Brent_Donnelly_The_Art_of_Currency

INDEX

Abe, Shinzo, 82 movement, 337 385
Active currency pairs, 22 perspective, 66
Addiction, impact, 362 AUDJPY hedge, 186
Adjusted free capital, 321 AUDNZD
Advance Monthly Retail Trade and daily AUDNZD, 259f
NZD trading, 80
Food Services Survey RBNZ, impact, 81f
(MARTS), 101–102 AUDUSD
Airport (roadside) currency 5-minute AUDUSD, 188f
exchange, 23 10-minute AUDUSD, Australian
Algorithms
outperformance, 268–270 employment report (impact),
strategies, 15 271f
usage, 14–16 10-minute AUDUSD, RBA
American Petroleum Institute meeting (impact), 284f
(API) data, 59–60 AUDCAD, contrast, 69f
AM/FX bearishness, 240
newsletter, 318 China sale, 89
survey, 230 daily AUDUSD
Anchoring bias, 228, 236–237 Australia/US 10-year interest
Anecdotal evidence, 243–247 rate differential, contrast,
Arbitrage, 15 189f
Ariely, Dan, 221 triangle breakout, 170f
Asset classes, correlation, 179, 186 triangle reversal, failure,
Asymmetric loss aversion, 228, 171f
234–235 daily NASDAQ, contrast, 193,
Asymmetries, identification, 269 194f, 195f
Asymmetry, perception, 239 hourly AUDUSD, chart, 129,
At best orders, 29 131f
AUDCAD jobs number, impact, 65f
AUDUSD/USDCAD, long position, 302
contrast, 69f trading, 213

Australia Bond positions, investor

commodity exports, 41f liquidation, 85

CPI, update, 282 Bretton Woods system, 10

economic releases, 104 Broken triangles, 156, 166–169,

employment report, impact, 271f 177

Australia/US 10-year interest rate Bucks, 24

differential, daily AUDUSD Buffett, Warren, 73, 236

(contrast), 189f Building Permits, 100

Average gain/loss, 302 Bull flag breakout, 147f

Average Hourly Earnings, Bull hammer reversal, 130f

release, 93 Bundesbank, monetary policy, 79

Average, improvement, 354 Bureau de change booth, 23

Burj Dubai (skyscraper example),

Backtesting, usage, 118, 182 247

Balance sheet size, 78 Burns, Arthur, 10

Bank for International Settlements Business confidence, stability, 281

(BIS) Buy/sell decisions, 256–258

FX market turnover data, 17

Markets Committee report, 312 CADMXN

Bank of Canada perspective, 66

currency weakness, 169 USDMXN/USDCAD,

hourly USDCAD, interest rate contrast, 68f

cut (impact), 258f Call option, usages, 322–323

interest rate hike, 271 Canada
386 meeting, 201, 285
commodity exports, 41f

INDEX noon rate, 58 dollar, crude oil, correlation,

overnight lending rate cut, 285 190–191

rates, cut, 257 economic releases, 104

Bank of Japan growth, 84

deflationary spiral, 85 Canadian BAs, USDCAD

interest rate cut, 277 (contrast), 207f

QE programs, usage, 224 Candle chart. See USDJPY

Banks Candlestick charts, 128–129

market player, 37 construction, 125

price competition, 24 dojis, 126f

Bearish momentum signals, 123 Candlesticks

Bear market risk, 27 charting, 111

Behavioral finance, 221, 252 up and down candlesticks, 126f

Bernstein, Jake, 223 Capital flows, 78, 89

Bezos, Jeff, 243 Capital percentage

Bias (identification), trading position size, 321–326

journal (usage), 317 risk, 326–328

Bid Carry (rollover), 34–35, 42–43, 46

hitting, 26 trades, 43

leaving, 27 Catalyst, impact, 325

usage, 138, 140 Central banks, 276

Bitcoin, currency consideration, 22 actions, scheduling (absence),

Bloomberg, reaction, 269 289

announcement, jump risk Commitment of Traders (COT) 387
example, 65 CME report, 225
positioning, 226 INDEX
bias, understanding, 80
comments, 256 Commodity
currency preference, 85 currencies, 41
market player, 39–40 prices, 75, 77
meetings, 256, 277–285
Commodity Trading Advisors
outcome, trading, 285–288 (CTAs), market player,
positioning, 277–285 38–39
monetary policy, foreign
Conference Board, Consumer
exchange rate driver, 39 Confidence Index (CCI), 96
moves, fading (avoidance), 285
pegs/bands/caps/floors, 314 Confirmation bias, 228, 229–230
policy/strategy/thinking, Consumer Confidence Index

knowledge, 47 (CCI), 96
preference, 78 S&P 500 Index, contrast, 97f
speeches, 256, 288–289 Consumer Confidence, S&P 500
Change, fundamentals (contrast),
(overlay), 96
78–79 Consumer Price Index (CPI), 98
Chaos theory, 184
Charting. See Candlesticks numbers, release (impact),
274f, 275f
software, 197
Chart patterns, study, 107 Continuation patterns, 146–148
Cheer Hedge, 250 Continuing Claims, release, 95
Chicago Mercantile Exchange Convergence, 121

