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FIGURE 18.2 Performance Analytics.
IN CONCLUSIONSuccessful Forex trading is not an end; it is an evolving process. It is not easy, but it isachievable.This book is designed to point the way. Learning to trade forex is very much aself-paced process. There are few shortcuts, but the goal of this book has been to provide guideposts though the fundamental, technical, and psychological pathways that alltraders must experience. It is my hope that you have gained an understanding and appreciation of the world of forex and can now use that knowledge to pursue one of the mostchallenging endeavors available to any individual—forex trading.
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C H A P T E R 19
Test Your Forex IQ
he following questions test the knowledge you’ve acquired by reading this book.You are able to take this quiz, place your responses, and find the answers,as well as new questions, at www.learn4x.com/forex IQ. E-mail Abe Cofnas atlearn4x@earthlink.net with any questions you may have. Good luck!
T
1. What is the index that tracks U.S. dollar as an instrument for trading?2. Which currency pairs are closely related to movements in gold, and which com-
modities are closely related to movements in the U.S. dollar?3. Can you name the heads of the world’s key central banks?4. Which time interval is the best for entering a trade?5. What is the technical basis for locating a stop loss?6. What are the four strategies for trading a sideways pattern?7. What information does a candlestick pattern provide that is not in a bar chart?8. How do you measure sentiment in forex?9. What is the best time of the day to trade?10. When is countertrend trading less risky?11. Which Fibonacci level is the most important?12. What is the most important report that affects trading the yen, and when does it
come out?13. When the Federal Reserve Open Market Committee meets, what does it decide?14. What is the name of the Chinese currency?
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15. What is the gross national product of the United States versus Europe versus Japan?16. What is the current interest rate difference between the 10-year U.S. Treasury note
and the 3-month Treasury note?17. Which currency pair allows you to trade the British pound against the euro?18. When trading forex, what is the cost of the trade when there is no commission?19. What are the two basic trading strategies for buying or selling that apply to any time
frame?20. If forex prices surge or plunge in response to news, how long should you wait to
enter a trade?21. What’s the major problem with using moving averages?22. What is the average duration of a profitable trade generating 20 pips?23. When you see a parabolic pattern, what does it predict about the imminent move-
ment of the market?24. What is the most important fundamental piece of information to track before you
decide to trade a currency pair?25. How do you obtain free and professional advice?26. How is a cross-pair different than the majors?27. What pattern always precedes a break of support or resistance?28. What is the definition of a “false” breakout?29. What is the best way to spot a trend reversal?30. If oil prices surge, which currency pair is the most affected?31. If the Chinese economy slows down or enters a “hard landing,” which currency pair
is the most affected?32. Which indicator compares the performance of two different trading systems?33. Which indicator effectively confirms a reversal?34. What pattern indicates volatility exhaustion?35. Which economic calendar release is the most important?36. How do G7 and G20 meetings affect your forex trading?37. If gold goes into a downtrend, how do you use gold patterns to determine which
currency pair to buy?38. Which key moving average period should be watched to indicate a trend reversal?39. When are technical indicators totally useless in determining your next trade?40. If you are looking at three different time frames, which ones should they be?41. Which pattern is almost always a reliable predictor of the next move in a currency?
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42. Which indicator is the most leading regarding price direction?43. Which six currencies comprise the U.S. Dollar Index?44. The index that shows a currency’s strength in terms of the country’s trading rela-
tionship is called −−−−−−−−−−−.45. What is the formula for pivot points?46. Which chart type leaves out time and volume?47. Which pattern is usually a prelude to a breakout?48. Name an indicator that shows volatility besides Bollinger bands.49. The Chinese currency is called the renminbi yuan. What is its value against the U.S.
dollar?50. A trader is losing 70 percent of his trades but claims he is as good as a trader
having a win-loss ratio of 60 percent winners. What are their comparable win-lossratios?51. If an economic data release is coming out on the British economy and a trader
wants to trade it both ways, he will buy the GBPUSD and what other pair?52. What economic data release report is the most important one issued by the Bank of
Japan?53. What report provides data on foreign owners of U.S. Treasury securities?54. Who is Japan’s biggest trading partner?55. What is the next number of the following Fibonacci sequence: 0, 1, 2, 3, 5, 8, 13, 21,
34, 55, 89, 144, 233, −−−−−−−−−−−.56. What is the ratio between any two Fibonacci numbers?57. In a recent equity market sell-off, the Dow Jones Index went down, the dollar
against the yen fell sharply, and gold fell also. Why?58. Regarding currencies, what futures industry report provides a clue to where the
smart money is?59. If you wanted to have a 99 percent confidence that the price is between two
Bollinger bands, how many standard deviations would it be set at?60. If the USDX broke support and the trade-weighted USDX did not, which would you
use to put on your next trade?61. What is the difference between a slow stochastic and a fast stochastic?62. Which is a more aggressive trade: (a) selling before support, anticipating a move
down; or (b) selling on the break of support?63. Which developed country (not third world) has the highest interest rates in the
world?
