The Art of Currency Trading

Now you can master the art of foreign exchange trading

While most currency trading and foreign exchange books focus on international finance theory or simplistic chart-based strategies, The Art of Currency Trading is a comprehensive guide that will teach you how to profitably trade currencies in the real world. Author Brent Donnelly has been a successful interbank FX trader for more than 20 years and in this book, he shares the specific strategies and tactics he has used to profit in the forex marketplace.

The book helps investors understand and master foreign exchange trading in order to achieve sustainable long-term financial success. The book builds in intensity and depth one topic at a time, starting with the basics and moving on to intermediate then advanced setups and strategies. Whether you are new to currency trading or have years of experience, The Art of Currency Trading provides the information you need to learn to trade like an expert. This much-needed guide provides:

• an insider’s view of what drives currency price movements;
• a clear explanation of how to combine macro fundamentals, technical analysis, behavioral finance and diligent risk management to trade successfully;
• specific techniques and setups you can use to make money trading foreign exchange; and
• steps you can take to better understand yourself and improve your trading psychology and discipline.

Written for currency traders of all skill levels, international stock and bond investors, corporate treasurers, commodity traders, and asset managers, The Art of Currency Trading offers a comprehensive guide to foreign exchange trading written by a noted expert in the field.

Foreword ix

Acknowledgments xiii

Chapter 1 Introduction 1

Part I Understand the Foreign Exchange Market (FX 101) 7

Chapter 2 A Very Brief History of FX 9

Chapter 3 Currency Trading Basics 17

Chapter 4 Understand Market Structure 37

Part II Trade the Foreign Exchange Market 71

Chapter 5 Understand Fundamental Analysis 73

Chapter 6 Understand Technical Analysis I 107

Chapter 7 Understand Technical Analysis II (The Seven Deadly Setups) 155

Chapter 8 Understand Correlation and Intermarket Relationships 179

Chapter 9 Understand Behavioral Finance 221

Chapter 10 Trading the News 255

Part III Understand Risk Management 293

Chapter 11 Understand Free Capital 295

Chapter 12 Understand Position Sizing 321

Part IV Understand Yourself 351

Chapter 13 Characteristics of a Successful Trader 353

Chapter 14 Common Weaknesses in Trading 361

Chapter 15 The Voice of Experience 369

Chapter 16 Conclusion 379

Brent Donnelly’s 25 Rules of FX Trading 381

About the Author 383

Index 385

BRENT DONNELLY has been trading currencies since 1995 and is currently a senior FX trader at HSBC New York. A respected macroeconomic and currency analyst, Brent writes AM/FX, the widely-read macro and FX daily. His work has been quoted by The Economist, The Wall Street Journal, Financial Times, Bloomberg, and other influential media outlets. Over the course of his career he has been a market maker, trader, and senior manager at industry-leading foreign exchange banks such as Citi and Nomura and at a major hedge fund in Connecticut.

If you trade currency markets, this is the one book you need to own

Foreign Exchange is by far the largest financial market in the world. Forex dwarfs all other markets by a considerable margin—trillions of dollars of currencies change hands every day. Currency trading gives you the chance to make (or lose) huge sums of money very quickly.

There are plenty of books promising to help readers navigate this volatile and liquid market. Most foreign exchange guides, however, are either theoretical textbooks on international finance, or books written by non-professionals explaining basic and unprofitable short-term technical patterns. These books often ignore such vital inputs as macro fundamentals, sentiment, cross-market action and prudent risk management.

The Art of Currency Trading lets you learn from Brent Donnelly, a well-known expert interbank trader with 20+ years of currency trading experience. This book will teach you specific skills, and help you develop your own style so you can improve your trade selection, risk management and decision-making process and achieve better outcomes.

If you are early in your FX trading career, you will find all the building blocks for success right here. If you are an experienced FX trader, you will find this book full of new ideas, tactics and strategies that will help you take your game to the next level.

The book will teach you how to use macro fundamental and technical analysis, market psychology, positioning, sentiment, and cross-market correlation to come up with smart, independent trade ideas. It will also teach you the importance of a rigorous and systematic risk management framework. Finally, this book will help you understand yourself better and reach optimal trading performance. The Art of Currency Trading is a comprehensive, one-stop guide for anyone who seeks to master currency markets and achieve sustained trading success.

"A must-read for anyone who wants to truly understand global macro trading and currency markets." —John Mauldin, New York Times bestselling author and chairman of Mauldin Economics

PRAISE FOR THE ART OF CURRENCY TRADING

"Brent is a very experienced, smart and thoughtful currency trader. I have enjoyed exchanging views with him for the last ten years and I highly recommend his new book, which has a wealth of great information and many nuggets of unique wisdom. Markets eventually teach everybody to be humble. Brent knows that very well, and it comes across in this very educational, balanced and innovative book." —Jens Nordvig, Founder and CEO, Exante Advisors and Exante Data, Institutional Investor top- ranked currency strategist (2011-2015)

"For years, professional investors have profited from Brent Donnelly's daily insights on currency markets. Brent is my go-to source for color on the FX world, and his lessons have become an integral part of my investment process. This book will make those lessons part of yours, too." —Ben Hunt, Chief Investment Strategist, Salient Partners and author of Epsilon Theory

"The Art of Currency Trading is a handbook for novices and experts alike, starting with the basics and moving on to things like cross-asset correlations. Everyone will learn something from this book—especially that trading is hard and takes a lifetime of learning and discipline." —Jared Dillian, Editor and Publisher, The Daily Dirtnap and author of Street Freak and All the Evil of this World

"Brent Donnelly writes about his experience in trading foreign exchange (FX). He cites 'knowledge, skill, experience, and psychology' as critical elements. His book provides all four to the reader. Well done!" —David R Kotok, Chairman and Chief Investment Officer, Cumberland Advisors