Book Review: The Little Book of Currency Trading

Knowledge of how currency market works and some degree of trading is a must for nearly everybody, as everybody is exposed to the currency risk to some degree, no matter you are a foreign products consumer, overseas traveller, or a investor. Based my personal practice of global tactical asset allocation portfolio management, and a forex trading overlay, I think monitoring the currency market is even more important than the stock market, as currency market is a crucial input to the stock market, and currency return played an important role in international investment.

The Little Book of Currency Trading is a book I’d like to recommend. It is very easy to read, has some very practical advice and tips. Here are things I’ve learned from this little book.

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1, Four ingredients consist of the formular of successful currency trading: knowledge of the currency market, trading strategy, risk management, and a bit of luck. With these you can go a long way.

2, Different pairs has different volatilities, or we can say each pair has its average daily trading range. Konwing this is important to set profit target and stop loss.

3, Time zone matters. Three trading zones, Tokyo, London, and New York. For North America traders, the worst time is the beginning of asian trading time, ie. 8pm est; the best trading time is 7-12 in the North America morning. Trends showed up in the beginning of the asian trading time may not last to the europe and americal trading time.

4, Combining long term trading and short term trading. Long term trading uses double bollinger bands; short term trading is mainly around news.

5, ADX above 25 as trend confirmation.

6, T1-T2 or half-half exit strategy.

7, Double Bollinger bands strategy, this is the most valuable part of the book.

8, For short term news trading, always wait 5 minutes after the news, to see the price is above or below SMA50.

9, High probabiliy trade has all factors line up, including fundamentals, technicals, and market sentiment. It’s very necessary to make a checklist for each trade entry: (1)chart review from left to right, determine the trend; (2)chart review bottom up, check horizontal support and resistance; (3)check fundamental, especially the central bank policy; (4)check economic date or news schedual in the coming 24 hours; (5)check market sentiment.

10, Diversify trades. Avoid correlated currencies, such as AUD and NZD.

11, Avoid unnecessary risk, such as hold a position over weekend.

12, Make a trading diary, deeply review each trade, learn something from each loss trade!

13, Treat trading as a business, not a hobby. Good business needs well prepared plan! And good execution!




TMX Options Education Day Event

Today I attended the TMX options education day event at downtown Toronto. The event is quite enlightening and really worths the whole day time I invested.

options education day

Option is a thing I want to learn and practice for years. In November 2015, I passed DFOL (Derivatives, Futures and Options Licensing Course) and got a high mark of 94. I also learned some basic option theories when I was preparing CFA all three level exams. But I didn’t have much hands-on experience. Only in 2016, I traded options a few times, and I remember one time I sold a put of MET and got excercised. As in recent 2 years my main focuses was ETF, forex and technical analysis, option learning was not a priority on my learning list. Now I plan to pick it up gradually, allocate maybe 30 minutes per day to increase my option trading knowledge.

Patrick Ceresna did most of the presentation today. Besides his expertise of options, he is an outstanding speaker. The first time I was aware of him was from the podcast “Macro Voices”, when he mentioned he is at Toronto. The second time was from last month’s CSTA Oakville Chapter event, which I attended via webcast, his presentation was impressive.

What I’ve learned from today’s event:

1, The top-down holistic view of investing:

  • Three aspects: (1)Market conditions; (2)Technicals; (3)Corporate fundamentals;
  • Five factors driven the stock prices: (1)currencies/foreign exchange rates; (2)commodity prices; (3)central banks’ policies; (4) bond markets; (5) real eastate markets.

2, In the field of investing, there is no short cuts, no substitute for experience;

3, Option is a good tool to manage risks. Risk management is still a weakness of my investing process. I should learn how to incorporate options into it.

4, There are many option strategies. But complex strategies don’t mean they are more effective or more profitable. Remember: keep things simple, be very good at a few strategies are the best choices.

5, Option can be used among all asset classes, such as stocks (including etfs), bonds, commodities (gold, oil, etc.), currencies. When one asset class’ option opportunity is muted, try other asset classes.

6, Use currency options to hedge currency risk of portfolios. USX is listed at Montreal exchange. Learn how to use it.