(CME) technical convergence, 317
close, 58 Copper, trading, 213
COT report, 225 Core personal consumption
Chicago PMI, release, 102
China expenditures (PCE) price
currency reserve index, 95–96
Corporate bonds, correlation, 186
accumulation, 88 Corporations, market player,
fix, 58 37–38
inflation, 282 Correlation, 15, 180–187, 211
Christchurch earthquake, impact, coefficients, 191
econometric/logical sense, 180
290 relationships, 179
Chunking, 296 result, 202
Citi economic surprises, wholesale setup, 202, 205
trade, 202, 205
rabbit meat prices (contrast), trading, 197–205, 212–215
182f COT non-commercial net EUR
Clinton, Hillary (presidential position, daily EURUSD
election), 4–5 (contrast), 226f
Closing prices, usage, 120 Cross-asset analysis, 180
CNBC, reaction, 269 Crosses (pairs), 21
Cognitive bias, 222, 228–242 Cross-market analysis, 180
list, 228 trading possibilities, 215
Coincident indicator, 100 Cross-market correlation, trading
Combo setups, 176–177 process, 184–187

Cross-market signals, 324 Currency markets

Crossover barriers, 4

MA crossover, 125 history, 9–11

usage, 118, 120 Currency pairs, 20

Crude oil active currency pairs, 22

crude oil (inverted), hourly correlation, 187–190

USDCAD (contrast), 200f, commodities, contrast,

206f, 210f 190–191

forecast changes, 232f single name equities/ETFs,

magazine cover, 245f contrast, 197

USDCAD, divergence, 211–212 crosses, 21

Currencies equity index, contrast, 191–193

account balance, 90 illiquid pairs, 21–22

analysis, 238 liquid pairs, 20

bullish/bearish perspective, 83 mean reversion, 163

central bank portfolio, 88 purchase/sale difference, 23–24

commodity currencies, 41 ranking, 22f

drivers, 198f representation, 18–19

European currencies, 41 standard quoting convention,

expertise, 290–291 18f

fair value, hedge fund analysis, triangulation, 21

180 Currency trading

futures contracts, IMM trading, algorithms, usage, 14–16

12–13 basics, 17, 35
388 G10 currencies, 40f direct dealing, 13

INDEX investor attraction, 85 electronic era, 14

liquidity, 50f history, 12

long/short positions, 20 market, decentralized structure,

management, 47 26f

markets, domestic/global factors, mechanics, simplicity, 2

76f microcosm, 6

money, loss, 318 telexes, usage, 12–13

movement, 213 Currency volatility, 51f

ownership, 34 equity volatility, contrast, 52f

personalities, differences, 40–48 ranking, 50f

rally, reason, 269–270 Currenex, 25

ranking, 63f Cycle analysis, 111–112

relative volatility, 324

reserve, China accumulation, 88 Daily AUDJPY (2005-2007), 44f

selection, 62–63 Daily AUDJPY (2005-2009 Q1),

traders, interest rate 45f

examination, 82 Daily AUDNZD, 259f

trading, 59–60 Daily AUDUSD

time of day, importance, Australia/US 10-year interest

61–62 rate differential, contrast,

values, long-run determinants, 189f

74–75 triangle breakout, 170f

volume, ranking, 50f triangle reversal, failure, 171f

Daily CADJPY, bull flag breakout, DAX/DJI ratio, hourly EURUSD 389
147f (contrast), 203f, 204f
INDEX
Daily CRB Index, 251, 252f Debt downgrades, 90
Daily data, chart (creation), Debt-to-GDP ratios, increase, 90
Decision-making systems, 358–359
299–301 Department of Energy (DoE) data,
Daily dollar index, 160f
59–60
hammer bottom, presence, Developed Markets (DM),
161f, 162f
separation, 40
Daily DXY, 208f Deviation, 155, 159–165,
Daily EURCHF, 305f, 308f
Daily EURUSD, 249f 164f, 177
usage, 121
COT non-commercial net EUR Direct dealing, 13
position (contrast), 226f Direct intervention, 85
Directional bias, 367–368
Fibonacci retracements, usage, Discipline
139f quality, problem, 361
risk, balance, 353
Daily GBPUSD triple top, 153f Discretionary funds, market
Daily NASDAQ
player, 38
AUDUSD, contrast, 193, 194f, Divergence. See Moving average
195f
convergence/divergence
Composite, magazine cover, causes, 212–213
246f move/direction, magnitude

