Trading in the Global Currency Markets brings the universe of foreign exchange within the reach of every trader.
Including complete coverage of the euro and the latest historical and economic changes in the market, this essential resource gives traders an indispensable overview of the market's workings and new technologies, then links this information to developments and case studies drawn from the real world, illustrating them with plenty of graphics, charts, and visuals. Traders will find:
- Analysis of the mechanics of the market, the major players and markets, corporate trading, methods of trading execution, and pertinent risks
- A thorough overview of foreign exchange instruments and major option strategies, with clear explanations of why currencies are traded and how to forecast currency behavior
- An in-depth look at the two types of analysis-fundamental and technical
- Forex scenarios from the multiple perspectives of trader, broker, and corporate trader
- Vital information about the new generation of extremely aggressive "hedge funds"
- A survey of technical analysis, including an in-depth comparison of the major chart types, chart formations, and oscillators
Trading in the Global Currency Markets also provides valuable historical context, explaining the basis of foreign exchange and the factors that contributed to growth of the industry. It asks the basic questions, and then provides comprehensive answers that will benefit both beginning traders and seasoned market experts.
About the Author
Cornelius Luca is a foreign currency market expert with more than twenty years of experience in international finance. He is the author of Technical Analysis Applications in the Global Currency Markets (Prentice Hall Press, NYIF), and teaches classes and seminars at the New York Institute of Finance and New York University.
Table of Contents
Part I
Chapter 1 Fundamental Principles of Technical Analysis 3
Technical Analysis on Balance 4
Pros 4
And Cons 5
Is the Past a Guide to the Future? 10
Dow Theory 11
The Importance of Cycles 12
Types of Charts: A Comparison 14
Line Chart 18
Bar Chart 21
Candlestick Chart 22
Point and Figure Chart 23
Arithmetic and Logarithmic Scale 25
Volume and Open Interest 27
Trend 30
Trend Lines 32
Trading Signals for Trend Lines 35
The Channel Line 42
Trading Signals for Channel Lines 43
Support and Resistance Levels 45
Speedlines 45
Andrews' Pitchfork 49
The Importance of the Long-Term Charts 50
Percentage Retracements 51
Chapter 2 Trend Reversal Patterns 57
Price Structure 57
Head and Shoulders and Inverted Head and Shoulders 58
Head and Shoulders 58
The Inverted Head and Shoulders 62
Double Top and Double Bottom 63
Double Tops 63
Double Bottom 68
Triple Top and Bottom 69
Triple Top 69
Triple Bottom 69
V -Formation (Spike) 73
Rounded Top and Bottom 74
Diamond Formation 77
Rectangle Reversal 77
Chapter 3 Continuation Patterns 82
Price Structure 82
Flag Formation 82
Bullish Flag 83
Bearish Flag 84
Pennant Formation 85
Bullish Pennant 85
Bearish Pennant 87
Triangle Formation 90
Symmetrical Triangle 90
Ascending Triangle 92
Descending Triangle 95
Expanding, or Broadening, Triangle 98
Wedge Formation 100
The Continuation Rectangle Formation 102
PART II TYPES OF CHARTS 107
Chapter 4 Formations Unique to Bar Charts for Futures 109
Gaps 110
Common Gaps 111
Breakaway Gap 114
Runaway or Measurement Gap 116
Exhaustion Gap 117
Island Reversal 119
Key Reversal Day 120
The Four-Week Rule 121
Upthrust and Spring 122
Chapter 5 Point and Figure Charting 123
Price Structure 123
Point and Figure Charting Formations 127
Simple Formations 127
Breakout of a Triple Top 128
Breakout of a Triple Bottom 129
Breakout of a Spread Triple Top 130
Breakout of a Spread Triple Bottom 132
Ascending Triple Tops 134
Descending Triple Bottoms 135
Upward Breakout of a Bullish Resistance Line 137
Downward Breakout of a Bearish Support Line 137
Downward Breakout of a Bullish Support Line 138
Upward Breakout of a Bearish Resistance Line 140
Failures in Point and Figure Charting 142
Common Formations in Point and Figure Charting 144
Trend Reversal Formations 144
Trend Continuation Formations 153
Chapter 6 Candlestick Charting 162
Bullish Signals 164
Daily White Candlesticks 164
Two-Day Bullish Signals 164
Bearish Signals 172
Daily Black Candlesticks 172
Two-Day Bearish Signals 175
Dark Cloud Cover (Kabuse Candlestick) 175
Atekubi (Ate) Candlestick 176
Irikubi Candlestick 178
Sashikomi Candlestick 178
Bearish Engulfing Pattern (Bearish Tsutsumi) 181
