part0045

In this, the final chapter, I wanted to try to leave you with a sense of the individual currencies and currency pairs you will be dealing with in your journey to become a master forex trader. I’ve deliberately used the term ‘jungle’ in the title, as the world of forex trading can be precisely that to those who simply jump straight in. Some of the dangers are more obvious than others, but I hope in reading this book, you will at least be aware of some of them, if not all.

My purpose in the final chapter is to try to explain the characteristics of the principle currencies and currency pairs, along with the cross pairs and some of the exotics. The good, the bad and the ugly in the jungle if you like. Each has a personality of it’s own, but one which changes according to the counter currency of the pair. In addition, I also want to leave you with another important concept, which is rarely explained, but which is a key forex trading strategy and is what I call the ‘currency matrix’. The currency matrix plays a crucial role in my own trading, and I hope it will also play a part in yours.

However, let’s start by looking at each of the individual currencies, and then broaden out into the pairs themselves, but before I start, let me give you some general thoughts if I may, based on my own experience.

Many books on trading will suggest, and perhaps even advise that you only ever trade the major currency pairs. How wrong can they be. Yes, I fully accept the spreads on the major currency pairs will be tighter and generally more liquid. However, in ignoring the cross currency pairs, you will be missing out on some wonderful trading opportunities. In the last few years, and certainly since the start of the financial crisis, trading volumes in the cross currency pairs have increased dramatically, as speculators and investors have sought out alternative currencies, driven by a variety of factors. Not least by the problems with the US dollar and the euro. Artificial weakness with one, and political intervention with the other.

Trading both of these currencies has become something of a lottery in recent times, and the halcyon days of trending markets driven by ‘free floating’ exchange rates have long since disappeared. As I have tried to explain throughout the book, the rules of the forex market have changed, and changed forever, and we as forex traders have to adapt and change with it.

Those books written ten years ago, suggesting the majors were the only pairs to trade, are outdated and out of step. The currency wars have seen to that, and with these set to continue for some time to come, we have to change and change fast in order to survive. Remember, in the jungle it is survival of the fittest and as master forex traders we are guerrilla fighters now. Fast and agile. The old adage of the forex market being a strongly ‘trending’ market is gone, not forever perhaps, but certainly for the next few years. This is how dramatically the market has changed in just a short period.

We have to be aware of what is happening and change our approach and tactics accordingly. High frequency trading is also here to stay, another game changer, and another trend likely to get stronger, despite the authorities imposing ‘speed limits’ on such activities.

Therefore, I hope the above has given you some food for thought. It is what I believe and how I trade, and to become a master forex trader, it is how you will have to think in the future. The days of simply trading in the EUR/USD are long gone, and in fact this is now one of the most difficult pairs to trade. What a difference a decade makes.

I will be starting with the currencies themselves, before moving onto the major pairs, the cross pairs, and rounding off with some of the exotics. Then we’ll look at the currency matrix.

Still a safe haven, and likely to remain so, although other currencies are starting to nibble away at this once traditional role. As forex traders understanding market sentiment towards the US dollar should be paramount. Therefore, the dollar index is always the first port of call, and I like to use the FXCM version as it gives me a much clearer picture, particularly for intraday trading. All the technical analysis techniques covered in this book can be applied to this chart.

Understanding the US dollar is key.

Political with a capital P. The problem with the euro is trading it without an opinion. Almost impossible, since the currency has been written off so many times, by so many people it is difficult to ignore the chatter. The euro, in its present format will go - eventually, but with the Chinese reducing their dollars in favour of euros, not just yet. Because it is such a political currency it is fiendish to trade with any certainty, and price action is often illogical.

In many ways the markets are now so inured to bad news in Europe, that as each subsequent crisis unfolds, the reactions become less and less volatile. Indeed, a minor crisis is often welcomed as ‘good news’! In stark contrast to the US dollar the euro is increasingly seen as a high risk currency. When risk is on, the euro will often rise. However, with politics at the centre and with only one economy which keeps the euro alive, not easy or straightforward.

Safe haven and politics all rolled up in one neat package. The darling of the carry trade and another funding currency to match the US dollar. Protected and loved by the Bank of Japan, the yen will always come first when any decision has to be made. As interest rates start to rise, watch the yen weaken further and faster as the carry trade comes into play once again.

In a state of flux right now due to Brexit. Extreme intraday volatility which looks set to continue should no divorce agreement be reached with Europe. Extremely difficult to trade with any certainty post Brexit. It will revert to its original character of staid and steady in the next few years, and become straightforward once again.

