Day trading and options trading the currency market 3rd edition
While some of the Forex trading books mentioned below discuss one dedicated strategy, most will provide three to ten new Forex strategy ideas for you to test in the market. You just have to purchase one currency trading book and all your trading systems, ideas and your mindset will be laser focused and generating pips like nothing else. Trading Forex like a professional requires a combination of ideas, strategy, implementation, testing, building your confidence and then after a few years, combining all those elements with your own dedicated trading strategy.
The reason you will want these is you will need to revisit them several times throughout the year. As you grow as a trader, your mind will have changed and you will see the Forex markets in a new way. When you pick up one of the best Forex trading books, you will learn new ideas you can add to the strategies you are currently trading with.
Fortunately, Kathy has taken the time to write a few books including this regularly updated must-have Forex book.
Kathy can discuss the macro fundamental picture of any major currency pair in the world, but then identify key breakout levels for entry or exit criteria. You will gain a very broad knowledge of the markets and be able to start implementing trading ideas with a Forex demo account after reading this book. You will love the clear and concise way in which Jim is able to explain everything you need to know about Forex trading.
In his book, Jim runs through all the critical elements of Forex trading, including entry strategy, exit strategies, money management and the all-important trading psychology. At the end of the book, you are presented with a basic trading system.
You can use this as a way to build new Forex trading ideas or strategies of your own. His Forex strategy in this book is not meant to be your bread and butter system, but instead, you can use it as a basis for future trading systems which are suited to your trading style.
Currency Trading for Dummies is more of an encyclopaedia of Forex basic, technical analysis, trading strategy and everything you need to know about the Forex markets. As you know, the currency markets are driven by key fundamental data releases. You need to be aware of the critical economic data releases and how that impacts on your Forex trading.
Currency Trading for Dummies will help you navigate the fundamental aspect of the FX markets with ease. They also cover technical analysis, the patterns you may consider for your Forex systems, but not in the greatest of detail. If you are involved in FX, then you will want to know all the tips and tricks to using MT4 in the best possible way. In this book, Jim outlines a simple Forex trading method which is given away freely.
You can literally read the book, pull down his trading method, implement it within your own MT4 trading platform and be executing it live in the markets in no time. But of course, you want to make sure you understand the risks associated with FX trading. Before the early s at the London Stock Exchange , for example, stock could be paid for up to 10 working days after it was bought, allowing traders to buy or sell shares at the beginning of a settlement period only to sell or buy them before the end of the period hoping for a rise in price.
This activity was identical to modern day trading, but for the longer duration of the settlement period. But today, to reduce market risk, the settlement period is typically two working days. Reducing the settlement period reduces the likelihood of default , but was impossible before the advent of electronic ownership transfer. The systems by which stocks are traded have also evolved, the second half of the twentieth century having seen the advent of electronic communication networks ECNs.
These are essentially large proprietary computer networks on which brokers could list a certain amount of securities to sell at a certain price the asking price or "ask" or offer to buy a certain amount of securities at a certain price the "bid". The first of these was Instinet or "inet" , which was founded in as a way for major institutions to bypass the increasingly cumbersome and expensive NYSE, also allowing them to trade during hours when the exchanges were closed.
Early ECNs such as Instinet were very unfriendly to small investors, because they tended to give large institutions better prices than were available to the public. This resulted in a fragmented and sometimes illiquid market. The next important step in facilitating day trading was the founding in of NASDAQ —a virtual stock exchange on which orders were transmitted electronically.
Moving from paper share certificates and written share registers to "dematerialized" shares, computerized trading and registration required not only extensive changes to legislation but also the development of the necessary technology: These developments heralded the appearance of " market makers ": A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock.
Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread". The market maker is indifferent as to whether the stock goes up or down, it simply tries to constantly buy for less than it sells. A persistent trend in one direction will result in a loss for the market maker, but the strategy is overall positive otherwise they would exit the business. Today there are about firms who participate as market makers on ECNs, each generally making a market in four to forty different stocks.
Another reform made was the " Small Order Execution System ", or "SOES", which required market makers to buy or sell, immediately, small orders up to shares at the market maker's listed bid or ask.
In the late s, existing ECNs began to offer their services to small investors. New brokerage firms which specialized in serving online traders who wanted to trade on the ECNs emerged. Archipelago eventually became a stock exchange and in was purchased by the NYSE. Moreover, the trader was able in to buy the stock almost instantly and got it at a cheaper price. ECNs are in constant flux. New ones are formed, while existing ones are bought or merged.