Bearish Tasuki Candlestick 181
Downside Gap Tasuki Candlestick 184
Reversal Signals 185
Daily Reversal Pattern 185
Complex Trading Signals 188
Sanzan (Three Mountains) 190
Sanpo (Three Methods) 198
Sanku (Three Gaps) 200
"Wait and See" Signals 201
Harami Candlestick 202
Hoshi (Star) Candlestick 204
Kenuki (Tweezers) Candlesticks 204
PART III
QUANTITATIVE METHODS OF ANALYSIS 209
Chapter 7 Moving Averages 211
Price Structure 211
Simple Moving Average 212
Linearly Weighted Moving Average 213
Exponentially Smoothed Moving Average 214
How Many Moving Averages to Use and for What Periods 216
Two Moving Average Combination or Double Crossover Method 216
Japanese Crosses 217
Three Moving Average Combination or Triple Crossover Method 221
Donchian's 5- and 20-Day Moving Averages Method 221
Basic Rule A 225
Basic Rule B 225 Basic Rule C 225
Basic Rule D 225
Price and Time Filters 226
Envelope Model 226
High-Low Band 228
Bollinger Bands 228
Keltner Channels 231
Chapter 8 Oscillators 233
General Rules 233
Momentum 237
Rate of Change (ROC) 240
Commodity Channel Index (CCI) 242
Specific Trading Signals for the CCI 242
Stochastics 243
Specific Trading Signals for Stochastics 244
Extreme values 244
The Intersection of the ?/D and %K Lines 245
The Hinge 246
Slow Stochastics 246
Williams %R 247
The Relative Strength Index (RSI) 248
Moving Averages Oscillators 251
Trading Signals for Moving Averages Oscillators 252
Moving Average Convergence/Divergence (MACD) 252
Trading Signals for the MACD 253
Oscillator Combinations 254
Chapter 9 Other Indicators 257
Parabolic System, or SAR 257
Directional Movement Index (DMI) 259
Market Profile? 264
On Balance Volume (OBV) 268
Volume Accumulation Oscillator (VAO) 270
Sequential Analysis 271
Setup 271
Intersection 272
Countdown 272
Range Expansion Index (REI)TM 273
TD ArcsTM 275
Triple Exponential Smoothing Oscillator (TRIX) 277
Swing Index 278
Accumulation Swing Index (ASI) 280
Chapter 10 W D. Gann Analysis 282
Percentage Retracements 282
Geometric Angles 283
The Cardinal Square 287
Geometric Forms 287
The Squaring of Price and Time 291
Chapter 11 The Elliott Wave 292
Basics of Wave Analysis 293
Characteristics of the Waves 296
Impulse Waves-Variations 298
Extensions 298
Diagonal Triangles 299
Failures or Truncated Fifths 300
Corrective Waves 301
Zigzags 302
Flats 303
Triangles 305
Combined Structures 307
Fibonacci Analysis 308
Chapter 12 Now What? 311
Technical Tools for Each Time Frame 313
Long-Term Analysis 313
Medium-Term Analysis 315
Short-Term Analysis 316
Intraday Analysis 316
Technical Tools for Each Type of Market 317
Trading Market 317
Dynamic Market 319
Typical Problems in Technical Analysis 320
Lack of Confirmation 320
Anemic Breakouts of the Currency Through Trend and Channel Lines 321
Anemic Breakouts of the Currency Through Support and Resistance Lines 322
Ambiguous Patterns 322
Unreasonable Price Objectives 323
Wrong Identification of a Pattern 323
Anemic Breakout of Oscillators Through the Zero Line 323
Anemic Crossovers between Moving Averages or Oscillators 324
Chart Combinations 325
Where to Go from Here 327
Bibliography 331
Glossary 333
Index 353
Including complete coverage of the euro and the latest historical and economic changes in the market, this essential resource gives traders an indispensable overview of the market's workings and new technologies, then links this information to developments and case studies drawn from the real world, illustrating them with plenty of graphics, charts, and visuals. Traders will find:
- Analysis of the mechanics of the market, the major players and markets, corporate trading, methods of trading execution, and pertinent risks
- A thorough overview of foreign exchange instruments and major option strategies, with clear explanations of why currencies are traded and how to forecast currency behavior
- An in-depth look at the two types of analysis-fundamental and technical
- Forex scenarios from the multiple perspectives of trader, broker, and corporate trader
- Vital information about the new generation of extremely aggressive "hedge funds"
- A survey of technical analysis, including an in-depth comparison of the major chart types, chart formations, and oscillators
Trading in the Global Currency Markets also provides valuable historical context, explaining the basis of foreign exchange and the factors that contributed to growth of the industry. It asks the basic questions, and then provides comprehensive answers that will benefit both beginning traders and seasoned market experts.
