Currency Cross Trader

Transcription

1 A Publication of The Sovereign Society Currency Cross Trader Trading Manual The Sovereign Society 55 N.E. 5th Avenue, 2nd floor Delray Beach, FL USA USA Toll Free Tel: (888) Contact: Website:

2 The Sovereign Society 55 NE 5th Avenue, 2nd Floor, Delray Beach, FL USA USA Toll Free Tel: (888) Website: Legal Notice: This work is based on what we ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don t trade in these markets with money you can t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. Please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings. (c) 2013 Sovereign Offshore Services LLC. All Rights Reserved; protected by copyright laws of the United States and international treaties. This Report may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Sovereign Offshore Services, LLC. 98 SE 6th Ave, Suite 2, Delray Beach FL CCM.CUC.VI

3 The Currency Cross Trader Trading Handbook Table of Contents I: Mission Statement and Overview...Page 2 II: Why Choose The Currency Cross Trader...Page 4 III: Here s What s Coming Your Way...Page 8 IV: Method Behind the [Currency] Madness...Page 10 V: What You Need to Know to Get Cranking...Page 11 VI: Contact Us...Page 14 VII: Additional Sources of Market Information...Page 15 1

4 I. Mission Statement and Overview: Why Trade Spot Forex? Mission The goal of The Currency Cross Trader is to help you make money in the spot currency market. We aim to do that by providing you with actionable, highly-disciplined and narrowly-focused currency trading ideas. Our aim is to achieve even larger gains than if we were just trading the majors. After all, sometimes some of the best choices and best percentage gainers are crosses. Our trades are grounded both in solid fundamental and technical analysis. Our fundamental view utilizes a global macro analytical approach in an attempt to pinpoint money flow over the intermediate-term. In the forex market, we view intermediate term as a few days to several weeks. Ultimately, we aim to produce consistently profitable intermediate-term trading recommendations with optimal risk/reward characteristics. This service was designed to satisfy two primary criteria for our Members: Easy to understand. We don t use complex technical holy grail black box indicators or mumbo jumbo. We explain our recommendations in simple language, using simple technical analysis tools and reasons you can understand. We believe that if you understand the good, solid reasons for making a currency trade, you will find the service engaging and educational as well as profitable. We want you to enjoy this service so we can keep you as our customer. Easy to trade. You don t have to be a screen junkie to make this service work for you. We don t expect you to hover around your or trading screens in order to immediately enter each new recommendation. If you are there, and a trade comes in, great. But we use very generous profit targets. So even if you get to your hours after the trade has been recommended, there still should be plenty of opportunity to enter the trade, with plenty of opportunity remaining. 2 Overview The forex market presents investors with powerful profit opportunities: There s always a bull market in currencies. Likewise, there s always a bear market in currencies, too. This is due to the fact that when one currency goes up, it means it is going up against another currency. Hence, that other currency is going down against it. What s the benefit of this? Well, for one, you re not overly dependent on the trend in one or two areas as you usually are with the stocks, such as the performance of the S&P 500 or NASDAQ.