Daily NZDUSD, dairy futures (impact), 214–215
prices (contrast), 192f narrowing, 213
Diversification, 39
Daily P&L, 298–299 Dodd, Graham, 73
Daily Sentiment Index (DSI), 223 Dojis, 125–129, 126f
Daily Shanghai Composite, 209f gravestone doji, 128, 128f
Daily SPX presence, 127f
signal, power, 126
Dow transports, contrast, 217f Dollar smile. See US Dollar
transports, contrast, 216f Domestic drivers, 78–87
Daily USDCAD Domestic economic data,
bull hammer reversal, 130f
dotcom bubble, marking, 173f analysis, 78
Daily USDJPY, 143f Double tops, 156, 169–174, 177
Nikkei futures, contrast, 196f
pennant/trend continuation, usage, 152
Dow transports
149f
Slingshot Reversal, marking, daily SPX, contrast, 217f
hourly SPX, contrast, 218f
157f Draghi, Mario, 89, 241
Dairy futures prices, daily Driver variables, 198
Drobny, Steven, 348–349
NZDUSD (contrast), 192f Durable goods, month-over-month
Danthine, Jean-Pierre, 304
Dark pools, 32 (MoM) change, 100
Darwin, Charles, 229 Dynamic sizing, capital/conviction
Data
levels (basis), 323
mining, 182
snooping bias, 108–109
trading, 15

Eating, control, 377 currency floor, SNB

Economic data, 256 announcement, 304

fading, 268 daily EURCHF, 305f, 308f

jump risk example, 64 EURCHF (2011-2014), 86f

trading, 264–265 floor, SNB drop, 343

Edge, knowledge, 354 EURNOK

Electronic Brokerage Services hourly EURNOK, Norges Bank

(EBS), 14 meeting (impact), 280f

gold trades, 22 movement, 278

Electronic Brokers, adoption, 14 trade, expected value

Electronic communication calculation, 279f

networks (ECNs) Euro

orders, presence, 314 bidding, 117

usage, 25 support, 11

Electronic trading, increase, 313 Europe

Electronification, impact, 379 currencies, 41

Elliot Wave analysis, 111–112 data, 62

Emerging Markets (EM) (EMFX), economic releases, 103

42, 83 European Central Bank (ECB)

390 capital flows, comparison, 89 EUR preference, 87
inflation, trading, 85 fix, 56
INDEX separation, 40 QE programs, usage, 224
Emerging Markets (EM) (EMFX) statement, impact, 135
Eurozone
currencies assets, problems, 241
ranking, 42f breakup, fears, 89
reaction, 85 crisis, 55
volatility/illiquidity, 50 EURUSD
Emotions (greed/fear), 228, 5-minute price action, 336f
5-minute running P&L, 336f
235–236

Emotions, control, 355 average hourly volumes, 53f

Empire State Building (skyscraper bearishness, 120

example), 247 bullish sentiment, excess, 248

Entertainment, impact, 362 China sale, 89

Entry point, selection, 330 daily EURUSD, 249f

Equilibrium zones, focus, 135 Fibonacci retracements, usage,

Equity 139f

index, currency pair correlation highs/lows, 238f

(contrast), 191–193 hourly EURUSD, 116f, 150f,

open/close, 61 203f, 204f, 340f

volatility (VIX), currency Market Profile, 134f

volatility (contrast), 52f outcomes, 373

EUR price, sale, 113

decline, 223–224 purchase, 237

speculator sale, 87 short position, 339

EURCHF support, impact, 114f

1-second EURCHF, 307f tick chart, 175f

collapse, 306 Event risk, 223–224

Excel trading journal, entry Flat, happiness, 356 391
(sample), 317f Flat, power, 230
Floating currencies, system, 11 INDEX
Exchange rare, components, 18 Forecast, submission, 92
Exercise, 377 Foreign direct investment, 89
Expected value (EV) Foreign equity markets, 89
Foreign exchange (Forex)
diagram, construction, 277
framework, usage, 341 asset classes, correlations,
importance, 339 179–180
Experience, voice, 369
Exponential moving average behavior, 241
books, types, 1
(EMA), 117–121 brokers, competition (impact),
Extrapolation bias (recency bias),
14–15
228, 230–234 correlations, 186
Gambler’s Fallacy, contrast, drivers, 90
extrapolation bias, 233
233–234 fundamentals, 75–77
Extreme data, trading, 265–268 global drivers, 75, 77
history, 9
result, 266–268 intervention, 39
setup, 265–266 liquidity providers, market share
Extreme deviation. See Moving
ranking, 38f
average pairs, 227
players, 37–40
Fact, sale, 261 position sizes, P&L, 34f
Fade, term (meaning), 268–269 rates, driver, 39
Fading, 268 rules, 381
senior traders, number
avoidance, 285
problems, 264 (decline), 313
Fair value, 74 trade, P&L calculation, 33–35
Fat tails, 241, 304–310 trading, 140–141
Favorite/longshot bias, 228, transaction size, 3
trend-following models,
239–240
Fear of missing out (FOMO), 107–108
valuation, 74
363–365
Feedback loops, 222, 236 IMF review, 74
Fiat, definition, 11 volatility, difference (absence),
Fibonacci levels, usage, 159
Fibonacci numbers, 137–141 312
Fibonacci retracements, volume data, 165
Foreign exchange (Forex) market
usage, 139f algorithmic trader participation
Financial market prices,
rate, 50-day moving average,
setting, 256 313f
Fiscal policy (variable), 90 BIS turnover data, 17
Five-Star trade, 177, 321–323, 329 reactions, 185
Fortune’s Formula (Poundstone),
search, 324–325 328
Flags Forward guidance, usage, 277

