Contents

Cover

More Praise for The Sensible Guide to Forex

Series

Title Page

Copyright

Dedication

Read This First

CURRENCY RISK: EVERY INVESTOR'S DILEMMA

THE SOLUTION

SOME BACKGROUND

WHY ANY TRADER OR INVESTOR NEEDS THIS BOOK

VISIT THESENSIBLEGUIDETOFOREX.COM FOR ADDITIONAL ONLINE CONTENT

Acknowledgments

Chapter 1: Three Must-Know Forex Facts

FACT 1: EVERYONE NEEDS FOREX DIVERSIFICATION EVEN IF YOU DON'T TRADE ACTIVELY

FACT 2: POTENTIAL FOR BETTER RISK-ADJUSTED RETURNS

FACT 3: YOU CAN DO THIS

Chapter 2: Forex Basics

BASICS OF CURRENCIES AND CURRENCY PAIRS

CURRENCIES TRADE IN PAIRS AND WHY THAT MATTERS

SIZE MATTERS: TYPES OF CURRENCY PAIRS

PIPS: THE UNIVERSAL CURRENCY OF CURRENCIES

LEVERAGE AND MARGIN: THEIR RELATIONSHIP AND IMPACT ON RISK

THE THREE FACETS OF RISK AND RISK CONTROL

THE CORE FOUR: THE MOST IMPORTANT SKILLS FOR SUCCESS

Chapter 3: Technical Analysis (TA) Basics

CANDLE CHART BASICS

SUPPORT AND RESISTANCE (S/R) BASICS

CANDLE CHART TIME FRAMES: LENGTH MATTERS

IDENTIFYING SUPPORT AND RESISTANCE (S/R) TO BUY LOW, SELL HIGH, OR VICE VERSA

Chapter 4: Technical Analysis

PRICE LEVELS

TRENDS AND TREND LINES

FIBONACCI RETRACEMENTS (FIBs): THESE FIBs DON'T LIE

BOLLINGER BANDS (BBs): USE AS S/R IN RANGE-BOUND MARKETS

INTRODUCTION TO JAPANESE CANDLE CHART PATTERNS

INTRODUCTION TO WESTERN CHART PATTERNS

THE MORE S/R INDICATORS, THE BETTER

Chapter 5: Trader Psychology and Risk and Money Management (RAMM)

RAMM: PRESERVING CAPITAL IS YOUR TOP PRIORITY

THE INNER GAME: TRADER PSYCHOLOGY BASICS

WHY TRADE LONGER TIME FRAMES

THE ESSENCE OF GOOD RAMM

THE THREE PILLARS OF RAMM

ACCOUNT SIZE AND AFFORDABLE LOSS PER TRADE

SETTING STOP LOSSES: BASIC TECHNIQUE AND PSYCHOLOGY

LEVERAGE AND MARGIN

POSITION SIZING

AVOID HAVING TOO MANY OPEN POSITIONS

ENTRIES NEAR STRONG SUPPORT, EXITS NEAR STRONG RESISTANCE

ENTRIES AND EXITS: SINGLE VERSUS MULTIPLE

RISK-REWARD RATIOS (RRRS)

IF YOU FAIL TO PLAN, YOU PLAN TO FAIL

WHAT CONDITIONS DO YOU NEED FOR SUCCESS?

