity markets.

In addition, the information provided makes it possible to avoid the unpleasant consequences of correlation, when beginners make transactions on seemingly different trading instruments, and, in fact, expose their deposit to unjustified risk. The fact is that many currencies can demonstrate unidirectional movement due to a certain connection between them, which is why, for example, the simultaneous purchase of GBP/USD and EUR/USD is an unreasonably stupid idea.

Every trader should know and use correlation, as it often gives good clues as to what to expect next in Forex.

Trading conditions for various situations

In this chapter of Day Trading the Forex, Ketty Lin gives an example of a trading journal that every trader should have. Moreover, information about transactions should not only be recorded here, as many probably thought.

No, here the author provides a list of control questions regarding the selected instrument, to which a trader must find answers before trading. The fact is that by correctly identifying a number of technical issues, spending 5-10 minutes on this, everyone will receive serious help for analysis.

Based on this data, it will be easier to choose the right indicators and other technical assistants in order to choose the best moment to enter in the right direction.

Technical trading systems

This chapter contains what many seasoned traders look for in Day Trading the Forex - the profit strategies developed by Ketty Lin are of great value. Despite the title of the textbook, it describes not only systems for intraday trading, but also those that perform well in the medium term.

The variety of options offered here allows the trader to independently choose what is more understandable to him and suits his spirit, since among the described strategies there are breakout, trend, and designed for rebounds, and many others.

Fundamental systems of work

The penultimate chapter of Ketti Lin's book provides trading systems based on fundamental factors that allow you to work within global trends. With this information in hand, a trader can confidently trade bonds, commodities, risk reversals, and options, using all of these instruments as trading assets or guides to where currency quotes will go better than any indicators.

The book reveals everything that every trader should know about the principles of Forex trading and the features of currencies in order to successfully trade and earn income on the foreign exchange market.

About the book Day Trading in the Forex Market

Ketty Lin's book “Day Trading in the Forex Market” contains all the necessary knowledge about various trading strategies, using which you can do it yourself. The author also talks about the structure of the foreign exchange market, its characteristics, fluctuations and trends, the reasons behind them and the latest trends.

Reading this book will give you all the necessary information about the Forex currency market, and even if you have been trading for quite some time, you will definitely find something new in it.

The book “Day Trading in the Forex Market” will become an indispensable assistant for both beginners and experienced traders, and for anyone who wants to increase their income from trading.

You can download “Day Trading in the Forex Market” by Ketty Lin for free using the link below.

In all the variety of books and training manuals devoted to trading in financial markets, it is sometimes difficult to find a truly worthwhile book that would deal with trading methods and strategies suitable for the international Forex currency market. The book “Day Trading on the Forex Market” is one of those publications that allows you to immerse yourself as deeply as possible into the processes of trading currency pairs and into the specifics of financial analysis that must be applied in the foreign exchange market.

Ketty Lin, a recognized expert in Forex trading, is the managing director of the financial services company. Over the course of her career, she has written several books about working in the financial markets, as well as about people who are successful in trading.

The book “Day Trading in the Forex Market” deals with the practical use of classical trading strategies. In addition, Ketty Lin pays great attention to the fundamental impact of news flows and various events on changes in national currency rates. A skillful combination of two tactics - technical and fundamental, according to the concept of the author of the book, will allow a trader to achieve the greatest success in trading on the Forex currency market.

The book “Day Trading in the Forex Market” can be divided into three parts. The first section - chapters 1 to 4 - introduces the reader to general issues and factors of the Forex currency market: the history of the formation of this exchange platform, participants in the foreign exchange market and their behavior patterns, long-term and short-term factors of the foreign exchange market, such as fundamental and technical analysis, and also with interesting principles of short-term, local influences on price changes in Forex.

The second section of the book - chapters 5 to 8 - deals with issues of technical analysis and short-term trading strategies that can be successfully applied in the foreign exchange market. Ketty Lin in her work relies not only on classic psychological strategies (Trading against “double zeros”, “Inside day” and “False breakout”), which can be successfully applied if you are an experienced trader, but also talks in the book about modern trading methods based on indicator analysis, and systematic decision-making (using filters when entering the market, such as the ADX indicator, etc.).

The third section of the book “Day Trading in the Forex Market” is devoted to the fundamental features of currency pairs (Ketty Lin goes into detail about all the major currencies of the Forex market, indicating the fundamental and psychological features that you need to pay attention to when trading), as well as trading strategies based on fundamental data and the release of fundamental news (“Risk Reversal”, “Intervention”). For the most complete information, this section lacks data on the technical features of the behavior of a particular currency pair, however, it is more advisable for each reader to determine this information independently, due to the fact that the individual use of trading strategies leaves an imprint on one’s own observations regarding the behavior of Forex market assets.

The book “Day Trading in the Forex Market” will be of interest to novice traders who would like to receive more information regarding the areas of day trading in the foreign exchange market and the principles of forming trading systems. However, for experienced traders and technical analysts, this book may seem too “simple”, since the classical principles of trading discussed in the book do not provide the opportunity to study the current price formations that are currently encountered in the foreign exchange market.