Über die Autorin bzw. den Autor

Michael Duane Archer has been an active commodity futures and FOREX trader for over thirty years. He has worked in various advisory capacities, notably as a commodity trading advisor and an SEC-registered investment advisor. Archer operates www.fxpraxis.com and is a professional FOREX money manager. He is also the coauthor of Getting Started in Currency Trading, The Forex Chartist Companion, and Charting the Major Forex Pairs, which are all published by Wiley.

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A Highly Visual Guide To Developing A Personal Forex Trading Strategy

Getting Started In Forex Trading Strategies

"A great next step to read for the beginning trader. It contains practical advice and resources on trading FOREX that only come with experience."
Derek Ching, President, Hawaii Forex

"We have members from over 125 countries on our Web site and plan to make Getting Started in ForexTrading Strategies a 'must read' for those looking to trade the FOREX market. It is good to see a book that emphasizes the importance of other elements, such as money management, which are crucial to master if one is to stay in this game. Well done!"

Jay Meisler, cofounder, Global-View.com

Written in a straightforward and accessible style, Getting Started in Forex Trading Strategies is a highly visual guide to foreign exchange trading that introduces you to the Codex Method a proven process that allows you to tailor a trading strategy to your own personal preferences.

Divided into four comprehensive parts, this reliable resource opens with a brief overview of traditional FOREX strategies. From here, author Michael Duane Archer outlines his own personal codex as he guides you through the process of developing yours and reveals how to use this approach to make, monitor, and exit a trade. Along the way, Archer reveals the best ways to implement your strategy and discusses the importance of consistently keeping trading records.

In his previous book, Getting Started in Currency Trading, Archer set a solid foundation for trading the currency market by illustrating how it operated. Now, with Getting Started in Forex Trading Strategies, Archer goes a step further by showing you how to cultivate a personal trading strategy that will allow you to succeed within this dynamic environment.

Aus dem Klappentext

A Highly Visual Guide To Developing A Personal Forex Trading Strategy

Getting Started In Forex Trading Strategies

"A great next step to read for the beginning trader. It contains practical advice and resources on trading FOREX that only come with experience."
—Derek Ching, President, Hawaii Forex

"We have members from over 125 countries on our Web site and plan to make Getting Started in ForexTrading Strategies a 'must read' for those looking to trade the FOREX market. It is good to see a book that emphasizes the importance of other elements, such as money management, which are crucial to master if one is to stay in this game. Well done!"

—Jay Meisler, cofounder, Global-View.com

Written in a straightforward and accessible style, Getting Started in Forex Trading Strategies is a highly visual guide to foreign exchange trading that introduces you to the Codex Method—a proven process that allows you to tailor a trading strategy to your own personal preferences.

Divided into four comprehensive parts, this reliable resource opens with a brief overview of traditional FOREX strategies. From here, author Michael Duane Archer outlines his own personal codex—as he guides you through the process of developing yours—and reveals how to use this approach to make, monitor, and exit a trade. Along the way, Archer reveals the best ways to implement your strategy and discusses the importance of consistently keeping trading records.

In his previous book, Getting Started in Currency Trading, Archer set a solid foundation for trading the currency market by illustrating how it operated. Now, with Getting Started in Forex Trading Strategies, Archer goes a step further by showing you how to cultivate a personal trading strategy that will allow you to succeed within this dynamic environment.

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Getting Started in Forex Trading Strategies

John Wiley & Sons

Chapter One

There are enough ideas for beating the markets to make you very rich-or very poor. -Charles B. Goodman

Most traders consider trading techniques-the actual tools they use to make trading decisions-as the most important element of trading. The proof is in the pudding; just consider the corpus of information both in print and online that deals with trading techniques. The sheer amount is staggering.

As the FOREX market matures, some literature on money management and the soft elements is becoming available, but it is still dwarfed by information available about trading techniques. The demand continues to be for information on trading techniques. That is unfortunate given the importance of the other two elements.

Systems and Black Boxes

Before considering some of the most popular trading techniques or tools, let me briefly discuss systems and black boxes.

A system is a self-contained way to make trades. Systems generate specific buy and sell signals. Many FOREX trading systems are available either from broker/dealers or from third-party vendors. They are intended to be complete in and of themselves, although many traders still use them in conjunction with other trading techniques.