A solid and well managed currency, but which catches a cold each time China sneezes. Commodities hold the key, and in the last few years, the currency is increasingly seen as a safe haven, but with a ‘risk’ label due to the high interest rates and carry trade drivers. Expect to see the currency strengthen as interest rates rise globally, with hot money flowing in, provided the Chinese economy continues on track.

Just as the Australian dollar is linked to its largest trading partner, China, so the Canadian dollar is heavily influenced by its next door neighbor, the US. Strength or weakness in the US economy will always impact Canada directly and quickly, which can make the USD/CAD a tricky pair to trade. In addition, commodities play their part with oil in particular, and if we throw the yen into the mix, trying to establish what is driving the currency can be difficult. Nevertheless, another solid currency representing a well managed economy. Remember the weekly oil stats release on a Wednesday, will impact the Canadian dollar more than the US dollar, even though the data is released in the US.

In the majors, the preferred currency of the carry trade, with subsequent flows of hot money, although in recent years this has become less of an issue, with the interest rate falling below that of the Australian dollar. However, once rates start to climb again, watch for buying of the currency, particularly against the yen. A great ‘trending’ currency as a result, but when the trend reverses, watch out - they can move equally fast in the opposite direction as money flows out again. The Australian economy also plays a part, as one of New Zealand’s largest trading partners, and of course commodities are in the mix, although soft commodities are more significant. In fact, China has recently become New Zealand’s largest export market for dairy based products, such as milk powder, butter and cheese. Indeed the NZD came under pressure recently following a problem with milk powder exports to China.

A very tricky currency to ‘put in a box’ in any well defined way. Norway is certainly stable, and extremely wealthy, and in many ways similar to Switzerland in this respect, particularly given its huge oil fund. Yet the currency struggles to be accepted as a ‘safe haven’ by investors which is rather odd, given its huge current account surplus. Oil, of course, is one of the determining factors for the currency, but in a currency whose volumes can be light during the trading day, volatility can be an issue. One opportunity on the horizon with the Krone is the prospect of rising interest rates due to the housing market which has been booming recently. This may force the Norwegian central bank (Norges Bank) to step in and raise interest rates, much against global trends. With rates in Europe falling and a possible increase for the Krone, this could see the development of a longer term trend, particularly if coupled with any move higher for oil.

Two words sum up the Swiss franc - ‘safety’ and ‘security’. Over the last few years Switzerland has increasingly been seen as another ‘safe haven’ country, under pinned by gold. Unlike Norway, overseas investors have been flooding in and buying the Swiss franc, particularly from Europe. The SNB has since given up supporting the currency having removed the floor. Swiss interest rates remain in negative territory and look set to do so for some time to come. Gold underpins everything.

Moving to some of the more exotic currencies which can offer excellent trading returns, but equally can be extremely volatile and fast moving. The South African Rand is a case in point and a currency influenced by a variety of factors. The first is commodities and gold, then comes demand from China, and finally we have the interest rate differentials. At the current rate of 6.5% this is attractive, but for how much longer? After all, as major currencies start to move higher, with Australia possibly leading the way, the decision is then between a ‘risk safe haven’ high yield currency vs a ‘high risk’ high yield currency.

The recent weakness in gold has also been a factor, and as with many other countries dependent on China, any slowdown in the economy will be reflected directly in the rand. As an exotic currency it is extremely volatile with wide spreads. Japanese investors have been increasingly dominant in this currency moving into higher yields, underpinned by gold, but with the resurgence in risk, these investors are now selling the currency and moving back into ‘risk assets’ in particular Japanese and US equities, with the rand being sold as a consequence. As an ‘exotic’ currency, this may not be available on regular trading platforms, but can be traded as a future through the CME.

The Mexican peso is one to watch, as it is poised to become a key currency for forex traders over the next few years. If this is not on your list - do consider it for the future. The Mexican economy is increasingly seen as stable, with a central bank that has managed the financial crisis well, and with the transition almost complete from a commodity driven export market to one built on technology, the peso is the one to watch. Overseas investors are flooding into the country for all the right reasons, and whilst the interest rates are attractive for the ‘hot money’ speculators at 8%, the flows here are manageable, and not purely speculative. As a result, the peso has been strengthening against most of the major currencies, and once again for investors and longer term speculators, a choice between a volatile currency offering high yields, against a stable currency with lower yields, it is really no contest. Expect to see further strength in the peso against the major currencies.

As with the rand, if this is not available on your trading platform, the CME offer futures and options under emerging markets.

The VIX of the currency world, which unlike the Japanese yen tends to weaken when the economy is weak, and strengthen when demand begins to pick up. Therefore, expect a return to strength once global markets begin to emerge from the carnage of the recent crisis. The currency is extremely volatile and indeed it is rare to see a candlestick with no wick. Generally they have wicks to both top and bottom. Very much a currency for longer term trading based on an analysis of the fundamentals and economic cycles initially.