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64. If the EURUSD is priced at 1.3150 and a European goes to Disney world in Orlando,
how many dollars will he be able to get (assuming no exchange costs)?65. What does repatriation refer to within the context of the Japanese yen?66. What technical indicators are leading?67. If housing starts in the United States showed a surprise increase, what would you
expect the EURUSD to do in reaction to this release?68. If China unexpectedly increased interest rates, which direction would you expect
the USDJPY to go?69. If a trader is using two moving averages, the Simple MA 21 and the simple MA 8,
and the SMA 8 rises above the SMA21, is this a signal to go long?70. If a currency pair closes above the 38.2 percent day fib line, is it more likely to reach
the next fib line at 50 percent?71. If a currency pair reaches the 20-period moving average in the middle of a Bollinger
band, and crosses it, is this a signal to sell?72. If a trader missed a news release and saw the price surge, how many minutes should
he wait to enter a trade?73. If the amount of foreign owners of U.S. Treasury securities significantly declined,
what would likely happen to U.S. interest rates?74. What happens to the value of the average true range when one moves from a 5-
minute chart to a 30-minute chart?75. If the United States increases the rate of exports, what happens to the trade deficit?76. If a triangle formation forms and it is equilateral, in which direction is the price
most likely to break out?77. If a price is probing a four-hour resistance, does this represent stronger resistance
than a price probing a five-minute resistance?78. If a doji pattern appears at the top of a Bollinger band, is it indicating a reversal?79. Which has a greater interest rate differential the USCHF pair or the EURCHF pair?80. If a trader was able to save one pip per trade on the spread and traded five times
a day for 100 days, what would the value of the saving be if he were trading theAUDUSD only?81. Which equity market opens up first, the Tokyo or London?82. When it is 8:30 A.M. Eastern Standard Time and the nonfarm payroll report is re-
leased, what time is it Greenwich Mean Time?83. Joe put on a sell limit order for the GBPUSD at 1.9205 and he saw on his chart that
the price hit limit. He didn’t get it, though. Did the forex firm make a mistake?
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84. What is slippage?85. When three or more multiple moving averages compress in a pancake pattern, what
does this signify?86. The default setting on MACD is 12, 26, 9. What do these numbers represent?87. John came up with his own moving average crossover of 95 and five simple moving
averages. He decided to back test it over three years and the result came out quitepositive. What is wrong with his approach?88. Bob signed up to get a news trading report that provides a few seconds’ more re-
lease of the embargoed economic data on a news release. Will this make a difference in the trading results?89. Why is holding a position over a weekend very risky?90. If the yen suddenly sells off and gets weaker, what is gold likely to do and why?91. A change in the demand for copper affects which currency the most?92. The ZEW sentiment indicator represents what kind of sentiment?93. If the Indian rupee starts floating, what is the major risk to their currency reserves?94. If China increases its value of the renminbi, what would the impact be on Wal-Mart
shares?95. If the EURJPY reaches historical highs, who would be more pleased, European car
manufacturers or Japanese car manufacturers?96. New Zealand has had the second highest interest rates in the world, at 7.25 percent.
If they lowered the rate, what would happen to the yen?97. Jim is trading at an account that is offering 200-to-1 leverage. He has $1000 in his
account. How much can he trade with this 1000 without getting a margin call?98. If crude oil prices collapsed, which country would benefit the most?99. Tom went long the EURUSD at 1.305 and the price moved to 1.3015. Where would
the break even point be if Tom wanted to put a stop there?100. If the setting for a renko chart was moved from one pips to two pips, and the action
was very choppy, what would be the result on the chart?