SAFETY IN NUMBERS: BUILD A TEAM

Chapter 6: Essentials of Fundamental Analysis

USING FUNDAMENTAL ANALYSIS (FA) AND TECHNICAL ANALYSIS (TA) TOGETHER

AN OVERVIEW OF FA: MAIN FUNDAMENTAL DRIVERS OF FOREX TRENDS

MACROECONOMIC DATA AND INDICATORS

NEWS TRADING: DAY TRADING BASED ON SHORT-TERM FUNDAMENTALS

FA BASICS: EASY TO UNDERSTAND AND HARD TO APPLY

THEREFORE, GET THEE TO AN ANALYST

COMBINING FA AND TA: AN EXAMPLE

Chapter 7: Pulling It All Together with Trade Examples

IDENTIFYING AND EXECUTING LOW-RISK, HIGH POTENTIAL YIELD TRADES

TYPES OF TRADES

TRADE EXAMPLE 1: A SWING TRADE

TRADE EXAMPLE 2: A BREAKOUT TRADE

MORE KEY TRADER PSYCHOLOGY: DISTINGUISHING BETWEEN GOOD TRADES AND WINNING TRADES

Chapter 8: Technical Analysis

DOUBLE BOLLINGER BANDS (DBBS)—USE AS MOMENTUM INDICATORS

MOVING AVERAGE CROSSOVERS

OSCILLATORS

MOVING AVERAGE LAYERING INDICATES TREND STRENGTH

Chapter 9: Technical Analysis

CATCH A WAVE: TIMING OR CYCLE INDICATORS

COMBINING TECHNICAL INDICATORS: WHICH ONES AND HOW MANY?

BACK TESTING: LEARNING FROM THE PAST

INTERMARKET ANALYSIS: READING INTERMARKET CORRELATIONS AND DIVERGENCES

WHY THESE RELATIONSHIPS MATTER

CURRENCIES VERSUS COMMODITIES

THINKING LIKE A PRO, ONE STEP BEYOND TECHNICAL ANALYSIS

Chapter 10: Alternatives to Traditional Methods

AUTO-TRADING SYSTEMS: WELCOME TO THE MACHINE

CURRENCY FUNDS: FOREX ETFS, ETNS, AND MORE

MANAGED ACCOUNTS: SHOULD YOU SEEK PROFESSIONAL HELP?

Chapter 11: Newer, Smarter Methods

FOLLOW THE LEADERS: FOREX SOCIAL NETWORKS AND TRADING

GREAT TOOL, BUT REQUIRES SKILL TO USE

BINARY OPTIONS: TRADING MADE EASIER

Chapter 12: Forex for Income

RIDE LONG-TERM FOREX TRENDS FOR LOWER RISK, HIGHER INCOME

CASE STUDY: CANADA 2000–2011: APPLYING FOREX TRENDS TO EQUITIES INVESTING

THE CARRY TRADE: USING DIRECT FOREX TRADES AS AN INCOME VEHICLE

Chapter 13: Now What? Next Steps

WHERE YOU’VE BEEN

WHERE YOU’RE GOING

Appendix A: Recommended Free Online Resources

FOREX SITES

OTHER FAVORITE FINANCIAL SITES

INDIVIDUAL ANALYSTS

Appendix B: How to Calculate Pip Values and Examples

DEFINITION

CALCULATION

EXAMPLE: EURUSD

HANDY RULE OF TENS

EXAMPLE USDCAD

EXAMPLE USDJPY: RULE OF TENS DOESN'T APPLY WITH THE JPY

Appendix C: Forex Trading Time Zones, Liquidity, and Why These Matter

THREE MAJOR TRADING SESSIONS AND WHY THEY MATTER

MARKETS TEND TO FOLLOW EACH OTHER

WHAT STOPS THE FOLLOW-THROUGH?

Appendix D: More on Leverage and Margin

Appendix E: How the Mathematics of Loss Demands Keeping Losses Per Trade Low

Appendix F: Choosing a Forex Broker

SUGGESTED SEARCH TERMS TO FIND BROKER REVIEWS

Appendix G: Low Correlations to Other Markets via Social Trading Means There's Always a Bull Market Somewhere

TRADE LEADER NONCORRELATIONS TO THE MARKETS

MARKET CORRELATIONS

LOOKING AT THE TRADE LEADERS

DIVERSIFICATION OF APPROACH

About the Author

Index

More Praise for The Sensible Guide to Forex

“This is the one forex book aimed at conservative mainstream investors who might never otherwise consider forex, but should because we all need currency diversification. Even those who never plan to trade will find a wealth of information that will make them better investors. This step-by-step guide to less demanding and lower-risk ways to trade or build a currency-diversified investment portfolio offers a less intimidating path to forex profits.”