5 Another great benefit is that the currency market is non-correlated to the stock market. Some currencies tend to move with or against the Dow. But others tend to move inversely to it and some have very little correlation at all. So you can always trade independently of the stock market and provide true diversification for your overall portfolio. Finally, since currency trends exist in short-, intermediate-, and long-term timeframes, there s always plenty of action and plenty of opportunity to profit. We happen to believe the intermediate-term is the best timeframe to garner profits in currencies, especially the currency crosses. Small moves. Big profits! Leverage available in the forex market allows your profits to add up very quickly. But leverage is a double-edged sword. A small move against you could also result in large losses. That s why it s important to cut your losses early and let your winners ride. And because we are targeting trends that can last from days to months, it s important that you do not trade with too much leverage. Too much leverage often means risk levels must be very tightly maintained. By reducing leverage and targeting greater profits, we believe it will allow you a better opportunity to stay with a powerful trend. Let s be more specific on leverage here this merits a conversation. Most retail forex brokers allow investors leverage of 100 times the amount of money required for deposit, and even higher. This is attractive to speculators because the high ratio of leverage can increase buying power (for example at 100:1 leverage, $1,000 has buying power of $100,000). Winning trades can be very profitable. But as I mentioned, leverage is a double-edged sword. Since a small amount of money can purchase proportionately larger amounts of currencies, a movement in the wrong direction could wipe out an investment account that is not adequately funded, and even cause much deeper losses. Keep in mind that I will suggest amounts to risk. I d advise not going above the risk limits that I suggest. You will not want to risk more than 5% of your trading capital at any one time. I ll be even more specific within each actual recommendation. But for now, use this as a general guideline. There will be losing trades. They all won t be winners. However, if the risk is defined properly, then your account will be just fine until our next win. As efficient as markets can get. The spot forex market achieves near perfect competition. It s the most liquid and largest financial market in the world. It trades electronically 24 hours a day, 5 ½ days a week. Currencies keep you diversified. As stated above, we believe currencies are vital to a well-diversified global portfolio. Currencies generally have a low correlation with stocks and bonds, so they are vital for decreasing risk in a portfolio. At times, currencies may be used to hedge against downside risks in stock and bond markets. Low relative capital investment. Because of the generous availability of leverage in the currency market, one can produce a very significant total dollar return with a relatively low amount of starting capital compared to what is required for stock and bond investment. 3

6 II. Why Choose The Currency Cross Trader? What can you expect from The Currency Cross Trader weekly research trade alert? Good question! Here s your answer: Clear Reasoning Technical analysis can easily become confusing, especially when weaving it in with the varying fundamental backdrops of each currency. But not to worry: we make our analysis easy to digest. And if you don t understand a trade, we ll always be here to answer any questions you may have. Here are the technical tools we apply to the currency market: Trend line analysis Timeframe analysis Support and resistance levels MACD Moving Averages Divergences Slow Stochastics Inter-market analysis This is what we use. And we keep it simple. If there is something you don t understand, and care to know about, please ask and we will be happy to explain. Actionable Trades We make clear guidelines for entering a trade. We will use two types of orders to enter a trade: market and entry orders. The advantages of each type of order differ, but we will consider them all in constructing our recommendations. A market order says to simply enter into the trade now at whatever the price is when your order hits the market. It will usually be very close to the current quote that you see when you click to enter the order. An entry order says to enter into the trade when the market hits the limit entry price. Depending on the trade, these order types are designed to increase the odds that: You don t miss the sweet spot of the trend, Your risk/reward ratio is optimal, and You have time to place your order. 4

7 The ample reward-to-risk characteristics we typically require to make a recommendation allow you to profit from them. Simple, Honest Track Record Our tracking is honest, and we do our best to reflect conservative, reasonable entry prices. Example: If GBP/JPY is trading at when I give the order to BUY GBP/JPY at the market. Then, by the time the order is processed and ed to you the market has moved to , our tracking price will reflect Plain Recommendation Terminology Below is a sample recommendation with accompanying terminology for a typical forex trade we issue. As you know, an exchange rate simply means the price of one currency in terms of another. Before World War II, the currency of reference was the pound, so all currencies were priced relative to it. Following the war, the U.S. dollar replaced the pound as the currency of reference. This means that in the exchange rate, the dollar (USD) was the first in the quote. For instance, you say dollar/yen (USD/JPY) or dollar/swiss franc (USD/CHF). But old habits die hard. While most currencies in the world were priced as their value for one dollar, we had three exceptions: the pound (GBP), the Australian dollar (AUD) and the New Zealand dollar (NZD). When you seek a price of one of these three currencies, they go first in the equation even when they re paired with the U.S. dollar. For example, it s Australian dollar/u.s. dollar (AUD/USD) and New Zealand dollar/japanese yen (NZD/JPY). Once the euro (EUR) was invented, the European Central Bank decided to make its currency larger in value than the dollar. Therefore, the euro is mentioned first in all pairs where it s involved, such as: EUR/USD, EUR/JPY, EUR/GBP or EUR/CHF, etc. Keep in mind that in addition to trading the majors, we will be focusing a large amount of our time on the currency crosses so that we can broaden our scope and ensure that we re getting the best trade picks at the time. Sometimes that pick will not include the U.S. dollar at all. 5

