P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come i P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Attacking Currency Trends i P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Aus- tralia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Trading series features books by traders who have survived the market’s ever-changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether you are a novice trader, a professional, or somewhere in between, these books will provide the advice and strategies needed to prosper today and well into the future.
For a list of available titles, visit our web site at www. ii P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Attacking Currency Trends How to Anticipate and Trade Big Moves in the Forex Market GREG MICHALOWSKI John Wiley & Sons, Inc. iii P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Copyright C 2011 by Greg Michalowski. All rights reserved.
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For more information about Wiley products, visit our web site at www. Library of Congress Cataloging-in-Publication Data: Michalowski, Greg. Attacking currency trends : how to anticipate and trade big moves in the forex market / Greg Michalowski. Foreign exchange market–Handbooks, manuals, etc.
Investments–Handbooks, manuals, etc. Foreign exchange–Handbooks, manuals, etc.4 5–dc22 2010051235 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 iv P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come To Deb, Matt, Brian, and Bobby Michalowski v P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come vi P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Contents Acknowledgments xi Introduction 1 PART I The Foundation for Success 19 CHAPTER 1 Stereotyping the Retail Currency Trader 21 They Think Trading Currencies Is Easy 22 They Have Too Much Fear 27 They Lose Money 29 They Are Too Fundamental (Not Technical Enough) 31 They Don’t Know Enough about Key Fundamental Requirements 34 They Fail to Anticipate Trends 45 Don’t Be Like the Rest. Change! 46 CHAPTER 2 The Six Attributes of a Successful Currency Trader 47 What Are You Good at Doing? 47 There Will Always Be Peaks and Valleys 49 1. Skill or Aptitude 49 2.
Practice, Practice, Practice 52 3. Know Your Risk 54 4. Create and Execute a Plan 58 5. Control Your Fear 61 vii P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come viii CONTENTS 6.
Be Greedy Enough 63 A Foundation for Success 66 CHAPTER 3 The Mission Statement 67 A Team of One 68 A Two-Part Mission Statement 70 Finding Trades That Satisfy Your Mission Statement 76 The Importance of Staying on Trend 80 CHAPTER 4 What’s Your Game Plan? 85 Every Mission Statement Needs a Game Plan 86 Trade the Trends 86 Keep Fear to a Minimum 91 Never Underestimate a Strong Foundation 97 CHAPTER 5 Rules for Attacking the Trend 99 Rule 1: Keep It Simple (but Stay Positive) 100 Rule 2: Have a Reason to Place a Trade 105 Rule 3: Be Picky about Your Tools 107 Rule 4: The “If. Should” Rule 115 Rule 5: Look Ahead, but Not Too Far Ahead 117 Rules Rule 120 CHAPTER 6 The Trader’s Toolbox 121 Rules for the Tools 122 How to Use Fundamental Analysis 122 The One Thing We Can Agree On: Price 125 The Tools 131 If I Had a Hammer 146 PART II Tools and Strategies 147 CHAPTER 7 Moving Averages 149 What Is a Moving Average? 150 How to Use Moving Averages 151 P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Contents ix Time Frames for Analysis 156 Anticipating a Trend 164 Managing a Trend 167 Managing Profits 169 Trade Setups 171 The Push That Gets the Market Going 177 CHAPTER 8 Trend Lines and Remembered Lines 179 Bullish Trend Lines 180 Bearish Trend Lines 183 Channels: Highways to Ride the Trend 186 Flags and Pennants 190 Finding the Golden Ticket 192 Remembered Lines 197 Simple but Effective 204 CHAPTER 9 Fibonacci Retracements: The Hybrid Tool 205 Introduction to Fibonacci 206 Placing Retracements on a Chart 210 Using Fibonacci Retracements 214 Trading Shorter-Term Corrections 227 Using the Tools to Your Best Advantage 231 CHAPTER 10 Preparing for the Trade 233 First Things First 234 Analyzing the Charts 236 A Composite View of the Clues 249 “Is It a Boy or a Girl, Doc?” 251 CHAPTER 11 Executing the Game Plan 253 The Kickoff: The Entry Trade 254 Managing the Trade 256 Finding Clues in the Consolidation Phase 264 P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come x CONTENTS A Borderline: Always a Low-Risk, Unambiguous Level 266 Another Trend Reentry 267 The Key Role of Borderlines in Hourly and Daily Charts 271 Attack the Currency Trend 275 About the Author 277 Index 279 P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Acknowledgments will always remember something Bill Kidder said to me 25 years ago, I soon after I met him for the first time. He said, “Your dad was one of my first mentors. He gave me his time and taught me a lot about the markets.