—Yohay Elam, Founder of Forex Crunch

“Cliff Wachtel's book provides pragmatic counsel and guidance. A must read for serious investors seeking to diversify beyond stocks, bonds, and gold.”

—Dave Lemont, CEO, Currensee

“A must read for any informed investor or trader that deserves to become the classic introduction to forex. This book is the ideal shortcut to simpler, safer forex trading or investing. As Cliff succinctly puts it, ‘The need for currency diversification is one of the most important lessons of the Great Financial Crisis.’ This book details—with genuine respect for his readers' money and intelligence—a range of solutions, offering something for readers of every skill level and risk tolerance. Wachtel provides full details and illustrations to show you how to actually make money, without overloading you with secondary details or information you can find elsewhere.”

—Eric Harbor, CEO, Caesartrade.com

“One of the best starting points I have read about forex. Understanding both the big picture and the essential, practical details of how to identify, plan, and execute a profitable trade is the manna of successful traders. Cliff delivers both. He explains what e. e. cummings called ‘the root of the root and the bud of the bud and the sky of the sky of a tree called life,’ but applied to the forex world. A really good tool, whether you're a newbie forex trader or a long-term traditional investor trying to build a diversified portfolio. Read it and you will get ‘forexpertise.’”

—Mauricio Carrillo, FXstreet.com U.S. Manager, @MCarrilloFX

“This book is an insightful introduction to the world of forex. Wachtel leads the novice trader on a journey of discovery from the most basic concepts in the forex market to more sophisticated trading strategies. What stands out is his honesty. Wachtel doesn't sugarcoat the FX market; instead he shares the idiosyncrasies of this market and debunks a few FX myths along the way. He also introduces some of the latest developments in the retail forex market, from social trading to binary options. Wachtel's broad knowledge of this market makes this book an interesting read for those who want a thorough insight into the world of FX.”

—Kathleen Brooks, Research Director, Forex.com

“In an ever-evolving field, it's rare to find a guidebook so helpful and timeless as Cliff Wachtel's Sensible Guide to Forex. This book gives both current traders and new traders the perspective they need to take their forex trading to the next level.”

—Tal Holtzer, CEO, DailyForex.com

“This is a fantastic, comprehensive, and up-to-date overview and practical guide to succeeding in the foreign exchange market, with an insightful, qualitative, and nonintimidating approach. Whether you are a novice considering a move into the foreign exchange market or an experienced trader looking for a deeper understanding of various concepts or some new approaches, Cliff's book does a stellar job of covering all the bases.”

—Joel Kruger, Currency Strategist, FXCM

“Cliff's book is a must-read, cogent, cohesive compendium of the realities of forex. I've been in the trading business for 35+ years and believe that success is all about intelligent risk management. The book's relentless emphasis on risk and money management is the reason that this is the first investment book I've bothered to finish in the past 20 years. For the novice, first he arms you with the relevant information to keep you from immediately losing your shirt, so that you survive the learning process with most of your cash and confidence intact. Then he takes you step-by-step through a number of paths to profitability. For the professional, he reminds us of the rules we all strive not to violate every day because we're human. He also provides the first in-depth coverage of two new and potentially very useful ways to tap forex—social trading and binary options. This book is the only source I've found for in-depth and objective coverage of either of these intriguing new ways to trade forex markets with potentially less effort and better returns.”

—David Israel, Chief Market Strategist, White Wave Trading Strategies, Ltd. www.whitewavetradingstrategies.com

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.

The Wiley Trading series features books by traders who have survived the market's ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

For a list of available titles, visit our Web site at www.WileyFinance.com.

Copyright © 2012 by Cliff Wachtel. All rights reserved.

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

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

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.

