FOREX Study Book for Successful Foreign Exchange Dealing.pdf

ROYALFOREX

FOREX

STUDY BOOK FOR SUCCESSFUL FOREIGN EXCHANGE

DEALING

Los Angeles, California

2001

Contents

1.Common knowledge about the trading on Forex

1.1. Forex as a aart af the global financial market

Brief data about the Forex rise and development.

The factors caused Foreign Exchange Volume Growth on Forex (Exchange Rate Volatility,

Business Internationalization, Increasing of Traders’ Sophistication, Developments in

Telecommunications, Computer And Programming Development).

The role of the U.S. Federal Reserve System and central banks of other G-7 countries on

Forex.

1.2. Risks by the trading on Forex

1.3. Forex sectors

Spot Market

Forward Market

Futures Market

Currency Options

2. Major currencies and trade systems

2.1. Major currencies

The U.S. Dollar

The Euro

The Japanese Yen

The British Pound

The Swiss Franc

2.2. Trade systems on Forex

Trading with brokers

Direct dealing

3. Fundamental analysis by trading on Forex

3.1 Theories of exchange rate determination

Theory of Elasticities

Modern monetary theories on exchange rate volatility

3.2. Indicators for the fundamental analysis

Economic indicators

The Gross National Product

The Gross Domestic Product

Consumption Spending

Investment Spending

Government Spending

Net Trading

Industrial sector indicators

Purchasing Power Parity

Industrial Production

Capacity Utilization

Factory Orders

Durable Goods Orders

Business Inventories

Construction Data

Inflation Indicators

Producer Price Index

Consumer Price Index

Gross National Product Implicit Deflator

Gross Domestic Product Implicit Deflator

Commodity Research Bureau’s Futures Index

The Journal of Commerce Industrial Price

Balance of Payments

Merchandise Trade Balance

The U.S. – Japan Merchandise Trade Balance

Employment Indicators

Employment Cost Index

Consumer Spending Indicators

Retail Sales

Consumer Sentiment

Auto Sales

Leading Indicators

Personal Income

3.3. Forex dependence on financial and sociopolitical factors

The Role of Financial Factors

Political Crises Influence

4. Technical analysis

4.1. The destination and fundamentals of technical analysis

Theory of Dow

Percent measures of prices reverse

4.2. Charts for the technical analysis

Kinds of prices and time units

Kinds of charts

Line Chart

Bar Chart

Candlestick Chart

4.3. Trends, Support and Resistance lines

4.4. Trend Reversal patterns

Trend Line and Trade Channel

Lines of Support and Resistance

Head-and-Shoulders

Inverted Head-and-Shoulders

Double Top

Double Bottom

Triple Top

Triple Bottom

Round Top, Round Bottom, Saucer, Inverted Saucer

4.5. Trend Continuation patterns

Flags

Pennants

Triangles

Wedges

Rectangles

4.6. Gaps

Common Gaps

Breakaway Gaps

Runaway Gaps

Exhaustion Gaps

4.7. Mathematical trading methods ( Technical indicators)

Moving Averages

Envelops

Ballinger Bands

Average True Range

Median Price

Oscillators

Commodity Channel Index

Directional Movement Index

Stochastics

Moving Average Convergence-Divergence (MACD)

Momentum

The Relative Strength Index (RSI)

Rate of Change (ROC)

Larry Williams’s %R

Indicators combination

Ichimoku Indicator

5. Fibonacci constants and Elliott waves theory

5.1. Fibonacci constants

5.2. Elliott wave theory

References

1. Common knowledge about the trading on Forex

1.1. Foreign exchange as a part of the world financial market

Forex – What is it? The international currency market Forex is a special kind of the world financial

market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The

exchange rates of all currencies being in the market turnover are permanently changing under the action of the

demand and supply alteration. The latter is a strong subject to the influence of any important for the human

society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies

evaluated for instance in the US dollars fluctuate towards its higher and lower meanings. Using these

fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is

different in compare to all other sectors of the world financial system thanks to his heightened sensibility to

a large and continuously changing number of factors, accessibility to all individual and corporative traders,

exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the

clock business hours which enable traders to deal after normal hours or during national holidays in

their country finding markets abroad open.

Just as on any other market the trading on Forex, along with an exclusively high potential profitability,

is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a

familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors

affecting prices alterations and trading risks levels, sources of the information necessary to account all those

factors, techniques of the analysis and prediction of the market movements as well as with the trading tools

and rules. An important role in the process of the preparation for the trading on Forex belongs to the demo-

trading (that is to trade using a demo-account with some virtual money), which allows to testify all the

theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a

material damage.

Short data about the origin and development of the currency exchange market. Currency trading

has a long history and can be traced back to the ancient Middle East and Middle Ages when foreign

exchange started to take shape after the international merchant bankers devised bills of exchange, which

were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings.

The modern foreign exchange market characterized by periods of high volatility (that is a frequency

and an amplitude of a price alteration) and relative stability formed itself in the twentieth century. By the

mid-1930s the British capital London became to be the leading center for foreign exchange and the British

pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign

exchange was traded on the telex machines, or cable, the pound has generally the nickname “cable”. After the

World War II, where the British economy was destroyed and the United States was the only country unscarred by

war, U.S. dollar, in accordance with the Breton Woods Accord between the USA, Great Britain and France

(1944) became the reserve currency for all the capitalist countries and all currencies were pegged to the

American dollar (through the constitution of currencies ranges maintained by central banks of relevant

countries by means of the interventions or currency purchases). In turn, the U.S. dollar was pegged to gold

at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency. In accordance with the same

agreement was organized the International Monetary Fund (IMF) rendering now a significant financial

support to the developing and former socialist countries effecting economical transformation. To execute

these goals the IMF uses such instruments as Reserve trenches, which allows a member to draw on its own

reserve asset quota at the time of payment, Credit trenches drawings and stand-by arrangements. The

letters are the standard form of IMF loans unlike of those as the compensatory financing facility extends

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