He is a good man.” These words are very powerful words and they stuck with me. Bill was my first trading mentor, and the first thing he taught me, with- out saying, was to follow in my father’s mentoring footsteps. Over the last few years of my career I have been able to pay the favor forward—to be a mentor. Although it is less personal than the mentoring I received, I do hope it has provided a benefit to your trading.
Remember, however, that ultimately you will need to “fish for yourself.” Other life mentors I would like to acknowledge include my wife, Deb- bie; my mother and father; my sons, Matt, Brian, and Bobby; my six siblings; and all my extended family members (and it is a very large clan). I cannot thank you enough for all your support and unconditional love. Profession- ally I would like to acknowledge Tom Bonen, Guy Whittaker, Ted Muller, Kim Hamilton, Tom Bergen, Joe Botkier, Emil Assentato, Shawn Powell, my hardworking colleagues at FXDD. Each has helped form me over the years in some way or another and my appreciation is not forgotten.
I would like to acknowledge my “trading apprentices” that ask for advice and sup- port my efforts at FXDD. You provide joy to my life through your successes as traders. I would like to thank the respected traders that have crossed my path on the various social media sites. Even though an alias may be used and we may never physically meet, trading is not as lonely because of you.
I would like to acknowledge my spiritual mentors, including the vibrant and positive St. I start and end my week at St. Patrick’s and it gives me the direction during all the minutes in between. Last but not least, I give thanks to the ultimate spiritual mentor, God, for giving me wisdom, the humility to accept failure, the will and desire to correct my mistakes, the opportunity to pay it forward, and all the other incredible gifts from His amazing grace.
xi P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come xii P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come Attacking Currency Trends xiii P1: JYS JWBT439-fm JWBT439-Michalowski January 18, 2011 19:59 Printer: Yet to come xiv P1: OTA JWBT439-cintro JWBT439-Michalowski January 18, 2011 19:2 Printer: Yet to come Introduction hen I was in college at Clemson University, I dreamed of a career W on Wall Street. My father, Joseph Michalowski, worked on Wall Street his entire career, working his way through the ranks. There have been very few people I have met who had a professional relationship with my father who did not say, “Your father is a good man. He taught me a lot about the markets.” One of the highlights of my father’s career was working at Chase Man- hattan Bank.
He was once put in charge of uncovering, unwinding, and being the expert during the Drysdale Government Securities crisis that shocked Wall Street in 1982. The crisis, built on a string of reverse repur- chase agreements that went wrong, sent repercussions throughout Wall Street when the boutique firm defaulted on an interest payment totaling $250 million. The knock-on effect of the crisis resulted in the Federal Re- serve’s issuing that now all-too-familiar statement, “The Fed stands ready as a lender of last resort.” What was the catalyst for the crisis? The use of too much leverage (i., risk) and the lack of a plan and controls. Compare and contrast this to the 2008–2009 financial crisis where the same fundamental faults led to a near- global financial meltdown.
Twenty-seven years later the lessons have not been learned. In addition to his knowledge of interest rate products and the markets, my father was a technician, or a chartist, who would painstakingly con- struct by hand bar charts of bond prices on grid graph paper. At night, he would tape together the pages when the prices moved above or below the boundary of the paper, or when a new page had to be added as time pro- gressed. He would fold his “moon charts”—as he liked to call them—as deftly as an origamist would fold a piece of paper into a swan.
During the early years of his career and without modern technology, he was able to carve a career as a technical trader by keeping analysis ba- sic, finding good trade locations, defining risk, and trading the trend. There were no Relative Strength Indices or Stochastic Indicators.