8 HOW IT LOOKS Here is an example of a Currency Cross Trader trade recommendation, to show how currency quotes look in action. The Currency Cross Trader Issue #6 Buying EUR/JPY: Buy EUR/JPY at the market as long as the price is at or lower. The current quote is Place your stop at and your limit price at Now let s translate each line: The current quote is: EUR/JPY This means each euro is worth almost 135 yen. Order: Buy EUR/JPY at the market. [The recommendation is to buy the EUR/JPY currency cross at the market as long as it s at or under , In other words, don t buy any higher than the price of ] Profit Taking: Place your limit at [This is the price you set at which your trading station closes the trade for a profit. Once the trade hits this target, your limit price is hit and it closes out your position.] Now, the question you might have is: Why would you want to buy at a higher price than the current one? This gives you some room to get into the trade even if you re not seeing the recommendation as soon as it hits your box. If you can get in lower, of course do so unless I ve instructed otherwise through the recommendation. 6 Strict Risk Management, Leverage, and Consistent Follow-Ups Controlling your risk in these markets is vital in managing your capital, hence the protective stoploss order included in our trading recommendations. This is hugely important when dealing with leverage in forex trading. Again, that s because leverage is a two-edged sword. It can magnify your profits but it can work just as easily against you. Leverage works like this: Based on a mini lot (10k-lot size), a 50 pip profit is roughly equal to $50. I say roughly because each cross could be a little less than a dollar a pip or possibly a little more than a dollar a pip. The only large exception to this is usually EUR/GBP which can, at times be, roughly $2 a pip of movement. Do not use too much leverage per trade and do not trade too many lots at one time. You have to decide the appropriate level depending on your experience, knowledge, appetite for risk, and account size. But if you re going to make a mistake, it s best to err on the low side. This service is about trading trends. If that is achieved, above-average profits can quickly accrue without taking on too much leverage.

9 You want to make it to where the number of lots that you choose to use, if stopped out, wouldn t erase more than 5% of your trading account s capital. Again, I ll give suggested risk parameters on each trade and I d highly suggest not exceeding them. Also, expect to receive updates on each trade, revised forecasts and any adjustments to our recommended profit targets, stop-loss levels, etc. Our primary goal is, of course, to provide you with consistently profitable trading recommendations. But we also want to help you better understand how currencies trade and provide independent research so you can also take advantage of opportunities on your own based on your individual risk/return criteria. 7

10 III. Here s What s Coming Your Way You can expect to receive one update each week. And those bulletins should include approximately 2-5 trade recommendations per month, sent via and included in our Currency Cross Trader Members-only archive. Each trading recommendation will include: Specific Entry Order Stop-loss Order Profit Taking Order Brief explanation for the trade Currencies We Cover You will receive recommendations from a universe of the most actively traded cross rates, in the spot forex along with some trades involving the majors: Actively traded currency crosses: EUR/JPY (Euro vs. Japanese yen) GBP/JPY (British pound vs. Japanese yen) CHF/JPY (Swiss franc vs. Japanese yen) AUD/JPY (Aussie dollar vs. Japanese yen) NZD/JPY (New Zealand dollar vs. Japanese yen) CAD/JPY (Canadian dollar vs. Japanese yen) EUR/CHF (Euro vs. Swiss franc) EUR/GBP (Euro vs. British pound) GBP/CHF (British pound vs. Swiss franc) AUD/CHF (Aussie dollar vs. Swiss franc) AUD/CAD (Aussie dollar vs. Canadian dollar) EUR/CAD (Euro vs. Canadian dollar) GBP/AUD (British pound vs. Aussie dollar) AUD/NZD (Aussie dollar vs. New Zealand dollar) EUR/AUD (Euro vs. Aussie dollar) EUR/NZD (Euro vs. New Zealand dollar) 8