patterns, formation, 146, 148
pennants, comparison, 148
Flash Crash, 310, 313
Flash event, 312

Forward transactions, spot Global deflationary psychology,

transactions (contrast), 17 reversal, 282

Four-Star trades, 321, 329 Global economic bank, 91

Free capital, 295 Global economic releases, 102–105

adjusted free capital, 321 Global Financial Crisis, 276

determination, 296 Global growth, 75, 77

goals, setting, 295–298 Global macro picture, assessment,

percentage, allocation, 322 283
targets, 296 Global risk appetite, fluctuations,
Friday close, 60
Fukushima earthquake 77
G7 support, 11 Global trade
impact, 290
Fundamental analysis, 73 financing, US dollars (usage), 47
Fundamentals, 324 increase, 10
change, 228 Goals, setting, 295–298
level, change (contrast), 78–79 Gold
Fun, having, 377–378 currency consideration, 22
FXALL, 25 rallies, 184
FXConnect, 25 Gold standard
cessation, 11
inflexibility, 10
requirements, 9–10

G7 currencies Gravestone doji, 128, 128f

100-day rolling median daily Great Britain Pound (GBP),

392 range, 312f movement, 261
US Dollar, contrast, 310, 311f Great Depression, 247
INDEX G10 currencies, 40f Greece
G10FX, times of day, 55f
G10 spot FX, 299 crisis, 241
Gambler’s Fallacy, 233–234 default, possibility, 201–202
Gambling, impact, 362 finances, concerns, 304
Gamma trading, 15 referendum (2015), 174
Gap risk, 223 Greed/fear (emotion) bias, 228,
creation, 66
235–236
GBPUSD Gross Domestic Product (GDP),

releases, 95

10-minute GBPUSD, 309f Growth, 78

China sale, 89 benefit, 84

metrics, 84
daily GBPUSD triple top, 153f Gut, decision-making system,
Flash Crash, 310
358–359
hourly GBPUSD, Scottish
Gut feel, usage, 324–325
Referendum (impact), 262f

Geopolitics, 75, 77 Half-Kelly sizing, 329

events, impact, 290 Hammer bottom, presence, 161f,

Glencore IPO, 251 162f

Global central bank reserve Hammer candles, 128–129

holdings, 88f bull hammer reversal, 130f

Global currencies, relationships formations, 128f

(Venn diagram), 48f Hammers, 159

Happy life, advice, 375 If done order, 28 393
Head, decision-making system, Illiquid currencies,
INDEX
358–359 bidding/offering, 27–28
Headlines, impact, 289–292 Illiquid pairs, 21–22
Hedge funds, 314 Independent thinking, 353–354
Indicators, 113, 115
fair value analysis, 180 Industrial Production (IP)
market player, 38
Hedgers, market player, 37–38 indicator, 101
Herding bias, 228 Inflation, 78
High carry, low volatility
ambiguity, 84–85
(combination), 43 expectations, measures
High-frequency trading (HFT),
(examination), 282
market player, 39–40 increase, 84
High yield, low yield (contrast), Initial Claims
jobless claim measurement, 94
42–43, 46 release, 94–95
Horse racing win bets, return US unemployment rate,

rate, 239f contrast, 94f
Hotspot, 25 Initial Public Offering (IPO)
Hourly AUDUSD, 131f
Hourly EURNOK, Norges Bank indicator, 251–252
Insanity, waves (survival), 379
meeting (impact), 280f Interbank market, 165
Hourly EURUSD, 116f Interest rates, 78, 187–190