Charts, including trademark and copyright logos, Copyright © MetaQuotes Software Corp. Used by permission.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Wachtel, Cliff, 1959–
The sensible guide to Forex : safer, smarter ways to survive and prosper from the start / Cliff Wachtel.
pages cm. – (Wiley trading series)
Includes index.
ISBN 978-1-118-15807-4 (hardback); ISBN 978-1-118-26403-4 (ebk);
ISBN 978-1-118-23745-8 (ebk); ISBN 978-1-118-22605-6 (ebk)
1. Foreign exchange market. 2. Foreign exchange futures. I. Title.
HG3851.W324 2012
332.4′5–dc23
2012005565

This book is dedicated to:

The Almighty, for everything

My wife, Michelle

My parents, Dr. Arthur and Phyllis Wachtel

My children, Sarah, Binyamin, Eliana, Gavriel, and Maayan

To Rabbi Noach Weinberg, OBM

Finally, it is to you, dear readers, the sincere, serious traders or investors who seek the prudent path to currency diversification via conservative forex, either as active traders or as passive investors, that this book is ultimately dedicated.

Read This First

What You Absolutely Must Know

Read this first … or at least skim it. There are things you must know here.

First, congratulations! You've just found something few forex (foreign exchange or currency) beginners ever find—an ideal starting point.

CURRENCY RISK: EVERY INVESTOR'S DILEMMA

You can't live with them, and you can't live without them. They're often complex, exasperating, unreasonable, and irrational, and they always want more of your time and money. I am referring to trades or investments that give you currency diversification, of course. We all need it, but few succeed in currency markets. The methods commonly used are too risky, complex, and time-consuming for most people.

Unfortunately, it's very hard to find the right guidance for getting started. Virtually all of the so-called “Beginners' Guides” are either:

• too superficial to give you the practical skills needed to start making money, or
• too complex and detailed to provide clear step-by-step ways to actually start making money
• too focused on the usual methods of forex trading that are too risky, complex, and time consuming for most people to use successfully.

We've dedicated years to creating a book that avoids these pitfalls. It gives you a variety of approaches to get started via safer, simpler, more profitable ways to lower your risk and increase your returns, either as a conservative forex trader or as a more passive longer-term investor seeking exposure to assets in the best currencies.

Unlike other beginners guides, this book has the right balance of practical information and methods you use to actually make money, without burdening you with too much information or the wrong kinds of information. It provides the shortest path to actually making money as soon as your circumstances allow; or in the worst case, to avoid the mistakes and losses that drain your cash and confidence before you have had enough time to find your path to success.

Currency Risk and How to Fight It

Currency risk is today's great hidden portfolio risk. The governments behind the most widely held currencies are trying to inflate away their debts via low interest rates and “stimulus” (technically not money printing!) programs. It's unclear whether these policies serve the “greater good;” however, they are likely to devalue their currencies, and any portfolios denominated in them. So, for your own financial self-defense against that risk, you obviously need to diversify into assets exposed to sounder currencies, or those currencies themselves.But it's very tough to find solutions suitable for most traders or investors.

• For aspiring forex (foreign exchange) traders, most of the material available is about complex, demanding, time-consuming, high-leverage, high-risk methods unsuitable for the average risk-averse trader seeking steady profits rather than gambling thrills. Yet the materials aimed at beginners tend to be far too superficial to prepare anyone to actually make money. This book seeks to bridge that yawning gap with safer, smarter, and less demanding ways to trade forex, with the details and examples needed to get you ready to start trading or investing as quickly as your personal circumstances allow.
• For longer-term investors, there's plenty out there about foreign stocks or bonds, but almost all of it ignores the prospects of the currency behind these. A falling currency can turn a good investment into a bad one. This book shows you how to identify the currencies most likely to hold their value and provides ideas about how to apply that knowledge to a long-term portfolio for both income and capital appreciation.

THE SOLUTION

I'm not the only one to recognize the problem of currency risk.1 I'm just the first to offer a book with the most cost-effective solutions to the problem that will actually work for most people, not just the few who are suitable for short term high risk trading. I'm not seeking to manage your money for a high fee (typically unconnected to actual performance), nor am I trying to sell you an expensive newsletter subscription or trading system.

Here is one source to take you step-by-step straight from ignorance about forex markets to competence needed for profiting from them, either as:

• A trader: using safer, smarter techniques than those usually advocated. These will allow you to survive the learning period with your capital and confidence intact, and to become profitable sooner. Those with some background can cut straight to the parts they need.
• A longer-term passive investor: Most sensible investors practice asset and sector diversification, yet ignore this basic principle of diversification when it comes to currency exposure, and have almost all of their assets denominated in a single currency, be it the USD, EUR, GBP, JPY, and so forth.

