How to Make a Living Trading Foreign Exchange

COURTNEY D. SMITH is Chairman of the Investment Mentoring Institute, an organization devoted to building great investors. He is also President and CIO of Courtney Smith & Co., Inc., which manages money for institutions, family offices, and high-net-worth individuals. Mr. Smith is the owner and Editor in Chief of Commodity Trading Consumer Research (CTCR)—the premier tracking service for the futures industry—and author of six books, including Option Strategies (Wiley). He has made more than 1,000 TV appearances on shows such as Wall Street Journal Report, Moneyline, and other programs on CNBC, Fox News, Bloomberg, and CNN.

• Preface xiCHAPTER 1 The Basics of Foreign Exchange Trading 1Sell a Yard of Cable 2Don’t Want to Trade! 4Transaction Costs 7It Never Stops 8My Biggest Losing Trade 8The Bottom Line 11CHAPTER 2 Trend Analysis 13What Is a Trend? 14How to Profitably Trade Bull and Bear Markets 18How to Trade the Trend 21Megaphones and Pennants 25Average Directional Index 27The Bishop 28The Bottom Line 30CHAPTER 3 Channel Breakouts 31The Beginnings of Channel Breakouts 31What Is a Channel Breakout? 32Better Channel Breakouts 35The Pros and Cons of Channel Breakouts 39The Bishop 40ADX Filter 43The Principle of Instant Gratification 46Rejection Rule 46The Last Bar Technique 51Tactics 52Taking Profits 52The Bottom Line 53CHAPTER 4 The Conqueror 55The Beginnings of the Conqueror 55What Is True Range? 56Enhancing the Conquistador 57Adjusting the Stop 63The Bottom Line 65CHAPTER 5 Stochastics 67What Are Stochastics? 67How to Use Stochastics as an Overbought and Oversold Indicator 69Trading Signals from Crossovers 71Profitability of Stochastics 74Warnings 75The Best Way to Make Money Using Stochastics 76Go with the Trend 81How I Use Stochastics 81Interview with George Lane 82The Bottom Line 89CHAPTER 6 Pattern Recognition 91Inside Days 91Double Whammy 94Multiunit Tactic 95Reversal Days 97Riding the Rejection Rule 101The Bottom Line 103CHAPTER 7 Risk Management 105Stopping Bad Risk Management 105How to Make Sure We Are Never Wiped Out 108Good Risk Management: Fixed Fractional 108How Many Contracts Should I Put On? 109Highly Correlated Positions 109Kelly Formula 110Trade Your Equity Curve 114Take a Time Out 115Turning Poor Systems into Good Systems 115How Big a Position Should I Take? 116The Bottom Line: Diversify through Time 117CHAPTER 8 Slingshot 119The Importance of Minimizing Losses 120Beware of Taking Profits Too Early 121Psychological Profits 122Confirmations 123Maximum Excursion Analysis 124Using the Slingshot for Profits 125The Mini-Slingshot 128The Bottom Line 130CHAPTER 9 The Psychology of Successful Trading 131Why Do You Trade? 132The Pressures of Trading 136Why Do You Lose? 137Addressing a Lack of Knowledge 138Addressing a Lack of Capital 140Addressing a Lack of Self-Discipline 141An Example of Overcoming the Bizarre Twists and Turns of the Mind 143Treat Trading as Education 144Stress-Free Trading 147Be the Casino 148Developing Your Trading Plan 149Filling Out the Plan 150The Importance of a Postmortem 153The Bottom Line 155CHAPTER 10 Putting It All Together 157Diversifying to Reduce Risk 157Use a Mental Checklist 158How to Trade Only One Method 159The Bottom Line 160Epilogue: Key Insights for Maximizing Your Trading Profits 161Appendix: Suggested Reading 177Acknowledgments 179About the Author 181Index 183