Michael D. Archer - Getting Started in Currency Trading

Getting Started in Currency Trading, Third Edition by Michael D. Archer

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Getting Started In Emerging Markets by Christopher Poillon

Getting Started In Technical Analysis by Jack D. Schwager

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Getting Started In Real Estate Investing by Michael C. Thomsett and Jean Freestone

Getting Started In Rental Income by Michael C. Thomsett

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Copyright 2012 by Michael Duane Archer. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging-in-Publication Data:
Archer, Michael D. (Michael Duane)
Getting started in currency trading / Michael Duane Archer. 4th ed.
p. cm. (Getting started in)
Includes bibliographical references and index.
ISBN 978-1-118-25165-2 (paper); ISBN 978-1-118-28198-7 (ebk);
ISBN 978-1-118-28408-7 (ebk); ISBN 978-1-118-28493-3 (ebk)
1. Foreign exchange market. 2. Foreign exchange futures. I. Title.
HG3851.A739 2012
332.45 dc23

2011046014

To my favorite uncle and best friend, Jim Pacha

Acknowledgments

I wish to thank my mentor, the late Charles B. Goodman, for sharing with me his remarkable market theories, methods, and holistic approach to trading. Unsung in his own time, Charlie was to me the greatest of all the market mavens.

Thanks also to my mentoring students and GoodmanWorks Trading Room members, especially Matthew Cheung, Theunis Hattingh, and Trip Reilly. I have learned much by teaching them. Bradley Sutherland of Najibi Capital was most helpful in giving me a preview of his firms lead-edge grid trading system.

Finally, to the memory of the co-author of the first edition of Getting Started in Currency Trading, Jim Bickford. You are missed each and every day.

M.A.

Introduction

About This Book

This book is intended to introduce the novice investor to the exciting, complex, and potentially profitable realm of trading world currencies on the FOReign EXchange markets (FOREX). It also serves as a reference guide for stock and futures traders who wish to explore new trading opportunities. My primary focus is on the rapidly expanding and evolving online trading marketplace for spot currencies, generally referred to as retail FOREX.

Currency trading has a wide appeal in todays global economic and investment climate. Currencies allow the investor to participate in the financial and economic fortunes and misfortunes of different countries and different regions. As I write these words, there is a seesaw battle between the debt crisis in the European Union and the one in the United States. As news and sentiment ebb and flow, so does the euro/U.S. dollar (EURUSD) currency pair. While the risks are substantial, the rewards are also potentially enormous. There is opportunity every trading session in FOREX. A market does not need to be in a sustained trend to have profit potential. It requires only movement and volatility.

Unlike equities and stocks, a currency trade is a spread between one currency and another currency. You are simultaneously buying one and selling the other. While trends in currencies can be very long, they ultimately trade in very wide bands as interest flows back and forth between the two members of the pair. Barring a countrys collapse, a currencys price at least in the longer term has always come back. Some FOREX trading systems, particularly grid and Pac Man programs, aim to take advantage of this band phenomenon.

Because critical events occur so frequently in the global economy of the twenty-first century, a buy-and-hold strategy can be frustrating and costly irrespective of the investment instrument. Carefully nursed profits can vanish with the next news announcement, flash crash, or crisis. The traditional investment pyramid is composed of classes preservation, savings, investment, and speculation, typically denominated with specific investment instruments such as cash and gold, bonds and savings, equities, and commodities . In todays environment, trading becomes a class unto itself for the astute investor, seizing good profits before they disappear. Trading currencies becomes a near-perfect fit for the times.