Having looked at some of the principle currencies, along with some of the more exotic currencies, which may become, ‘majors’ of the future, let’s now look at the major currency pairs, followed by some of the cross currency pairs, and how these characteristics are reflected.

This may be the most widely traded currency pair in the forex market, but it is one of the most difficult. On one side we have a political currency now considered high risk, and on the other we have the US dollar, safe haven, yet increasingly manipulated by the FED policies. This pair is always promoted by brokers as the one to trade, primarily because of highly competitive spreads. This may have been the case a few years ago, but in my view this is no longer a valid argument. It may be very liquid, and is generally the pair that has the tightest spreads in the market, but these are about the only benefits. This is a pair I rarely consider, and rarely trade. It is a wolf in sheep’s clothing. Billions of dollars have been lost by speculators shorting this pair. Each time there is a new crisis in Europe, the latest being in Italy, the COT report shows the same patterns, with a massive build in short positions. The ECB step in with supporting rhetoric, the storm passes and the euro duly recovers.

Furthermore, the EUR/USD is a classic example of just how dramatically the forex market has changed over the last five years. As I said in the introduction to this book, the rule book has been torn up, and this is one of the casualties. Any book on trading forex, written before 2008, would have suggested the FX markets trend strongly, are driven by interest rate differentials, and that the EUR/USD was the place to start given the depth of liquidity and strength of the two currencies. None of this is true at present. It may change in the future, but not in the short term. So my advice, is to look elsewhere, and not start here. There are many others pairs to choose from, and the cross currency pairs in particular offer increasingly good trading opportunities.

This is another currency pair where we can tear up the rule book. Once upon a time, this pair was considered almost impossible to trade, and certainly not a ‘novice’ pair with two ‘safe haven’ currencies battling for supremacy. Then along came QE, which both central banks have embraced with enthusiasm. In the case of the Japanese, rather too enthusiastically as the BOJ prepares to release its 9th and most aggressive version yet. The BOJ are desperate to weaken the yen further, and to date they have succeeded in grand style, making this one of the ‘no decision’ trades of the year. But remember, when global interest rates start moving higher once again, the yen will be sold even more strongly, with any counterbalance effect from the US dollar, only having a muted effect.

After all, if the carry trade explodes back in the market, which it will, the yen will be the prime candidate once again, with strong trends in this and other yen based pairs. Furthermore, with the yen, when risk on appetite is in the ascendancy, the Japanese will be selling the yen and moving into equities, and giving the BOJ a further helping hand. All good news for the Bank of Japan, moving forward. In contrast the Federal Reserve’s attempts at QE seem restrained and almost amateurish.

The message is clear. Ignore the older forex trading books - the ‘old rules’ no longer apply. It is time to move away from a single currency pair. Start trading the USD/JPY, but if you prefer to trade the euro, simply move to the EUR/JPY as this correlates extremely closely with the USD/JPY, particularly on the hourly, daily and weekly timeframes. This is a positive correlation as you would expect.

At present and following Brexit, this pair has changed, but will revert back to the it's original character. Before 2016, it was solid steady and reliable. It ticks along like Big Ben, rarely volatile and generally predictable, and whilst it does have periods of excitement, the reasons are generally clear and self evident (as is the case at present). There are no politics with the pound, and it is increasingly seen as a safe haven and an alternative to the euro. Before the financial crisis, the GBP/USD and the EUR/USD would generally have moved in lockstep together, with both moving higher or lower on US dollar strength and weakness. This relationship has long since broken down, and now the two react and move independently, with the primary driver for the EUR/USD being politics in Europe, whilst for Cable it is the UK economy. The good old British pound keeps plodding along, and despite the recent downgrade, confidence in the currency was only temporarily dented, before strength returned.

This is not an exciting pair to trade, but then trading success is not about excitement, it’s about making money. The trading range typically is between 70 and 100 pips per day, and this is the currency which tends to set the tone for the London session following the open in Europe and from the overnight in Asia.

If you are a novice or inexperienced trader, I would urge you to consider starting with the GBP/USD, but only once any agreement has been reached with Brussels. Until then, it's not one for novice traders.

The Aussie dollar is one of those currency pairs which gets a ‘double boost’ whenever the US dollar weakens or strengthens, given its association with commodities, and as result tends to develop strong trends. One only has to look back over the last few years and see how the extended bull run in commodities has been reflected in the pair. More recently, the pair has been in an extended phase of consolidation, with the bullish trend having run out of steam as the commodity super cycle begins to slow. China is the biggest influence on this pair. Next the interest rate differential is also playing its part, and with an economy that is stable and well managed, providing China does not implode, we can expect to see interest rates rising in Australia thereby increasing the differential between the two currencies. Hot money flows should see the pair continue higher in the longer term. Fundamental news has a major influence on the pair with Chinese data leading the way, not US data.