11 We may include a few majors in the trades when I feel they are the best pick at the time. Major U.S. Dollar pairs: EUR/USD (Euro vs. U.S. dollar) USD/JPY (U.S. dollar vs. Japanese yen) GBP/USD (British pound vs. U.S. dollar) USD/CHF (U.S. dollar vs. Swiss franc) USD/CAD (U.S. dollar vs. Canadian dollar) AUD/USD (Australian dollar vs. U.S. dollar) NZD/USD (New Zealand dollar vs. U.S. dollar) A cross-rate is the price of one foreign currency versus another foreign currency. That is, the U.S. dollar is not involved in the trade. So if we wanted to short the euro versus the Japanese yen, we would put out a recommendation to sell EURJPY. So what you think, if you re shorting (selling) the EURJPY currency cross pair, you re betting that the euro will depreciate/fall against the yen. In other words, you re expecting the pair to head lower on the charts. Pricing in the Forex Market Foreign exchange rates are priced in pips. A pip is typically the smallest price change that a given exchange rate can make. A pip of movement is the final digit to the right in your currency pair. If the quote went from up to , then the pair increased by 1 pip. If the pair went from down to then the pair decreased by 1 pip. 9

12 IV. Method Behind the [Currency] Madness We integrate three critical elements of a successful intermediate-term trade. If we correctly pinpoint these criteria, more often than not we will realize our share of effective trades and pull excellent profits from the currency market. First, we build a foundation based on global macro trends the direction and destination of money flow. Keeping an eye on the flow of capital between countries and global financial markets is crucial towards developing a fundamental framework. This is what drives currencies. Second, we seek to understand the market s mood. I m sure you ve heard it before, Perception is everything. It s no different with currencies. Investor sentiment plays a large part in how prices fluctuate. Without keeping a finger on the pulse of the market sentiment, you could easily find yourself frustrated if prices move adversely to fundamentals. And last, we do our best to pinpoint trades where our risk is minimized and our potential reward is maximized. This basically means timing is hugely important. And we use a polished group of technical indicators in our decision-making ones we are comfortable using because they have proven successful for us in the past. Please be aware that The Currency Cross Trader is a trend-following service. That means we plan to hold positions over the course of several days and up to several weeks. Thus, we ll not be issuing short-term recommendations that revolve solely around technical set-ups typically. We are most comfortable trading with fundamental, sentiment and technical reasoning together. One- and Two-Lot Trading Strategy In the spot forex market, traditional mini lots are 10,000 units. That s 10,000 of the base unit to be exact. The base unit is the first of the two currencies named in a pair. So, for example, a lot of USD/JPY is 10,000 U.S. dollars worth of Japanese yen. A lot of EUR/USD is 10,000 euro worth of U.S. dollars. Much of the time our goal is to capture intermediate-term trends. In this case we need our stops to be wide enough to compensate for the noise and give us time to achieve our profit targets. But other times we need to focus on limiting our risk AND maximizing our reward in a choppy market. So without limiting our profit potential, we sometimes use a multiple-lot approach on shorter-term trades. This allows us to sell portions of our position as the trade develops. For longer term setups, by contrast, we will typically maintain a single position. 10

