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!

 

 

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Book Review: The Art of Execution

The Art of Execution, this is the book I like for two reasons. The first reason is, it is written in a simple and clear way. This is the style I like the most. The second and the most important, it changed some preconceived convictions in my mind. I’ll explain what I’ve learned and what’s my action plan.

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1, What I’ve learned

a, 80/20 rule holds in portfolio profits, which means 80% profits come from 20% investment ideas/stocks/trades. You need at least 1 or 2 big winners to succeed.

b, Portfolio should be relatively concentrated rather than over diversified. If you didn’t do any research, then choose the diversified way. If you’ve done in-depth research, then focus on your top ideas. Be prepared to invest big.

c, Some investor has 60% bets wrong but still make money. Because the losses are small while the wins are big.

d, Have the patience to let the big winners unfold in months and years. Avoid to take the profit too quickly.

e, When there is a losing trade, either stop the loss or invest more. The worst action is to do nothing but wait. Definitely you need to take action.

g, Size of positions matters. If you do long, lower price always matches with higer position. For example, if you do long, when price go up, you buy less; when price go down, you buy more. If you do short, when price go up, you sell more; when price go down, you sell less.

2, My action plan

e, Review the summary above to see if I will stick to those findings. Human being’s perceptions change from to time. So it is meaningful to review previous convictions periodically.

f, Adjust my trading postioning habit. For example, if I allocate 300k capital for a long trade, my first order will be 50k. If it is filled and the price go down, I will place the scecond order with 100k. If it is also filled, I will place the third order with 150k. The price gaps between two adjacent orders should be meanningflly large enough, cannot be too narrow.

P.S.: This is the first book I read on electronic devices. I purchased a Kindle Oasis and installed Kindle apps on my iMac and iPhone. It is very convient for me to use all the fragemented time to read.