Systems typically show outstanding results over historic data, or they would not sell. But the historic data is very often curve fit. This means that the system was developed to fit the data and not the other way around. If that data related to some specific types of markets, such as volatile markets, trading markets, or trending markets, when the music changes the system is bound to fail.

Systems have always been popular in all the markets-stocks, options, futures, and now FOREX. Not all systems are bad, but they are all opaque and that is always a warning sign. See Figure 1.1.

If you insist on using a system in your trading, be sure you understand which type of market it was build for or around-and use it only in those markets. However, determining which type of market the system was built for can be difficult. Many systems provide limited information regarding how they were developed. The best process is to look at charts of the markets vis--vis the system's performance. In which markets did it perform best-trading, trending, fast, slow? If the system vendor does not provide at least enough information to do this analysis, beware.

Black boxes are systems for which no information is available. You don't know how they were built, how they work, or what type of data they were built around. My recommendation regarding black box systems is to stay away from them. The less transparent the tool, the more difficult it is to make adjustments when things go wrong. A black box is the most opaque tool of all.

Robots have become popular in the FOREX markets. Usually, these are programs that automatically execute a trading system. In fast-moving markets they are very useful, especially to the professional money manager overseeing dozens or even hundreds of separate accounts. If your available time for trading is limited, you may want to consider using robots.

But if you have so little time to trade that a robot appeals to you, I recommend that you consider a professional money manager to trade your account. There are many money managers with excellent track records, but a discussion is beyond the scope of this book. Seek out a manager who has performed well in a variety of markets. It is more important that the manager has done well in a spectrum of market types than in specific pairs or crosses.

Technical versus Fundamental Analysis

Most traders today use technical analysis to trade. This refers to techniques based on price and other objective data that result from market action. The technician's credo is "Everything is in the market price."

The factors examined in fundamental analysis, such as a country's income, gross national product, and interest rates certainly drive currency prices in the long run. The problem for the currency trader is, as Keynes said, "In the long run we are all dead." The FOREX markets are highly leveraged; this is one of their main attractions. You can be correct about a currency pair in the long run, but the leverage may cause a price movement more than ample in degree to take you out of the market before you can profit from being correct about the fundamentals. It is discouraging to be correct in your determination of long-term trend direction-for example, "Interest rates will drive the U.S. dollar lower against the euro"-but lose money because volatility and leverage cause so many short-term fluctuations that you are never able to board the long-term trend successfully.

No one denies that fundamentals such as money supply, labor statistics, political events, and many others drive the currency markets. The problem-and why most traders use technical analysis-is how to interpret them, especially in the short term.

Most fundamental information is quantitative but much is not. For example, how does a trader convert an unemployment statistic to a price value? To further complicate matters, there are hundreds of fundamentals that impact prices, and the matrix of possibilities is astronomical. And some fundamentals, such as geopolitical events, are not even quantifiable.

The prices in Figure 1.2-tracked hourly for 30 days on EUR/USD-were ultimately driven by a wide range of fundamentals. But how does the trader discern them in advance?

Technical analysis allows you to zoom in as close to the markets as you want. In fact, an advantage of technical analysis is the ability to visualize the markets at multiple price levels simultaneously. See Figures 1.3 through 1.5.

There is no perfect world, of course. Fundamentalists will counter that the prices you use to do technical analysis are already history by the time you do your calculations, and they have no rational effect on the future prices.

But a simple example will show this concept to be incorrect, at least in theory. It is true that after I enter my order to buy or sell, I have had all the impact on prices that I will have until I enter the opposite order to exit the market. Yet every trader has a propensity to exit the market, once entered, on variable factors of price and time. At what price will I take a profit? At what price will I take a loss? How long am I willing to stay in a trade? These propensities vary from trader to trader, but the aggregate of all propensities creates a push and pull on the market that should, again in theory, be measurable. See Table 1.1.

All traders have access to market prices; the same cannot be said of fundamentals. There are literally millions of fundamental factors in any given currency, and the relationships among them are in the billions. Someone will almost certainly know a piece of fundamental information before you do. And how do you translate a fundamental like gross domestic product (GDP) to a specific market value or even a specific entry price? To add gasoline to the fire, remember that these relationships are almost certainly nonlinear and are changing rapidly all the time.

Fundamental traders conclude that prices have no memory and that only raw fundamental information drives the markets. The following is only a partial list of...