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APPENDIX
Selected FuturesColumns
THE $ KNOWS BEST94
NYBOT U.S. INDEX, 1 YEAR DAILY
92
DX Price
90
50-Day MA
8886848280Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan FebSource: ino.com
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
201
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SELECTED FUTURES COLUMNS
PROFITING BRICK BY BRICK115.2
varxxxx
Retracement Points
USD/JPY
115.1115.0114.9
Trader looks for Renko Brickreversals to enter a retracementtrade after Misslile Firings for14-20 pip opportunitiesN. Korea Missle Firing
114.8114.7114.6
Renko Bricks=3PIPS114.51 Min Chart
Source:
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
END OF A HIGH?22250
GBP/JPYweekly parabolicpath broken
REACHING HIGHER
22000
19000
21750
EUR/CHFat key 32.8% resistance 18000
2150017000
2125021000
16000
2075015000
20500202501990Nov Dec Jan Feb Mar Apr May Jun Jul Aug2006
Jan 2, 2001
Source: CQG
Source: CGQ
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
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Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
YEN IN GOOD POSITIONThere are many opportunities available in the USD/JPY in 2007.120118
There is room for significantyen strength
116114112110108106104102
2004
Apr
Jul
Oct
2005
Apr
Jul
Oct
2006
Apr
Jul
Oct
Source:
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
LOOKING FOR A BREAKThree-line break charts show only consecutive closes of highs or lows.1.98
GBP USD3-line break chart4-hour interval
1.971.961.951.941.93
Pricereversestrend
1.921.911.901.89
13
14
16
22
23
24
28
30
Dec
3
Source: IIT-Finance
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
203
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SELECTED FUTURES COLUMNS
DIVIDING THE DOLLARCURRENCY
USDX TRADE WEIGHT
EURYENPOUNDCADSWEDISH KRONASWISS FRANC
IBOXXFX TRADE WEIGHT
57.60%13.60%11.90%9.10%4.20%3.60%
35.70%19.82%9.52%32.17%0%2.79%
Source:
DIFFERENT MEASURES80.079.078.077.076.075.074.073.072.071.070.0
1/3
3/21
6/8
8/24
9/11
200691
1/42007
NYBOT U.S. INDEX
90
DX Price
8988878685848382
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Source: INO.com
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
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Selected Futures Columns
WHAT A MOVE!Cross pairs such as the EUR/CAD may provide potential forposition trades in the coming months.EUR/CAD1.70001.65001.60001.55001.50001.45001.40001.3500
2000 pip Range!Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct2004200520062007Source: www.aspenres.com
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
MARKET DROPSThe drop in the USD/JPY seemed to precede thatof the Dow.
USD/JPY 118601185011840118301182011810
Dow Jones Index
11800117901178011770
Forex ImpactsEquities on Feb 27
1176011750
02:00
04:00
28-07:00
Source: CQG
Reprinted with permission of Futures magazine. All rights reserved. 111 W. Jackson Blvd., Suite2210, Chicago, IL 60604.
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Index
A
B
ABC Consumer Comfort Index, 42Account sizes strategies and challenges:for $ 5000 first-100-trade, 177–178for $10,000 first-50 trade, 178–186for $ 25,000 first-50-trade, 186for $50,000-75 trade, 186for $100,000 trade, 187Action plan, fundamental Forex, 77Adaptive moving average, 111Africa, Chinese influence on, 31Aggressive strategy, tactics for, 156Asia, China trade with, 27Association of Southeast Nations(ASEAN), as trade partner of China,29ATR. See Average true range (ATR)AUDJPY, 48AUDUSD, 45, 47–48Aussie. See Australian Dollar(Aussie)Australia, 29, 44Australian Dollar (Aussie), 45,47–50Australian dollar-Japan yen (AUDJPY).See AUDJPYAustralian dollar-U.S. dollar (AUDUSD).See AUDUSDAuto sector, 19Average true range (ATR), 156,163–164
Back-testing:with excel, 127–128for risk management, 128–129turning idea into real trades, 126Balour, Ashkan, 149Bank of England (BOE), 13, 64–65Bank of International Settlement, 22Bank of New York, 29Behavioral finance, 132Bernanke, Bernard, 4, 29BOE. See Bank of England (BOE)Bollinger bands, 121–123, 133, 145Bounce trader, 145British Pound, 62–66British pound-Japanese yen (GBPJPY).See GBPJPYBritish pound-U.S. dollar (GBPUSD).See GBPUSDThe “bubble,” 55–56Bull ride, 156Business confidence, Market and, 41–42CCanada, as trade partner of China, 29Canadian Dollar (Loonie), 22, 50–52Carry trade, 58–59Carry trader, 152–154Cellular automaton behavior, 132Central Bank of Canada, 50–51207