About the Author
Cornelius Luca is a foreign currency market expert with more than twenty years of experience in international finance. He is the author of Technical Analysis Applications in the Global Currency Markets (Prentice Hall Press, NYIF), and teaches classes and seminars at the New York Institute of Finance and New York University.
Table of Contents
Part I
Chapter 1 Fundamental Principles of Technical Analysis 3
Technical Analysis on Balance 4
Pros 4
And Cons 5
Is the Past a Guide to the Future? 10
Dow Theory 11
The Importance of Cycles 12
Types of Charts: A Comparison 14
Line Chart 18
Bar Chart 21
Candlestick Chart 22
Point and Figure Chart 23
Arithmetic and Logarithmic Scale 25
Volume and Open Interest 27
Trend 30
Trend Lines 32
Trading Signals for Trend Lines 35
The Channel Line 42
Trading Signals for Channel Lines 43
Support and Resistance Levels 45
Speedlines 45
Andrews' Pitchfork 49
The Importance of the Long-Term Charts 50
Percentage Retracements 51
Chapter 2 Trend Reversal Patterns 57
Price Structure 57
Head and Shoulders and Inverted Head and Shoulders 58
Head and Shoulders 58
The Inverted Head and Shoulders 62
Double Top and Double Bottom 63
Double Tops 63
Double Bottom 68
Triple Top and Bottom 69
Triple Top 69
Triple Bottom 69
V -Formation (Spike) 73
Rounded Top and Bottom 74
Diamond Formation 77
Rectangle Reversal 77
Chapter 3 Continuation Patterns 82
Price Structure 82
Flag Formation 82
Bullish Flag 83
Bearish Flag 84
Pennant Formation 85
Bullish Pennant 85
Bearish Pennant 87
Triangle Formation 90
Symmetrical Triangle 90
Ascending Triangle 92
Descending Triangle 95
Expanding, or Broadening, Triangle 98
Wedge Formation 100
The Continuation Rectangle Formation 102
PART II TYPES OF CHARTS 107
Chapter 4 Formations Unique to Bar Charts for Futures 109
Gaps 110
Common Gaps 111
Breakaway Gap 114
Runaway or Measurement Gap 116
Exhaustion Gap 117
Island Reversal 119
Key Reversal Day 120
The Four-Week Rule 121
Upthrust and Spring 122
Chapter 5 Point and Figure Charting 123
Price Structure 123
Point and Figure Charting Formations 127
Simple Formations 127
Breakout of a Triple Top 128
Breakout of a Triple Bottom 129
Breakout of a Spread Triple Top 130
Breakout of a Spread Triple Bottom 132
Ascending Triple Tops 134
Descending Triple Bottoms 135
Upward Breakout of a Bullish Resistance Line 137
Downward Breakout of a Bearish Support Line 137
Downward Breakout of a Bullish Support Line 138
Upward Breakout of a Bearish Resistance Line 140
Failures in Point and Figure Charting 142
Common Formations in Point and Figure Charting 144
Trend Reversal Formations 144
Trend Continuation Formations 153
Chapter 6 Candlestick Charting 162
Bullish Signals 164
Daily White Candlesticks 164
Two-Day Bullish Signals 164
Bearish Signals 172
Daily Black Candlesticks 172
Two-Day Bearish Signals 175
Dark Cloud Cover (Kabuse Candlestick) 175
Atekubi (Ate) Candlestick 176
Irikubi Candlestick 178
Sashikomi Candlestick 178
Bearish Engulfing Pattern (Bearish Tsutsumi) 181
Bearish Tasuki Candlestick 181
Downside Gap Tasuki Candlestick 184