40-hour EMA, 340f analysis, 78
DAX/DJI ratio, contrast, 203f, cut, impact, 258f
gaps, 188
204f increase, 175, 271
triangle/trend continuation, 150f monetary policy lever, 79
Hourly GBPUSD, Scottish reduction, 34–35
variable, impact, 82–84
Referendum (impact), 262f Intermarket
Hourly SPX, Dow transports analysis, 180
relationships, 179
(contrast), 218f International Monetary Fund
Hourly USDCAD, 172f
(IMF)
crude oil (inverted), contrast, foreign exchange valuation
200f, 206f, 210f
review, 74
interest rate cut, impact, 258f formation, 10
Hourly USDJPY, 119f, 122f, International Monetary Market

124f, 151f (IMM), currency futures
ichimoku cloud, presence, 133f contracts trading, 12–13
Nikkei futures, contrast, 199f Intervention
Housing Index (NAHB), 100 G7 statement, 12
Housing Market Index (HMI), 100 understanding, 87–90
Housing Starts, 100 ‘‘In the zone’’ trading account, 300
Human brokers (voice brokers), 13 Intraday opportunities, limitation,
330
IBEX, rally, 115 Invincibility, 366–367
Iceberg orders, 31–32

popularity, 31
Ichimoku, 129, 132

cloud, presence, 133f

Invisible hand, guidance, 255 Louvre Accord (1987), 11

Invisible Hands, The (Drobny), Lowe, Philip, 281

348–349 Low volatility, high carry

Irrational Exuberance (Shiller), 363 (combination), 43

ISM Manufacturing Index, 96–97 Low yield, high yield (contrast),

42–43, 46

Japan

economic releases, 104 Macro analysis, 177

real estate bubble, 84–85 Macroeconomic factors, study, 73

Jen, Stephen, 46 Macro funds, market player, 38

Jump risk, 63–69 Macron, Emmanuel, 89

estimation, 64 Magazine Cover Indicator, 243

examples, 64 Majors, 40–41

Managed currencies, 47–48

Kahneman, Daniel, 236–237 Manufacturers’ Shipments,

Kelly Criterion, 328–329 Inventories, and Orders

(M3) survey (US Census

Lagging indicator, 100 Bureau), 99

LDN/NY overlap, 54 Market

active trading, 61–62 bearishness, 223

Leading indicator, 100 checking, frequency, 376

Lead/lag interest rates, influence, 276

analysis, 180 making, 15

strategy, 201 microstructure/behavior,
394 Learning/adaptation, ability, changes, 52

INDEX 357–358 orders (at best orders), 29

Lehman Brothers, FX commentary, players, 37–40

183 positioning, 222

Leverage, usage, 169 rangebound markets, trading

Limit order, 27–28, 113 difficulty, 142, 144

Liquidity, 48–51 sentiment, 222

currency variation, 50–51 structure, 23–25, 37

management, 49 trend, 240

measurement, difficulty, 49 Market maker, 27

regime variation, 51–52 euro sale, 28

risk, 27 Market Profile, 132, 132–136

time of day variation, 52–54 EURUSD Market Profile, 134f

volatility, relationship, 50f single print, trade (absence), 135

volume, relationship, 49–50 Mean reversion, 15, 163

Liquid pairs, 20 strategies, 156

London open, 55 Medici family, foreign exchange

Long-dated bonds, market traders, 9

investment, 85 Mergers and acquisitions (M&As),

Long-term fair value, 184 89

Long-term investors, bias infection, Metacognition, 356–357

237 Model funds, market player, 38–39

Loop order, 28 Momentum, measurement,

Loss aversion, impact, 235 121–125

Monetary management, Bretton New Zealand Dollar (NZD) 395
Woods system, 10 data change, 60–61
play, 257 INDEX
Monetary policy, 78, 79–82 purchase, expectation, 265
Money trading, 75

keeping, difficulty, 297 Nikkei futures
loss, 365–366 daily USDJPY, contrast, 196f
making, 144–148 hourly USDJPY, contrast, 199f
Monthly durable goods, releases,
Nixon, Richard, 10–11
99f No limit order, 31
Monthly Retail Trade Survey Non-equilibrium zones, focus, 135
Nonfarm payrolls
(MRTS), 102
Month-over-month (MoM) comparison, 93f
expectation, 91–93
change, 100 Nonfinancial books, reading, 377
Month-to-date P&L, 301 Non-Manufacturing Index, 97
Moral suasion, 39 Non-USD crosses, trading, 66
Morgan Stanley Capital Index, Norges Bank (Central Bank of