13 V. What You Need to Know to Get Cranking... Be prepared. We don t want you to miss out on important market updates, bonus analysis, weekly commentary, and most importantly, trading recommendations. So make sure you re set up to receive s from the following address: info@money-trader.com. Also, be aware that each recommendation issue will be posted to The Currency Cross Trader Archive that s accessible through the The Currency Cross Trader homepage. Only members have access to this archive. Your permanent username and password are provided on each of your advisory s. Brokers In order to make use of the recommendations you receive with your Currency Cross Trader membership, you will need to establish and fund a forex trading account. You have two options: You can use a full-service broker that can set-up your account, give you specific advice concerning your account, and offer as much assistance as you may need with our recommendations OR You can use a retail forex broker to establish an online trading account. This decision is entirely up to you and should depend on your experience trading in these markets. If you don t already have a broker that can efficiently execute forex trades, you may want to contact one of the brokers we have listed below. (Please note: We never receive any compensation, directly or indirectly, for any brokerage referral.) Online Retail Forex Firms: FXCM (Forex Capital Markets): Contact them at or at 32 Old Slip, 10th Floor New York, NY info@fxcm.com or sales@fxcm.com FXCM is one of the largest and most highly regulated retail firms out there. Oanda: Contact them at or at Broadway, 46th Floor New York, NY frontdesk@oanda.com 11

14 Full Service Firms: Mirus FX TradeAssist Specialty: Forex, Currency Futures, and Currency Futures Options Contact: AJ Wustefeld 444 N Wells St, suite 502 Chicago, IL Tel. (800) x aj@mirusfutures.com or info@mirusfutures.com, eliotw@mirusfutures.com, orders@mirusfutures.com, Trader312@gmail.com R.J. O Brien Specialty: Forex, offering over 120 currency pairs with mini contracts; plus, Currency Futures and Options on Futures contracts Contact: Kathryn Fischer, Currency Desk Manager, RJO Futures 222 South Riverside Plaza, Suite 900 Chicago, IL Toll Free: Direct: kfischer@rjobrien.com 12

15 VI. Contact Us Currency Cross Trader is an elite service our professionals are on standby to assist you. We want to make sure you know how to contact us whenever you need more specific assistance with our recommendations. So, feel free to contact us at if you have any questions related to this service, such as: How the service works and the investment vehicles we will be using Understanding our trading instructions For any questions about your subscription renewals, changes of address, a retransmission of an issue, etc., there are three ways to reach us: 1. PHONE is the best way to reach us for routine questions about your subscription, changes of address and non-receipt of Currency Cross Trader issues. Please call FREQUENTLY ASKED QUESTIONS PAGE on the sovereignsociety.com website is the next best way to reach us. Just log on to with your username and password and click on Currency Cross Trader, then FAQ s under the section Your Account. 3. You may also contact us here: We urge you to periodically check your program to ensure that you are accurately and promptly receiving our recommendations and alerts. Be sure to White list us at To avoid delays in responding to your questions or processing your requests, include the name of this service Currency Cross Trader as well as your full name. If you are changing your or mailing address, please include both your current and new information. For security reasons, and to prevent banking errors you must contact us by phone to cancel a paid subscription. Submitted to cancel a subscription will not be processed. Please call us at , to process your request. Our cancel service center is open Monday through Friday, 9 a.m.-5 p.m., EST. Standard refund policy: Premium service subscribers may receive a 100% refund on their subscription fee within the first 60 days of their service (minus a 10% restocking fee). If you have subscribed during certain special promotions, other refund terms may also be available. Note on transmissions: The Sovereign Society shall not be liable to you or any third party for any 13

16 loss, injury, damage, costs, expenses or compensation of any kind arising directly or indirectly from or as a result of any act, neglect, delay, error, omission, default, or negligence by the Company in relation to the transmission of, or any other dealing with, or other failure in the accurate receipt by you of Company publications containing recommendations, alerts, advisories, or other Company materials or information of any kind, even if advised of the possibility of such damages. In the event a transmission is interrupted for any reason, the Company cannot guarantee timely delivery. VII. Additional Sources of Market Information Websites for free forex news, economic calendars, charts, and commentary: DailyFX: Forex Factory: Trading Economics: Bloomberg News (specifically ) There is a substantial risk of loss trading in forex (off-exchange retail foreign currency). The Currency Cross Trader is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to forex should be strictly the money you can afford to risk. 14