  This failure to diversify into assets in the strongest currencies is uniquely reckless. That's because the governments behind these and other currencies are pursuing stealth inflation to cut their debt loads. They'll never admit it, but historically low interest rates combined with repeated stimulus programs betray their true intentions—they want to slash the real value of their debt load through inflation (rather than more responsible but politically harder policies like cutting spending or raising taxes), even if they gut your net worth in the process. We'll teach you how to identify the currencies with the strongest long-term trends, and the kinds of assets that will ride them, for lower risk and higher, for more reliable returns.

The need for currency diversification is one of the most important lessons of the Great Financial Crisis that began in 2007. Ignoring it involves some toxic combination of ignorance, foolishness, laziness, or recklessness.

I can help cure the ignorance, though if you're reading this book the other three probably don't apply to you.

SOME BACKGROUND

Decades ago, while settling in as a U.S.-trained accountant and new immigrant to Israel, I started teaching English to earn some extra money. Teaching anything I understood well always came easily, but I was frustrated because the available textbooks were neither especially clear nor efficient. Teaching with them just made the whole process more painful and time consuming. I kept finding so many shortcuts and better ways to organize the learning process that I soon started writing my own materials. Over the years these evolved into a full set of courseware.

With these in hand, I was able to take absolute beginners to a sixth- or seventh-grade level (per standards of the Israel Ministry of Education) in under 30 hours, instead of the hundreds of hours typically required by our local school system or private teaching companies, and had a successful and fun teaching practice.

Years later, while working with forex traders, I found the same situation but worse. There was no Education Ministry to certify the materials, no structured program of what to learn in what order. There were plenty of training materials, some quite good, but most would just waste your time and money spent acquiring, studying, and applying them without success. Even if you were lucky enough to catch some of the better materials, after countless hours, books, articles, courses, you got some useful information and trading techniques, but you still had to figure out how to integrate it all into a plan of action. You still lacked a clear step-by-step roadmap toward actually making money, or at least not losing much while you learned and practiced.

Figuring out how to get started with forex, either as a trader or as a long-term investor looking for conservative ways to profit from forex trends, can be frustrating.

Still, you've got to start somewhere. Welcome to somewhere.

WHY ANY TRADER OR INVESTOR NEEDS THIS BOOK

The following expands upon, and at times repeats, what I've said above. The repetition is intentional because it's needed to get the message through.

As governments sacrifice the value of their currencies, and your savings, to further their own policy goals, currency diversification is no longer optional for prudent investors; it's critical for your financial survival. With both the U.S. dollar and Euro suffering wild swings over recent years, this lesson is beginning to reach mainstream investors.2 You have to do something. Unfortunately, most forex materials focus on time consuming, complex, high-risk, high-leverage trading strategies. The majority of forex traders fail with this approach within a matter of months, while an elite few prosper.3

So where to turn? There are so many books, courses, blogs, and webinars, but most will waste your time and money because they're either too complex or too superficial.

Relax—you don't have to become another lamb to the slaughter.

If you're serious about succeeding in forex, you just need the right guidance toward the trading or investing style that best suits you. Welcome to that guidance.

Finally, here's a sane, conservative approach to forex for rational adults interested in gains, not gambling, either as traders or even just longer-term investors with no interest in directly trading currencies.

Unfortunately, forex's reputation has been tarnished by too many books and brokers pushing high-risk, reckless trading methods that are unsuitable for most of us. While most new traders fail within months, the elite 20 to 30 percent enjoy a lucrative, stimulating part-time or full-time career. Most of them aren't geniuses or connected insiders. You can join them, but you need the right start.

Welcome to that start. You're going to need it.

Do one or more of the following sound like you?