108–109 Norway)
Moving average (MA), 339 meeting, 277

100-day MA/200-day MA, 145f impact, 280f
100-hour MA, 164f rate cut, avoidance, 278
crossover, 125 North American Free Trade
extreme deviation, 155,
Agreement (NAFTA), Trump
159–165 withdrawal threat, 261
slope, usage, 120 Norway, economic releases, 105
usage, 118, 120 No worse than price order, 29
Moving average NZDUSD, 5-minute NZDUSD,
287f
convergence/divergence
(MACD) Offer, payment, 26
bearish divergence, 123 One cancels the other (OCO)
usage, 121, 122f
order, 29
NAHB Housing Index, 100 One-minute AUDUSD, jobs
Natural disasters, impact,
number (impact), 65f
290–292 Open-High-Low-Close (OHLC)
Negative divergence, 121, 123
Negative risk/reward, 361 chart, 111, 112f
News Opportunity, betting, 323
Option expiry, 56
events, impact, 289–292 Option-related explanation, 115
releases, correlating, 289 Options expiration, 56
trading, 255 Order slicing/hiding, impact, 314
NewsPivot, 256, 268, 273 Order types, 23, 26–32
New York Mercantile Exchange O’Shea, Colm, 348
Outcome, process (contrast),
(NYMEX) open/close, 60
New York open, 55–56 345–347
New Zealand Overbought

commodity exports, 41f measurement, 121–125
economic releases, 104
growth outlook, 74–75

Overbought (Continued) importance, 144

state, 121 indicators, 225

Overbought oversold technical trend, 225

indicators, 125 Position size

Overconfidence, 366–367 determination, 330–335

bias, 228, 230 excess, problem, 335–336

Overlay charts, usage, 214–215 impact, 332f

Oversold, measurement, 121–125 problem, 335–337

Over-the-counter (OTC) market, trading, consistency (problem),

165 337

Overtrading, 362 Position sizing, 321

avoidance, process, 370–371 errors, 335

Parabolic stop and reverse process

(parabolic SAR), usage, 121, absence, 332–333

123, 125 strength, 333–334

ParFX, 25 Potential, realization, 323

Pennants Poundstone, William, 328

continuation, 149f Predictably Irrational (Ariely), 221

flags, comparison, 148 Prices
triangles, comparison, 148
396 People’s Bank of China (PBoC), action, analysis, 141
extreme (See Volume)
INDEX fixing rate (setting), 58 understanding, 256–258
Personal consumption Probabilities, overweighting, 239
Process, outcome (contrast),
expenditures (PCE), 95–96
Petronas Tower (skyscraper 345–347
quotes, 348–349
example), 247 Profit and loss (P&L), 32, 34f, 109
Phone, turning off, 377 calculation, 32, 33–35
PIIGS crisis, 241
chart, sample, 300f
Pips, 23, 33, 117, 163
daily P&L, 298–299
addition, 338
goal, 296
intervals, usage, 134–135
historical P&L data, collection,
risk, 341
328–329
term, origin, 23
month-to-date P&L, 301
Plaza Accord (1985), 11
position size, impact, 332f
Pod-based hedge funds, operation,
314 position YTD/MTD, 322
target, 365–366
Pod-based volatility-targeting
time of day analysis, 315–316,
macro hedge funds,
316f
proliferation, 185–186

Point and Figure charting, 136–137 tracking/analysis, 298

Poloz, Stephen, 87 trend, relationship, 298

Portfolios, considerations, 40 year-to-date P&L, 301

Portugal, debt default (possibility), Profits, taking, 343–344

214 Pullbacks strategy, 146

Positioning, 222–228, 243, 324 Purchasing Power Parity (PPP),

absolute levels, 225–226 74–75, 184

clear outs, 224–225 Putin, Vladimir, 243

Quantitative easing (QE), 276 result, 273 397
increase, 256 setup, 271
programs, 224 reason, presence, 269–270 INDEX
setup/result, 270
Quarter-Kelly sizing, 329 Risk
Quotes, 23–25 discipline, balance, 353
diversification, 39
Random trades, impact, 369 jump risk, 64–69
Rangebound markets, 380 reduction, 298
reset, 297
trading difficulty, 142, 144 short-term trader determination,
Real money, market player, 39
Recency bias, 230–234 326–330
Recession, inverted yield curves tail risk, 304
Risk aversion, 75
(impact), 83 fluctuations, 77
Regime Risk management, 2
quality, problem, 361
identification, 141–151 rule-based risk management
understanding, 211
variation (See Liquidity) approach, establishment,
Relative strength index (RSI), 344–345
spreadsheet, sample, 327f
usage, 121–123, 122f system, 326–328
Relative value (RV) Risk of ruin. See Ruin
Risk-On, Risk-Off (RORO)
trade, usage, 213–214 regime, 193
trading, skill, 213 Risk price, 26–28
Reserve Bank of Australia (RBA), trade, 27
Risk/reward, 339–343
190 negative risk/reward, 361
cut rates, 283 Robotic actions, 355
inflation focus, 281 Rolling drawdown, 315
market expectation, 188 Rollover (carry), 34–35
meeting, noise, 283 Round number, 115
rate hike, 188f bias, 228, 237–238
Reserve Bank of New Zealand Routine, implementation, 355–356
R-squared, 191
(RBNZ), 80, 87 Ruin, risk, 304–310, 323
bias, tightening, 80 avoidance, 306
inflation reversal, 288 Rule-based risk management
rates, cut, 257 approach, establishment,
statements, evolution, 80 344–345
Reserve recycling, 87–90 Rumor, purchase, 260–264
Resistance
existence, explanations, 113–115 Scottish Referendum, impact, 262f
trader usage, 113 Scripps National Spelling Bee
usage, 115–141
Retail platforms, price letters, venomous spider
deaths (contrast), 183
competition, 24
Retail Sales, 101–102
Retracements, 137
Reuters, reaction, 269
Reversal

