How to Make a Living Trading Foreign Exchange

Solid Forex strategies for capturing profits in today's volatile markets

How to Make a Living Trading Foreign Exchange puts the world of Forex at your fingertips. Author Courtney Smith begins with an introduction to the Forex market-what it is and how it works. He then delves into six moneymaking techniques for trading Forex, including his unique Rejection Rule that doubles the profit of basic channel breakout systems. In addition to two specific methods for exiting positions at critical levels, Smith also discusses powerful risk management techniques and successful trading psychology strategies that will keep you one step ahead of the game.

• Reveals the secrets of the Forex market and how to create a lifetime of income trading it
• Offers advice on maximizing profits during the volatile swings that have increasingly become the norm
• Other titles by Smith: Option Strategies, Third Edition, Seasonal Charts For Futures Traders, Commodity Spreads, and Profits Through Seasonal Trading

Make more from today's Forex market with How to Make a Living Trading Foreign Exchange.

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

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. Foreign exchange is the most traded instrument in the world. It's not hard to understand why. Nobody needs to buy stocks, but because of today's extensive global trade we must all deal directly or indirectly with the forex world. Yet, while trading foreign exchange is one of the most exciting and potentially lucrative activities in the world, about 90 percent of traders lose money. In How to Make a Living Trading Foreign Exchange, Courtney D. Smith provides a concrete and comprehensive approach to becoming a profitable forex trader.

Smith first explains all the basic information you need to know to get started in trading forex. He then introduces the tested, profitable techniques that will help you make money in the forex market, offering a variety of different methods to use over different time horizons—from those that look at the market from the perspective of days and weeks to those that hold positions for less than one day. Smith describes, for instance, a system that monitors the market from three different time perspectives and doesn't enter the market until all three are calling for an entry into the market.

He also details a new way to filter trades that eliminates about half of all losing transactions. And he tells how to sidestep the usual traps that drain money from your account using his method to identify short-term turning points and, more important, to identify major turning points. Smith concludes by showing you how all the techniques in the book fit together into a coordinated program for creating profits.

Throughout the book, the author stresses the two most important aspects of trading: risk management and trader psychology. How to Make a Living Trading Foreign Exchange shows how to take risk management one step beyond and use it as an offensive weapon for enhancing profits. And perhaps, most important, it tells how to overcome the biggest block against making money in the markets: your own psychology. Whether you're a novice or a pro, says Smith, following the techniques in this book will turn forex trading into your ticket to financial freedom.

Foreign exchange is the most traded instrument in the world. It's not hard to understand why. Nobody needs to buy stocks, but because of today's extensive global trade we must all deal directly or indirectly with the forex world. Yet, while trading foreign exchange is one of the most exciting and potentially lucrative activities in the world, about 90 percent of traders lose money. In How to Make a Living Trading Foreign Exchange, Courtney D. Smith provides a concrete and comprehensive approach to becoming a profitable forex trader.

Smith first explains all the basic information you need to know to get started in trading forex. He then introduces the tested, profitable techniques that will help you make money in the forex market, offering a variety of different methods to use over different time horizons—from those that look at the market from the perspective of days and weeks to those that hold positions for less than one day. Smith describes, for instance, a system that monitors the market from three different time perspectives and doesn't enter the market until all three are calling for an entry into the market.

He also details a new way to filter trades that eliminates about half of all losing transactions. And he tells how to sidestep the usual traps that drain money from your account using his method to identify short-term turning points and, more important, to identify major turning points. Smith concludes by showing you how all the techniques in the book fit together into a coordinated program for creating profits.

Throughout the book, the author stresses the two most important aspects of trading: risk management and trader psychology. How to Make a Living Trading Foreign Exchange shows how to take risk management one step beyond and use it as an offensive weapon for enhancing profits. And perhaps, most important, it tells how to overcome the biggest block against making money in the markets: your own psychology. Whether you're a novice or a pro, says Smith, following the techniques in this book will turn forex trading into your ticket to financial freedom.