How to Make a Living Trading Foreign Exchange (eBook)

COURTNEY D. SMITH is Chairman of the Investment Mentoring Institute, an organization devoted to building great investors. He is also President and CIO of Courtney Smith & Co., Inc., which manages money for institutions, family offices, and high-net-worth individuals. Mr. Smith is the owner and Editor in Chief of Commodity Trading Consumer Research (CTCR)--the premier tracking service for the futures industry--and author of six books, including Option Strategies (Wiley). He has made more than 1,000 TV appearances on shows such as Wall Street Journal Report, Moneyline, and other programs on CNBC, Fox News, Bloomberg, and CNN.

Preface xi

CHAPTER 1 The Basics of Foreign Exchange Trading 1

Sell a Yard of Cable 2

Don't Want to Trade! 4

Transaction Costs 7

It Never Stops 8

My Biggest Losing Trade 8

The Bottom Line 11

CHAPTER 2 Trend Analysis 13

What Is a Trend? 14

How to Profitably Trade Bull and Bear Markets 18

How to Trade the Trend 21

Megaphones and Pennants 25

Average Directional Index 27

The Bishop 28

The Bottom Line 30

CHAPTER 3 Channel Breakouts 31

The Beginnings of Channel Breakouts 31

What Is a Channel Breakout? 32

Better Channel Breakouts 35

The Pros and Cons of Channel Breakouts 39

The Bishop 40

ADX Filter 43

The Principle of Instant Gratification 46

Rejection Rule 46

The Last Bar Technique 51

Tactics 52

Taking Profits 52

The Bottom Line 53

CHAPTER 4 The Conqueror 55

The Beginnings of the Conqueror 55

What Is True Range? 56

Enhancing the Conquistador 57

Adjusting the Stop 63

The Bottom Line 65

CHAPTER 5 Stochastics 67

What Are Stochastics? 67

How to Use Stochastics as an Overbought and Oversold Indicator 69

Trading Signals from Crossovers 71

Profitability of Stochastics 74

Warnings 75

The Best Way to Make Money Using Stochastics 76

Go with the Trend 81

How I Use Stochastics 81

Interview with George Lane 82

The Bottom Line 89

CHAPTER 6 Pattern Recognition 91

Inside Days 91

Double Whammy 94

Multiunit Tactic 95

Reversal Days 97

Riding the Rejection Rule 101

The Bottom Line 103

CHAPTER 7 Risk Management 105

Stopping Bad Risk Management 105

How to Make Sure We Are Never Wiped Out 108

Good Risk Management: Fixed Fractional 108

How Many Contracts Should I Put On? 109

Highly Correlated Positions 109

Kelly Formula 110

Trade Your Equity Curve 114

Take a Time Out 115

Turning Poor Systems into Good Systems 115

How Big a Position Should I Take? 116

The Bottom Line: Diversify through Time 117

CHAPTER 8 Slingshot 119

The Importance of Minimizing Losses 120

Beware of Taking Profits Too Early 121

Psychological Profits 122

Confirmations 123

Maximum Excursion Analysis 124

Using the Slingshot for Profits 125

The Mini-Slingshot 128

The Bottom Line 130

CHAPTER 9 The Psychology of Successful Trading 131

Why Do You Trade? 132

The Pressures of Trading 136

Why Do You Lose? 137

Addressing a Lack of Knowledge 138

Addressing a Lack of Capital 140

Addressing a Lack of Self-Discipline 141

An Example of Overcoming the Bizarre Twists and Turns of the Mind 143

Treat Trading as Education 144

Stress-Free Trading 147

Be the Casino 148

Developing Your Trading Plan 149

Filling Out the Plan 150

The Importance of a Postmortem 153

The Bottom Line 155

CHAPTER 10 Putting It All Together 157

Diversifying to Reduce Risk 157

Use a Mental Checklist 158

How to Trade Only One Method 159

The Bottom Line 160

Epilogue: Key Insights for Maximizing Your Trading Profits 161

Appendix: Suggested Reading 177

Acknowledgments 179

About the Author 181

Index 183