patterns, 152–154
reason, absence, 270–277

Sears Tower (skyscraper example), CCI, contrast, 97f

247 daily SPX, transports (contrast),

Second-tier provider, 25 216f

Self-awareness, 355 dojis, presence, 127f

Self-fulfilling prophecy, 113 hourly SPX, Dow transports

Self-understanding, 356–357 (contrast), 218f

Sentiment, 222–228, 243 low level, 126

theme, 223 S&P 500 puts, sale, 303

Seven Deadly Setups, 2, 154–156, Spot transactions, forward

177 transactions (contrast), 17

Sharpe ratio, 302–304 Spreads, 23–25

Shiller, Robert, 363 crossing, 49

Shooting stars/hammers, 155, 159, pip expression, 23

177 tight spreads, 24–25

Short-term fair value, 184 Stagflation, 247

Short-term momentum, Sterling flash event, 312

opposition, 269 Stock returns, distribution

Short-term traders, bias infection, (comparison), 108

237 Stop enter, 29

Short-term trades, 214, 354 Stop losses, 211–212, 297,

Short-term trading, currencies 337–343

(selection), 62 level, stability, 342

Signaling, 87 location, 338–339

Simple moving average (SMA), movement, reasons, 342
398 117–121
orders, 28, 140, 156

INDEX Single name equities/ETFs, process, automation, 342

currency pair correlation recordation, 341–342

(contrast), 197 selection, 330

Single print, 135 slippage, 343

Size, betting, 323 tension, 117

Skandies, 41–42 trade journal entry, 341–342

Skew, presence, 300 trailing stop losses, 339

Sklansky, David, 348 Stop sell order, trigger, 158

Skyscraper Indicator, 247–249 Stops, setting (criteria), 337–338

Slingshot Reversal, 155–158, 169 Storage arbitrage, usage, 231

marking, 157f Streaming prices, bank provision,

occurrence, 176–177 25

trading, simplicity, 158 Strong currency, central bank

Smartness, 363 preference, 78

Smile. See US Dollar Sub-zero interest rates,

Smith, Adam, 255 impact, 277

Sovereign credit ratings, 89 Sunday Gaps, 156, 174–176, 177

Sovereign debt, increase, 90 Sunday open, 60

Sovereign wealth funds (SWFs), Support, 138

operation, 40 existence, explanations, 113–115

S&P 500 (Business Week cover), trader usage, 113

244f usage, 115–141

S&P 500 Index (SPX) Sweden, economic releases, 105

Swiss franc (CHF) scaling, fitting, 214 399
currency float, 47 trading, 354–355
sale, promise, 85 Time of day, 55–64 INDEX
stimulation, SNB failure, 87 analysis, 315–316, 316f
importance, 61–62
Swiss National Bank (SNB), 314 variation, 52–54
EURCHF currency floor Times, representation/observation,
announcement, 304
EURCHF floor drop, 343 53
floor, loss, 306 Time-weighted average price

Switzerland, economic releases, (TWAP), 30–31
105 Tokyo fix, 58–59
Tomorrow/next, 34–35
Sympathy plays, 289–290 Trade
Systematic funds
balance, 78, 90
competition, 109 breakouts, 146–148
market player, 38–39 footprint, 27
ideas, 3
Tails pullbacks, 144, 146
fat tails, 241, 304–310 random trades, impact, 369
fattening, 310–315 risk, 376
options/trades, overpayment, terms, 77
239 Traders, characteristics, 353
risk, 304 Trading
breakouts, advantage, 146
Take profit, finding, 158 flexibility, 364–365
Technical analysis, 107, 155, love, 357
perspective, 375–376
176–177 process, outcome (contrast), 346
application, 338 psychology, 2
branches, 111–112 reasons, problems, 361–363
knowledge, 111–112 signals, 227
risk management/tactical tool, slumps, 371–373