• I'm a short-term forex trader seeking to lower my risks and improve my profits.
• I'm an aspiring forex trader but I'm uncomfortable with the time-consuming, high-leverage, high-risk day trader methods and mentality that permeate most of the forex world. I want guidance on how to trade longer-term positions that ride the exceptionally stable longer-term trends with less risk and less need for constant monitoring.
• I'm a conservative, longer-term traditional equities or income investor with less interest in short-term trading. I'm seeking to diversify my currency exposure in order to lower my risk and boost my capital gains and income by having my growth- and income-oriented assets in the currencies most likely to appreciate over the long term.
• I'm too busy to waste weeks on books that are unclear, lack detailed explanations, or bury me in too much information to use. I just want that one book that provides:
  • What I need to get started actually making money while controlling risks.
  • Fully detailed, well-illustrated explanations.
  • Explanations of the different ways to profit in forex markets in addition to the standard methods.
  • Guidance about how to continue my education and development as a trader.
• I need a clear introduction to forex basics and the different ways to play this market, and enough analytical and risk management tools that are sufficiently explained so that I know how to combine them into simple trading systems that I can quickly start applying without too much complexity.
• I'm intimidated by forex, though I know I should tap into it somehow. I hear a lot about how most people lose money in online currency trading, and how it is riddled with brokers who just want to push you into risky, high-leverage trading before you're ready, so before you know what you're doing you've already lost everything. I'm looking for low-risk ways to break into forex, but don't know:
  • How to get started.
  • What trading styles are right for me.
  • How to locate the right online broker and sources of further training and market analysis.
• I want currency diversification before the @# %*! government destroys the purchasing power and value of my dollars/yen/euros through endless money printing and inflation, but I don't want to trade.
• I'm seeking an asset that isn't correlated to all the other markets, and where there's always a playable trend or trading range regardless of what stocks or bonds are doing.

If any of these needs are yours, then you've come to the right place.

What This Book Offers

Here's what you get.

• An intelligent introduction to forex. Instead of time-consuming, high-risk methods unsuited for most people, this book provides:
  • Focus on a variety of lower-risk, simpler, less time-consuming trading methods, styles, instruments, and time frames to suit different personalities and needs.
  • Detailed coverage of the key aspects of trader psychology, risk, and money management that are in fact the real foundation of trader success.
  • Unique, exclusive, in-depth coverage of new, alternative ways and instruments for forex traders that are less risky and demanding—social trading and binary options.
  • Ways for longer-term passive investors to identify the most stable, reliable long-term forex trends and the best assets for riding them for higher returns and lower risk via currency diversification.
• A practical introduction to forex. Going beyond simplifications and theory, it provides a practical, well-illustrated, step-by-step guide to actually identifying, planning, and executing lower-risk, higher-yield trades and investments for a variety of traders and investors.

Why Listen to You, Cliff?

The short answer is: As trader, writer, advisor, and chief analyst in one form or another for over 30 years, I've been both ringside seat spectator and combatant in the markets. You can find further details through a simple online search from various online profiles.

Rabbi Noach Weinberg once told me that a fool learns from his own mistakes, but a wise man learns from the mistakes of others.

Here's my offer to help you learn like a wise man, from my mistakes and experience. Credentials aside, let the ideas speak for themselves.

What This Book Will Not Do

• Pretend to teach you hidden secrets of trading.
• Suggest that forex trading or investing is a likely road to fast riches requiring little effort.
• Focus on the high-risk, overly complicated, or very short-term hyperactive trading styles typically advocated in so many forex books. These strategies alone virtually guarantee failure for all but the few with exceptional experience, powers of concentration, temperament, risk tolerance, and capital. The only positive thing these strategies reliably produce is high trading volume fees for the brokers. In one recent survey, most online forex brokers reported that only 20 to 25 percent of their traders were profitable.4
• Burden you with interesting but unnecessary historical background information about forex.
• Overload you with more kinds of fundamental and technical analysis tools than you can use, and leave you without guidance about which tools to start with and when to add or use others. That, in turn, risks causing traders to:
  • Abandon attempts to learn how to methodically combine different kinds of indicators into simple systems and how to test them. Instead, they attempt random combinations of analytical tools without any controlled method for evaluating which work and which don't.
  • Succumb to paralysis from analysis, unable to act under the weight of a vast flow of often conflicting information.
• Include long tracts of pages repeating information that's been said better elsewhere and is easily available. Where possible I've tried to strike a balance between comprehensiveness and brevity, referring you to quality, free, online resources when appropriate.
• Focus exclusively on leveraged spot market trading. From other forex books, you'd think there's no other way to play forex. Hardly. For both traders and longer-term investors, there are worthy alternatives to consider in the right conditions, like forex binary options for simple shorter-term trend trading, and forex exchange-traded funds (ETFs) for those seeking exposure by means of an unleveraged instrument that behaves like a stock and can be accessed via a standard equities account.

