Forex Patterns and Probabilities

ED PONSI is the President of FXEducator.com and is the former chief trading instructor for Forex Capital Markets. He is an experienced professional trader and money manager who has advised hedge funds, institutional traders, and individuals of all levels of skill and experience. Ponsi is featured on the FXEducator.com DVD series, Forex Trading with Ed Ponsi. He is a dynamic public speaker who has appeared on numerous television and radio programs, and is a frequent guest lecturer at trading conventions and seminars around the world. For more information, please visit www.edponsi.com and www.fxeducator.com.

• Preface xvAcknowledgments xviiAbout the Author xixPart I The World’s Most Dynamic Trading Market 1Chapter 1 Getting Started in Forex 3From Stocks to Forex 4Getting to Wall Street 4Welcome to the Jungle 5Football and Forex 5Stock Market Headaches 6Welcome to Forex 9A New Beginning 10Chapter 2 All About Forex 11The Canadian Dollar and the U.S. Dollar 11The Euro and the U.S. Dollar 12Trading Terminology 13An Easy Way to Understand the Exchange Rate 23Chapter 3 Questions and Answers 25Why Does the Big Money Trade Forex? 25Why Is Forex Suddenly So Popular? 26How Do Traders Make Money in the Forex Market? 26Why Do Currencies Trade in Pairs? 27How Can I Trade Two Currencies at One Time? 28How Is 24-Hour-per-Day Trading Possible? 28How Is the Trading Day Structured? 29Greenwich Mean Time 30Chapter 4 Technical Analysis and the Forex Market 33The Theory behind Technical Analysis 33Statistical Survey 34Fear of the Unknown 34Trading Patterns and Technical Indicators 35The Psychology behind the Market 36Moving Beyond Technical Analysis 38Trends 39Proper Order 39Fibonacci Techniques 41Chapter 5 Things You Need to Know Before Trading Forex 43The “Triple Threat” Trader 43Gaining Experience 44Which Pair to Trade? 45Commodity Currencies 46Don’t Limit Yourself 47Trading and Karma 49Schadenfreude 50Part II Trading Strategies for Trending Markets 51Chapter 6 Understanding Trends and Tendencies 53Trading Conditions 53The Importance of Maintaining Objectivity 55Begin with a Tendency 57Putting the Trend to Work 59Self-Fulfilling Prophecy 59Take Me to the River 60How to Determine If the Market is Trending 61Chapter 7 The Anatomy of a Trend 63Why Trends Form 63Don’t Fight the Trend 66Chapter 8 Forex Multiple Time Frame Strategy 69Why Does It Work? 70Combining Fibonacci and Trend 71Overbought Does Not Equal “Sell” 73Picking Tops and Bottoms 75The Entry Signal 76Placing the Stop 76Getting Out 77Welcome to the Real World 79Tweaking the Exits 79Executing the Plan 81Second-Guessing 82Bringing It Home 83The Devil’s Advocate 83When to Stay Out 84Reloading the Trade 85Fantasy versus Reality 87Phantom Signal 89Temporary Success and Failure 89The Stop Run 91Chapter 9 The FX-Ed Trend Technique 99Trends Are Self-Sustaining 99Difference of Opinion 100Big Money at Work 100The Common Denominator 100Long or Short 101Identifying the Trend 103Filtering the Trend 104The Catalyst 107Placing the Stop 107Volatility Stop 108Comparing Apples to Apples 109ATR Calculation 110The Entry 110The Stop 112The Trade 112Don’t Fish for Minnows 117Back to the Trade 118Denouement 120The News versus the Trend 120Appearances Can Be Deceiving 121More Than One Chance 124Partial Exit Exercise 125Discretionary and Strategic Exits 126Faulty Wiring 126Partial Exit Technique 127Reloading 128Important Points to Consider 129Final Thoughts 130Part III Nontrending Trading Techniques 131Chapter 10 The Ultimate Indicator 133The Price Is the Key 133Why Support Becomes Resistance 137The Pleasure Principle and Trading 137Price Action 139Don’t Stand in Front of a Freight Train 140Chapter 11 Keys to Intraday Breakouts 145Ascending and Descending Triangles 145Trend Filter 147Time-of-Day Filter 148Summary 152Chapter 12 Flags and Pennants 153Pennants 154Flags 162Filtering Entries 164Summary 168Chapter 13 The Squeeze Play 169The Cycle of Volatility 169Perception Moves the Market 170Volatility Breakout Strategy 176Chapter 14 The Round Trip 181Why Round Numbers Capture Our Attention 181Why Round Numbers Are Effective 182Round Numbers and Forex 182The First Bounce Is the Best Bounce 183Using the Moving Average 184The Strategy in Action 186Chapter 15 The Interest Rate Edge 193Think Like the Big Boys 193Interest Rate Differentials 194Here’s How It Works 194Changing Differentials 195What’s the Big Deal? 196Collecting Interest 196U.S. Dollar/Japanese Yen 197Long-Term Play 198Looking Ahead 199Chapter 16 The Boomerang 201Fading False Breakouts 201The Strategy 202Setting the Parameters 202Entering the Trade 203Simple but Effective 205Part IV Take Control of Your Trading Destiny 207Chapter 17 How to Achieve Spectacular Gains 209Keep Your Eyes on the Road 210Proper Goal Setting 210Breaking Down Your Goals 212Consistency Is the Key 213What Happens When I Reach My Goal? 214Chapter 18 The Forex Playing Field 215Evening the Odds 215The House Has the Edge 216Make the Playing Field Bigger 216But the Other Trading Instructor Said 217Let’s Do the Math 217Changing the Equation 218Why Doesn’t Everyone Do It? 219Huge Gains with Minimal Effort! 220What We Can Learn from the “Smart Money” 221Now Get Out There and Win 221Chapter 19 Trading Lessons from Life 223Panic at the Beach 223The Endless Tournament 224Summary 225Chapter 20 What You Don’t Know Can Hurt You 227Sarcasm Alert! 228Know When to Retreat 228The “95 Percent Winners Strategy” 229Beware the Back Tester 230Hypothetically Speaking 230Chapter 21 A Tale of Two Traders 233Individuals versus Institutions 233The Difference Between Amateurs and Professionals 234Chapter 22 Some Final Thoughts 237A Good Trade Is Not the Same Thing as a Winning Trade 237Proper Execution Is Critical 238Take Responsibility for Your Actions 238Keep It Simple 239Physical versus Mental 239In Closing 240Glossary 241Index 247