113 handling, 373–374
success, discussion, 107–111 support/resistance, usage,
usage, 73
value, limitation, 110 115–141
Technical convergence, 317 time horizon, 159, 163
Technical indicator, 163 weaknesses, 361
Technicals, 324 Trading journal
trading, 73 Excel trading journal, entry
Telexes, usage, 12–13
Theory of Moral Sentiments, The (sample), 317f
usage, 316–319
(Smith), 255 Trailing stop losses, 339
Theory of Poker (Sklansky), 348 Transports
Thiel, Peter, 222, 353 daily SPX, transports (contrast),
Third-tier provider, 25
Three-Star trades, 321, 329 216f
Tight/aggressive wins, 356 indices, 215
Tight spreads, 24–25 Trend
Time horizon, 159, 163, 222 continuation, 149f, 150f

knowledge, 355

Trend (Continued) decline, 271

following, 15, 152 hourly USDCAD, 172f

Trending markets, trading ease, interest, 82–83

144–152 intraday USDCAD, 286f

Triangles strategy, 144

breakout, 170f USDJPY

consolidation, 168f 1-minute USDJPY, 266, 267f

continuation, 150f 30-minute USDJPY candle chart,

pennants, comparison, 148 volume bars (inclusion),

Triple tops, 156, 169–174, 177 167f

daily GBPUSD triple top, 153f average intraday volumes, 54f,

usage, 152 59f

Trump, Donald bars, 166

NAFTA withdrawal threat, 261 bearishness, 121, 123, 364

presidential election, 4–6 daily USDJPY, 143f

Turkey, lira (crisis), 175–176 daily USDJPY, triangle

Tversky, Amos, 236–237 consolidation, 168f

Twilight Zone, 61 hourly USDJPY, 119f, 122f,

Twitter, reaction, 269 124f, 151f

Two-way quotes, spreads, 29 ichimoku cloud, presence,

133f

United Kingdom, economic ichimoku, 132

releases, 103 intraday volumes, 54

400 University of Michigan Consumer purchase, 264

Sentiment Index Thomson rally, 233

INDEX Reuters, 98–99 spike, sale, 269

University of Michigan Surveys of spot, forecast (contrast), 234f

Consumers, 98–99 USDMXN

US Census Bureau, Manufacturers’ 5-minute USDMXN, US/Mexico

Shipments, Inventories, and trade pact news (impact),

Orders (M3) survey, 99 263f

USDCAD CADMXN, contrast, 68f

1-minute USDCAD, 286f decline, 261

10-minute USDCAD, CPI US Dollar (USD)

number release (impact), 100-day rolling median daily

274f range, 312f

30-minute USDCAD, CPI release G7 currencies, contrast, 310,

(impact), 275f 311f

100-day MA/200-day MA, 145f shortage drive, fears, 47

100-hour MA, 164f smile, 46–47, 46f

AUDCAD, contrast, 69f usage, 47

CADMXN, contrast, 68f USDTRY

Canadian BAs, contrast, 207f closing, 175

crude oil, divergence, 211–212 tick chart, 176f

currency pair, 163 US economic data, 56

daily USDCAD releases, 90–102

bull hammer reversal, 130f US nonfarm payrolls, comparison,

dotcom bubble, marking, 173f 93f

US Retail Sales Weak currency, central bank 401
12-month cumulative miss, 265f preference, 78
economist forecasts, INDEX
distribution, 242f Weekends, jump risk
release, 224, 241 example, 64

US unemployment rate, Initial ‘‘Whatever It Takes’’ speech
Claims (contrast), 94f (Draghi), 89

Value at Risk (VAR), 48 Whipsaws, creation, 123
Venomous spider deaths, Scripps Wilder, Jr., J. Welles, 123
Win percentage (win%), 301
National Spelling Bee letters WMR benchmark fix, 56–58
(contrast), 183f WMR fix, 54
VIX
futures, Sharpe ratio, 303 FX usage, 57
level, 330 World Bank, formation, 10
Voice brokers, 13 World Trade Center (skyscraper
Volatility, 48–51
currency variation, 50–51 example), 247
importance, 49 Would, coulda, shoulda syndrome,
liquidity, relationship, 50f
profiles, 323–324 367
regime variation, 51–52 WTF indicator, 250–251
time of day variation, 52–54
Volcker, Paul, 10 Yards, 24
Volume Year-to-date P&L, 301
bars, inclusion, 167f Yield curves
indexing, 53
liquidity, relationship, 49–50 example, 83f
spike, price extreme, 156, 177 inverted yield curves,
Volume at Price, 132
Volume-weighted average prices impact, 83
(VWAP), 30–31 Yield, reference, 43
Yield to date (YTD) data, chart

(creation), 299–301
Yield to date (YTD),

impact, 297

Zero to One (Thiel), 222, 353

WILEY END USER LICENSE AGREEMENT

Go to www.wiley.com/go/eula to access Wiley’s ebook EULA.