1.1. Foreign Exchange as a Financial Market 7
1.2. Foreign Exchange in a Historical Perspective 8
1.3. Main Stages of Recent Foreign Exchange Development 9
TheBrettonWoodsAccord 9 The International Monetary Fund 9 Free-Floating of Currencies 10 TheEuropeanMonetaryUnion 11 The European Monetary Cooperation Fund 12 TheEuro 12
1.4. Factors Caused Foreign Exchange Volume Growth 13 Interest Rate Volatility 13 Business Internationalization 13 IncreasingofCorporateInterest 13 IncreasingofTradersSophistication 13 Developments in Telecommunications 14 Computer and Programming Development 14
FOREX. On-line Manual For Successful Trading ii2.1.MajorCurrencies 15
TheU.S.Dollar 15
TheEuro 15
TheJapaneseYen 16
TheBritishPound 16
TheSwissFranc 16
2.2. Kinds of Exchange Systems 17 TradingwithBrokers 17 DirectDealing 18 DealingSystems 18 MatchingSystems 18
2.3. The Federal Reserve System of the USA and
Central Banks of the Other G-7 Countries 20
The Federal Reserve System of the USA 20
The Central Banks of the Other G-7 Countries 21
3.1.SpotMarket 23
3.2.ForwardMarket 26
3.3.FuturesMarket 27
3.4.CurrencyOptions 28
Delta 30
Gamma 30
Vega 30
Theta 31
4.1.EconomicFundamentals 32
Theories of Exchange Rate Determination 32 PurchasingPowerParity 32
The PPP Relative Version 33 Theory of Elasticities 33 Modern Monetary Theories on Short-term Exchange
Rate Volatility 33 ThePortfolio-BalanceApproach 34
Synthesis of Traditional and Modern Monetary Views 34
4.2.EconomicIndicators 35 The Gross National Product (GNP) 35 The Gross Domestic Product (GDP) 35 Consumption Spending 36 InvestmentSpending 36 GovernmentSpending 36 NetTrade 36 IndustrialProduction 36 Capacity Utilization 36 FactoryOrders 37 DurableGoodsOrders 37 BusinessInventories 37 ConstructionIndicators 37 InflationIndicators 38 Producer Price Index (PPI) 39 ConsumerPriceIndex(CPI) 39 Gross National Product Implicit Deflator 39 Gross Domestic Product Implicit Deflator 39 Commodity Research Bureau's Futures Index (CRB Index) 39 The “Journal of Commerce” Industrial Price Index (Joc) 40 Merchandise Trade Balance 40 EmploymentIndicators 40 EmploymentCostIndex(ECI) 41 Consumer Spending Indicators 41 AutoSales 41 LeadingIndicators 42 PersonalIncome 42
4.3. Financial and Sociopolitical Factors 43
TheRoleofFinancialFactors 43 Political Events and Crises 44
5.1. The Evolution and Fundamentals of Technical
AnalysisTheoryofDow 45
Price 45
VolumeandOpenInterest 47
5.2.TypesofCharts 49
LineChart 49
BarChart 50
CandlestickChart 51
5.3. Trends, Support and Resistance 53 KindsofTrends 53 PercentageRetracement 55 TheTrendline 55 Lines of Support and Resistance 57
5.4.TrendReversalPatterns 59 Head-and-Shoulders 59 Signal Generated by the Head-and-shoulders Pattern 59 InverseHead-and-Shoulders 61 DoubleTop 61 Signals Provided by the Double Top Formation 62 DoubleBottom 63 Triple Top and Triple Bottom 63 The opposite is true for the triple bottom 64 Rounded Top and Bottom Formations 65 DiamondFormation 65
5.5. Trend Continuation Patterns 67 FlagFormation 67 PennantFormation 67 TriangleFormation 70 WedgeFormation 75 RectangleFormation 76
5.6.Gaps 78
CommonGaps 78
BreakawayGaps 78
RunawayGaps 79
Trading Signals for Runaway Gaps 79 ExhaustionGaps 80
5.7. Mathematical Trading Methods (Indicators) 81 MovingAverages 81
Trading Signals of Moving Averages 83 Oscillators 84 Stochastics 85
Moving Average Convergence-Divergence (MACD) 86 Momentum 87
TheRelativeStrengthIndex(RSI) 88
RateofChange(ROC) 89
Larry Williams %R 90 Commodity Channel Index (CCI) 90 Bollinger Bands 93 TheParabolicSystem(SAR) 93
The directional movement index (DMI) 93
6.2. The Elliott Wave 96 BasicsofWaveAnalysis 96 ImpulseWaves—Variations 98 The Diagonal Triangles 100 Failures (Truncated Fifths) 102
7.1. Exchange Rate Risk 104
7.2. Interest Rate Risk 106
7.3. Credit Risk 107
7.4. Country Risk 108