As of the end of , the most important ECNs to the individual trader were:. This combination of factors has made day trading in stocks and stock derivatives such as ETFs possible. The low commission rates allow an individual or small firm to make a large number of trades during a single day. The liquidity and small spreads provided by ECNs allow an individual to make near-instantaneous trades and to get favorable pricing.
The ability for individuals to day trade coincided with the extreme bull market in technological issues from to early , known as the Dot-com bubble. In March, , this bubble burst, and a large number of less-experienced day traders began to lose money as fast, or faster, than they had made during the buying frenzy.
The NASDAQ crashed from back to ; many of the less-experienced traders went broke, although obviously it was possible to have made a fortune during that time by shorting or playing on volatility. In parallel to stock trading, starting at the end of the s, a number of new Market Maker firms provided foreign exchange and derivative day trading through new electronic trading platforms.
These allowed day traders to have instant access to decentralised markets such as forex and global markets through derivatives such as contracts for difference. Most of these firms were based in the UK and later in less restrictive jurisdictions, this was in part due to the regulations in the US prohibiting this type of over-the-counter trading. These firms typically provide trading on margin allowing day traders to take large position with relatively small capital, but with the associated increase in risk.
Retail forex trading became a popular way to day trade due to its liquidity and the hour nature of the market. The following are several basic strategies by which day traders attempt to make profits. Besides these, some day traders also use contrarian reverse strategies more commonly seen in algorithmic trading to trade specifically against irrational behavior from day traders using these approaches. It is important for a trader to remain flexible and adjust their techniques to match changing market conditions.
Some of these approaches require shorting stocks instead of buying them: There are several technical problems with short sales—the broker may not have shares to lend in a specific issue, the broker can call for the return of its shares at any time, and some restrictions are imposed in America by the U. Securities and Exchange Commission on short-selling see uptick rule for details.
Some of these restrictions in particular the uptick rule don't apply to trades of stocks that are actually shares of an exchange-traded fund ETF. Trend following , a strategy used in all trading time-frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa with falling.
The trend follower buys an instrument which has been rising, or short sells a falling one, in the expectation that the trend will continue. Contrarian investing is a market timing strategy used in all trading time-frames. It assumes that financial instruments which have been rising steadily will reverse and start to fall, and vice versa. The contrarian trader buys an instrument which has been falling, or short-sells a rising one, in the expectation that the trend will change.
Range trading, or range-bound trading, is a trading style in which stocks are watched that have either been rising off a support price or falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa.
Such a stock is said to be "trading in a range", which is the opposite of trending. A related approach to range trading is looking for moves outside of an established range, called a breakout price moves up or a breakdown price moves down , and assume that once the range has been broken prices will continue in that direction for some time.
Scalping was originally referred to as spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited by the speculator. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. Scalping highly liquid instruments for off-the-floor day traders involves taking quick profits while minimizing risk loss exposure. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands.
When stock values suddenly rise, they short sell securities that seem overvalued. Rebate trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue. Most ECNs charge commissions to customers who want to have their orders filled immediately at the best prices available, but the ECNs pay commissions to buyers or sellers who "add liquidity" by placing limit orders that create "market-making" in a security.
Rebate traders seek to make money from these rebates and will usually maximize their returns by trading low priced, high volume stocks. This enables them to trade more shares and contribute more liquidity with a set amount of capital, while limiting the risk that they will not be able to exit a position in the stock. The basic strategy of news playing is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits or losses.
Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news itself. This is because rumors or estimates of the event like those issued by market and industry analysts will already have been circulated before the official release, causing prices to move in anticipation.
The price movement caused by the official news will therefore be determined by how good the news is relative to the market's expectations, not how good it is in absolute terms. Keeping things simple can also be an effective methodology when it comes to trading.
These traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or not they should take a trade. This is seen as a "simplistic" and "minimalist" approach to trading but is not by any means easier than any other trading methodology.
It requires a solid background in understanding how markets work and the core principles within a market, but the good thing about this type of methodology is it will work in virtually any market that exists stocks, foreign exchange, futures, gold, oil, etc.
An estimated one third of stock trades in in United States were generated by automatic algorithms , or high-frequency trading. The increased use of algorithms and quantitative techniques has led to more competition and smaller profits.
Commissions for direct-access brokers are calculated based on volume. The more shares traded, the cheaper the commission. A scalper can cover such costs with even a minimal gain. The numerical difference between the bid and ask prices is referred to as the bid-ask spread. Most worldwide markets operate on a bid-ask -based system. The ask prices are immediate execution market prices for quick buyers ask takers while bid prices are for quick sellers bid takers.