Reversal Signals 185
Daily Reversal Pattern 185
Complex Trading Signals 188
Sanzan (Three Mountains) 190
Sanpo (Three Methods) 198
Sanku (Three Gaps) 200
"Wait and See" Signals 201
Harami Candlestick 202
Hoshi (Star) Candlestick 204
Kenuki (Tweezers) Candlesticks 204
PART III
QUANTITATIVE METHODS OF ANALYSIS 209
Chapter 7 Moving Averages 211
Price Structure 211
Simple Moving Average 212
Linearly Weighted Moving Average 213
Exponentially Smoothed Moving Average 214
How Many Moving Averages to Use and for What Periods 216
Two Moving Average Combination or Double Crossover Method 216
Japanese Crosses 217
Three Moving Average Combination or Triple Crossover Method 221
Donchian's 5- and 20-Day Moving Averages Method 221
Basic Rule A 225
Basic Rule B 225 Basic Rule C 225
Basic Rule D 225
Price and Time Filters 226
Envelope Model 226
High-Low Band 228
Bollinger Bands 228
Keltner Channels 231
Chapter 8 Oscillators 233
General Rules 233
Momentum 237
Rate of Change (ROC) 240
Commodity Channel Index (CCI) 242
Specific Trading Signals for the CCI 242
Stochastics 243
Specific Trading Signals for Stochastics 244
Extreme values 244
The Intersection of the ?/D and %K Lines 245
The Hinge 246
Slow Stochastics 246
Williams %R 247
The Relative Strength Index (RSI) 248
Moving Averages Oscillators 251
Trading Signals for Moving Averages Oscillators 252
Moving Average Convergence/Divergence (MACD) 252
Trading Signals for the MACD 253
Oscillator Combinations 254
Chapter 9 Other Indicators 257
Parabolic System, or SAR 257
Directional Movement Index (DMI) 259
Market Profile? 264
On Balance Volume (OBV) 268
Volume Accumulation Oscillator (VAO) 270
Sequential Analysis 271
Setup 271
Intersection 272
Countdown 272
Range Expansion Index (REI)TM 273
TD ArcsTM 275
Triple Exponential Smoothing Oscillator (TRIX) 277
Swing Index 278
Accumulation Swing Index (ASI) 280
Chapter 10 W D. Gann Analysis 282
Percentage Retracements 282
Geometric Angles 283
The Cardinal Square 287
Geometric Forms 287
The Squaring of Price and Time 291
Chapter 11 The Elliott Wave 292
Basics of Wave Analysis 293
Characteristics of the Waves 296
Impulse Waves-Variations 298
Extensions 298
Diagonal Triangles 299
Failures or Truncated Fifths 300
Corrective Waves 301
Zigzags 302
Flats 303
Triangles 305
Combined Structures 307
Fibonacci Analysis 308
Chapter 12 Now What? 311
Technical Tools for Each Time Frame 313
Long-Term Analysis 313
Medium-Term Analysis 315
Short-Term Analysis 316
Intraday Analysis 316
Technical Tools for Each Type of Market 317
Trading Market 317
Dynamic Market 319
Typical Problems in Technical Analysis 320
Lack of Confirmation 320
Anemic Breakouts of the Currency Through Trend and Channel Lines 321
Anemic Breakouts of the Currency Through Support and Resistance Lines 322
Ambiguous Patterns 322
Unreasonable Price Objectives 323
Wrong Identification of a Pattern 323
Anemic Breakout of Oscillators Through the Zero Line 323
Anemic Crossovers between Moving Averages or Oscillators 324
Chart Combinations 325
Where to Go from Here 327
Bibliography 331
Glossary 333
Index 353