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Central Bank of New Zealand, 190Central banks, role regarding gold, 33–34CFTC. See Commodity Futures TradingCommission (CFTC)Challenges, for different account sizes,177–187Channel patterns, 138–140Charting services, 123–124, 161Charts, frustration in, 136–137Checklist, fundamental Forex, 77Chicago PMI ISM Nonmanufacturing, 42Chile, as producer of copper, 35China:Australian Dollar and, 48background information about, 27–28importance of Chinese dollar reserves,29–31revaluation of Yuan, 28–29China: The Balance Sheet: What theWorld Needs to Know Now about theEmerging Superpower (Bergsten,Gill, Lardy, Mitchell), 27Chinese State Administration of ForeignExchange (SAFE), 29Choyleva, Diana, 13Citigroup, 71Citigroup Flow-Weighted Index, 71Commitment of Traders (CoT) Report,108Commodities, 33–38Commodity Futures Trading Commission(CFTC), 108–109Competence, 80Confidence indicator, 167Consumer Confidence, market and, 41–42Conway, Edmund, 13Copper, 35, 45CoT Report. See Commitment of Traders(CoT) ReportCrude oil:Canada currency and price of, 51Mexico as exporter of, 54role in economic growth, 21–22
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“Cubical parabolic hyperbola,” 134Currency(ies). See also Currency pairAustralian, 45, 47–50British Pound, 62–66Canadian, 50–52China’s policy of, 31copper and, 35equities and, 37EURO, 60–62gold and, 34Mexican peso, 53–55prices of, 21Swiss Franc, 66–68tracking strength of, 43–45Currency pair:new trades and, 157relative strength indicator and, 116–117volatility of, 105–107Current Issues in Economics andFinance, 23Curve fitting, 128–129DDarlin, Damon, 7Dealing desk structure, 189–190Deficit, in United States, 72DJEC5. See Dow Jones Euro Currency 5Index (DJEC5)Doji pattern, 133Dow Jones Euro Currency 5 Index(DJEC5), 61Dow Jones Industrial index, 5, 38EECB. See European Central Bank (ECB)Economic growth. See also Economyabout, 19–20in Canada, 51–52crude oil and petrodollars role in, 21–22of Eurozone, 62gross domestic product and, 19
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Index
importance of job data in, 20–21in Mexico, 53–55yield curve and, 22–24Economy. See also Economic growthof Britain, 62, 64of China, 29–31Eurozone, 60–61of Japan, 55–57of New Zealand, 52–53recession and, 23of United States, 69–71Web site for tracking Canada’seconomy, 52Emotional contagion, for Forex trading,132–134Emotional intelligence, measuring,191–192Envelopes, statistical, 121–126Equities and Forex, 37–38eSignal, 161Estrella, Arturo, 22ETFs. See Exchange-traded funds (ETFs)EURGBP, 62EURJPY, 59, 151EURO, 60–62EURO Great Britain Pound (EURGBP).See EURGBPEuropean Central Bank (ECB), 5, 60–62European Union, 27, 28Eurozone economy, 60–61EURUSDATR of, 163, 164channel pattern, 139 , 140day chart of, 93–94parabolic move up on, 149, 150parabolic showing sell off in, 134, 135price move on, 91–92support and resistance and, 82trading through spot market, 108Exchange-traded funds (ETFs), 33, 109Exhaustion, 134–136Exponential moving average, 109“Export Accessibility in Switzerland,” 67
Exports, 29, 31, 52Extreme Bollinger band, 121–124FFed Beige Book, 42Federal Reserve Bank of Cleveland, 21Federal reserve Bank of New York, 23Federal Reserve Bank of St. LouisReview, 21Fib lines, 92–96Fibonacci (Fib) graphic tool, 92Fibonacci levels of support andresistance, 91–95Fibonacci tones, 99–100$50,000 -trade challenge, 186Financial aspect, in trading, 166Financial Times, 22, 27, 175Financial Times and London StockExchange (FTSE), 62Firms. See Forex firmsFisher, Richard, 4Fitness function, 127$5000 first-100-trade challenge, 177–178Forex. See also Forex firms; Forex prices;Forex volatilityequities and, 37–38housing data and Great Britain, 13housing data as leading indicator, 9housing equity sector stocks, 12–13housing sentiment indicators, 9–12importance of, 3–5interest rates and interest ratedifferentials, 5music of, 96–99testing your IQ about, 195–199Forex firms, factors in choosing, 189–190Forex prices:business and consumer confidenceand, 41–42channel pattern, 138–140Fibonacci tones and, 99–100frustration in the charts, 136–137
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Forex prices (continued)interest rate and inflation and, 19multiple time frames and, 138, 140parabolic paths of, 134–136relationship between fundamentalsand, 76–77role of housing in movement of, 7–9time and, 102–104Forex trader. See also Forex tradingaccessing information and data viaInternet, 75–76of currency, 4developing fundamental outlook, 76–77Fibonacci ratios and, 99–100strategies of, 143, 144surprise, greed, and exhaustion of, 134,136technical analysis and, 98time interval and, 98timing trading with technical analysis,79–80Forex trading. See also Forex pricesabout, 143alternative setups and strategies in,161–169commodities and, 35–38different account sizes strateg