What This Book Will Do

• The short version is pretty much the opposite: It will provide an alternative introduction to forex, one aimed at the sensible, rational investor and trader, instead of the madcap gambler or get-rich-quick sucker.
• Virtually every investor needs this kind of guidance, because today, the hard fact is that everyone needs currency diversification.
• We can't afford to ignore currency markets any longer, so we need to learn sensible ways to benefit from them.

For traders or aspiring traders, that means it will:

• Teach you how to find and execute only the lowest-risk, highest potential yield trades via relatively simple tools and easily available information. In other words, you'll learn to be a successful beginner with the right tools for your level, rather than a failed imitation of an experienced, prepared professional.
• Show how to use forex to profit in bear markets more easily than with other asset classes like stocks.
• Counteract the get-rich-quick day trader mentality that pervades so many other forex books and leads most traders to failure. Instead, we'll set you up to succeed by showing you how to keep losses low relative to your gains so you make money even when most of your trades don't. We'll push you to make defensive trading your top priority.
• In place of purported secrets, give you the best of what's been said distilled from over 30 years of experience and a small library's worth of study.
• You'll get enough details and tools so that you can identify, plan, and execute relatively simple, low-risk, high-potential yield trades, while avoiding information overload. These include plenty of step-by-step examples of each step of the trading process, including the critical risk and money management so you avoid fatal damage to your capital or confidence. The idea is to give you enough information to make smart but simple trades with relatively low risk and high reward so, in the shortest time possible, you're trading and, if not making money, at least not losing much while you are learning.
• Give you more than enough of the core skills you need to get started, and then offer guidance on how to continue your education—what to cover next and where to learn it.
• Focus on trading styles, methods, and time frames that are best suited for less experienced traders, the kind that increase the odds of keeping your capital and confidence intact while you gain skills and suffer the normal setbacks.
• Provide a full toolbox of technical and analytical tools and guidance on how to combine them into a variety of simple trading systems that you can back test before risking your cash.
• Show how to combine your analytical risk and money management (RAMM) tools into a complete trading plan.
• Demonstrate how to record and organize your trading plans so you can review every trade and learn from your successes and failures.
• Offer alternative ways to benefit from forex markets beyond the usual leveraged spot market trading of most online forex brokers. Even those who ultimately don't have the inclination or time for forex trading will find there are multiple ways a more passive, long-term investor can benefit from nonleveraged forex exposure.
• In what may be the most important section of the book, present the first widely published objective look at the two newest ways to profit in forex:

For longer-term investors with little interest in trading, we show you how to use your knowledge of currency markets to:

• Enhance your capital gains and income.
• Reduce the risks from lack of currency diversification.
• Achieve all this without ever needing to directly trade currency pairs.

For both traders and investors, the book will:

• Guide you to some of the best free online sources of information on a wide range of forex topics, like trade advice, continuing trader training, broker reviews, and daily and weekly fundamental and technical analysis of specific currency pairs and overall markets.
• At the end of the book, leave you with specific ideas on what to do next to get started trading forex.

Yes, I'm offering you a lot. If you're investing your valuable time to read this, I owe you no less.

