Publishing details
HARRIMAN HOUSE LTD
3A Penns Road
Petersfield
Hampshire
GU32 2EW
GREAT BRITAIN
Tel: +44 (0)1730 233870
Email: [email protected]
Website: www.harriman-house.com
First published in Great Britain in 2013
Copyright © Kathleen Brooks
The right of Kathleen Brooks to be identified as the author has been asserted in accordance with the Copyright, Designs and Patents Act 1988.
9780857193117
British Library Cataloguing in Publication Data
A CIP catalogue record for this book can be obtained from the British Library.
All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior written consent of the Publisher.
No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Author, or by the employer of the Author.
Acknowledgements
Barry Lane, for his copy editing skills and source of ideas and encouragement. With thanks to Phillip Turner and Nick Slater at BP who first hired me and spent time teaching me the ropes of this market. Lastly, I want to thank all of the retail traders I have met or spoken to. They keep me on my toes and make me strive to improve my research, knowledge and perspective of financial markets and new products.
About the author
Kathleen Brooks is a research director for Forex.com, a retail FX broker based in London. She uses both fundamental and technical methods in her analysis and fuses the two to get a complete picture of the market.
She is a regular contributor to Yahoo Finance and Reuters Great Debate, and she is often quoted in international publications including the Wall Street Journal and the Financial Times. She can be seen regularly on business TV including CNBC, Bloomberg, CNBC Arabia, Sky News Australia and the BBC. She started her career in finance at BP where she worked first as a business analyst in its trading division and then as a trading analyst in its foreign exchange dealing room. Prior to joining Forex.com she was a financial features writer for City A.M.
Kathleen holds an undergraduate degree in English Literature and Classical Civilisation from Trinity College Dublin, and a Master of Science from the Graduate School of Journalism at Columbia University in New York City.
Visit Kathleen’s author page at: www.harriman-house.com/authors/profile/kathleenbrooks/17359
Preface
What this book covers
Since you opened this book then I guess you are interested in foreign exchange, have traded it and want to hone your skills and increase your chances of making a profit. I have been working, learning and trading in foreign exchange for the bulk of my career and over the years I have developed my own philosophy for understanding the largest asset market in the world. It’s not your standard approach, but I think that it will strike a chord with traders and that is why I want to share it with you in this book.
There are two main ways of analysing foreign exchange:
1 Using fundamental analysis; and
2 Using technical analysis.
Most people in the markets either look at fundamental analysis or technical analysis. But when I first started out in FX, restricting myself to looking at only one of either fundamental and technical factors didn’t seem right to me. I always felt that something was missing. These approaches were either way too complex or they were too prescriptive. I wanted something that I could grasp and that made sense to me.
That was when I decided to ditch the dogmatic strategies that pervade the FX market and forge an approach of my own. In the course of my learning about FX I found that I understood the markets best by using neither technical analysis nor fundamental analysis in isolation, but by using them together.
I believe that fundamental factors – politics, economics and even society – cause currency prices to move the way they do (and sometimes in the strangest ways), but throughout the day the smallest price movements are usually based upon technical factors. So you’ll get no fundamental or technical purist rhetoric here: my approach is to combine the two. It works for me and I hope by reading about it you’ll pick up some ideas for your own trading.
My aim in this book is to teach you my approach to trading the FX market. I assume you already have some knowledge of trading this market – I won’t go over the basics, such as giving you an intricate history of a pip, or explaining what a currency cross is. Plenty of pages (both in print and on the web) can give you this information and help you to take your first steps into trading. The website Baby Pips (www.babypips.com) is one of my favourites; it provides a great overview for the novice FX trader. Investopedia (www.investopedia.com) is another useful resource for an early introduction to the foreign exchange market.
So, rather than presenting you with another FX 101 I hope to provide a fresh way to view the FX market. This should help you with setting up and executing your trades.
I am a firm believer in learning from observation so this book is packed full of real-life examples and trading set-ups from my recent analysis of the foreign exchange market. Some things deserve a little context or explanation, but I have tried to show more than tell.
The first two parts of this book will look at fundamental and then technical analysis separately before I show you how I combine the two in part C. Part D shows you how I execute my trading strategy in the market using my tried and tested risk management techniques.
Introduction
It was 2006 and I had just joined the forex trading desk at BP as a junior trading analyst. I was a novice, in fact extremely novice, probably the least experienced person that had ever walked on to the BP trading floor. Hence I was not only a young female on a desk full of men but I didn’t even have a finance or economics degree. In sum I was totally clueless.
The patience of the traders, the chief dealer and my direct boss, the head of the analytics desk, was amazing. They got me up to scratch on bids and offers, what a pip was and how to trade. They also taught me how fundamentals impact the market. The crossover between central banks, economic data and even politics gripped my imagination and has determined my career path ever since.
In spite of this valuable tuition, when I started out there were a few things I just couldn’t understand. Firstly, why was the dollar in such a steep decline? It had been heading south for years against the pound, the yen and the euro. I didn’t understand why the dollar would always falter – what about the mean-reversion and efficient markets I had spent months learning about? Also, why did the dollar always seem to fall on good economic news out of the US?
If the currency was a reflection of the state of the economy then the US must be in deep economic trouble. But back then growth in America was quite strong and the financial