In sum, this is the forex book for:

• Profit-maximizing, risk-averse traders: Those seeking a sensible introduction to forex trading, who are more focused on steady monthly profits rather than gambling, via safer, easier, more profitable ways to trade than the short-term, high-leverage, high-risk methods most people associate with forex trading.
• Long-term investors with little or no interest in trading forex: Those seeking to lower currency risk and increase returns by diversifying into assets denominated in the currencies most likely to hold their value and appreciate over the long term.
• Anyone seeking an asset class that works in any market condition: Unlike stocks or bonds, the very nature of forex markets means there's always a bull market in some currency pair.

Whether you're a trader or a traditional, conservative, long-term investor seeking capital gains or steady income, this is the one forex book written specifically for you, not the wild-eyed action junkie day trader so beloved (and quickly fleeced) by many in the forex industry.

VISIT THESENSIBLEGUIDETOFOREX.COM FOR ADDITIONAL ONLINE CONTENT

Additional related content resides on the book's companion website at www.thesensibleguidetoforex.com. This website provides:

• Updates and additional content.
• Much clearer versions of the charts, in color and with much better resolution.
• Trade simulation exercises to practice what you've learned with the option for interactive feedback.
• More in-depth information on a variety of topics found in the book.
• A continual stream of articles on ideas for trades or investments for currency diversified income.

Go to www.thesensibleguidetoforex.com. The breadth and depth of the site's content will expand over time. We hope the site becomes a must-read for those seeking currency diversification, either as traders or investors seeking capital gains and/or income denominated in a variety of currencies.

Notes

1. Peter Schiff, “Currency Is the Hidden Porfolio Risk,” Business Insider (October 2011), www.businessinsider.com/currency-the-hidden-portfolio-risk-2011-10.

2. Andrew J. Johnson, “Small Businesses Try Hand at Forex,” Wall Street Journal (August 2011), http://online.wsj.com/article/SB10001424053111903639404576514560310571904.html.

3. Joshua M. Brown, “Inside the Currency Boiler Rooms” (August 2011), www.thereformedbroker.com/2011/04/09/inside-the-currency-boiler-rooms/; also, Michael Greenberg, “U.S. Forex Brokers Account Profitability Comparison” (October 2010), http://forexmagnates.com/us-forex-brokers-account-profitability-comparison/.

Acknowledgments

Zack Miller, Managing Director of Lighthouse Capital Ltd, publisher of NewRulesofInvesting.com, and author of the seminal work on social networks and social trading, TradeStream Your Way to Profits. In addition to repeated and invaluable mentoring when I needed him most, he provided the first contact with…

SeekingAlpha.com CEO David Jackson and his editorial team. Together they've provided me and so many with the chance to prove ourselves with nothing more than our writing as a credential. That led to connecting with…

John Nyaradi, publisher of WallStreetSectorSelector.com and author of Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, who in turn who introduced me to…

Senior Editor Laura Walsh of John Wiley & Sons, who paired me up with Senior Development Editor Judy Howarth, both of whom merit special thanks for their expert guidance, insight, and enormous patience in shepherding the manuscript into its finished form.

Anna Olswanger, my agent, guide, and interpreter throughout the journey through the world of publishing.

Longtime friend and wise counsel Shelly Freedman, Esq., for support, advice, and a special assist on the title.

Those whom I've met only through their writings:

In no particular order, Kathy Lien and Boris Schlossberg (Bkassetmanagement.com), John Kicklighter and Joel Kruger (d=DailyFX.com), Brian Dolan (Forex.com), Kathleen Brooks (Forex.com), John Mauldin (www.johnmauldin.com), Marc Chandler (Brown Brothers Harriman, marctomarket.com), James Chen (FXDD.com), Dr. Alexander Elder (Elder.com), Ed Ponsi, and the others referred to as resources for further information in Appendix A.

Samantha McGarry (Inkhouse Media and Marketing), and Alon Levitan (eToro), for their help on the forex social networks and trading chapter.

Shay Ben Asulin, CEO of Anyoption.com, for his cooperation in freeing up the time needed for this project.

It's easier to stand tall on the shoulders of giants.

Finally, my deepest thanks in advance to you, dear reader, for spreading the message contained herein. It's through you that we'll strike a blow against governments that want to steal our money through inflation, and brokers who seek a quick buck at our expense.