As you might expect the pair correlate positively with the NZD/USD, but only on the longer term timeframes of weekly and above.

The biggest influence on the USD/CAD is the US, with the pair almost a mirror image of the AUD/USD on the longer term charts, and following the longer term cycle in commodities. Oil is the predominant commodity so once again a double whammy for the pair, with movements in the US dollar reflected in the oil price, as well as the Canadian dollar. As mentioned earlier, the weekly oil stats can have a significant impact mid-week, with any draw or build reflected in strength or weakness for the currency.

A very similar picture to the AUD/USD pair. A well managed economy which has survived the worst of the financial crisis, but once again it is China which influences the pair strongly. Another commodity currency and in its relationship with the US dollar, any effect is magnified as commodity prices rise and fall with strength or weakness in the US dollar. In addition, with China now taking over the number one spot as New Zealand’s primary export market, any bad fundamental news here, will instantly impact the currency, along with the Australian dollar. As you would expect correlation between the two pairs is relatively strong, particularly over the longer term time frames.

Again, as with the USD/JPY, this is ‘safe haven’ meets ‘safe haven’, but in the case of the Swiss franc, underpinned by gold. This is one correlation that still holds good, with the USD/CHF moving inversely to the EUR/USD and maintaining this relationship across all the time frames, despite repeated interventions by the SNB (Swiss National Bank), which only goes to prove the greater power of the market.

As an aside, some traders believe they have stumbled on a magic hedge, when this relationship is first discovered, and that trading long (or short) in both provides the ideal ‘safe bet’. I’m afraid this is completely wrong. This is simply constructing the EUR/CHF in another way, and using two pairs to do it, so an expensive way to trade a cross currency pair.

Over the longer term charts, the USD/CHF has reflected the strength in commodities, with strong buying on safe haven demand also moving the pair lower. However, as economies start to recover, and better returns become available elsewhere, then expect to see the Swiss franc being sold, as money is moved out of safe haven and into higher yielding assets. Does this mean the euro will weaken against the US dollar? To which the answer is yes, provided the correlation continues to hold. Further weakness in gold could speed this process along, and if the SNB gets its way and is able to sell off some of the gold reserves, this may be the trigger for investors to move elsewhere and into higher yielding assets. Moreover, as the current recession comes to an end, with inflationary pressure still some way off, demand for gold may fall.

One other tip with the USD/CHF and EUR/USD correlation. If you are trading the EUR/USD, using volume price analysis is a great way to validate the price action using an ‘associated’ market. After all, if the volume and price is confirming the trend higher for one currency pair, you should be seeing the exact opposite in the other.

Another commodity currency pair with oil the defining commodity. Again the pair react to the twin forces of US dollar price movements, coupled with the associated movements in oil, so a double whammy effect. The problem with this pair is that, unlike the others in this list, it is relatively thinly traded and therefore can be very volatile. Furthermore, there is little liquidity in the Norwegian bond markets. Norway is certainly a safe haven, but to date the krone has failed to attract the inflows of currency to establish it in the markets with this tag.

The key here will be any interest rate changes which are likely to be triggered by the housing bubble. The housing bubble has been developing for some time, and this could provide the catalyst with oil and the US dollar adding a further boost.

As I mentioned at the start of this chapter, the old rules in forex trading have gone, and as result we have to adapt and change as well. No longer are the major currency pairs the ‘de facto’ standard for us as forex traders. The world has changed and so has the world order of currencies and currency pairs. It is ironic I have suggested you avoid trading the EUR/USD for the foreseeable future. This would have been unthinkable a few years ago.

Therefore, let me highlight some of the cross currency pairs which I hope you will investigate for yourself. I accept the spreads will be wider, and yes you may have to take a slightly longer term view in order to make the maths work in your favour, but nevertheless, you can find some great trading opportunities in these pairs. As a fellow trader once said: ‘let the cross be your boss’. You just have to lift up your eyes, your time horizon and your perspective a little - not a lot, just a little.

In addition there is a further, perhaps self evident reason, which is this - you will no longer be at the mercy of the US dollar. Naturally, the market will always be dollar centric, but its effect on these pairs will simply be indirect. Here are my suggestions.

Move the euro to a different pair and its behavior changes almost completely. It’s as though the influence of the slow and measured UK pound brings the political upstart into line. The pair moves in a controlled way, is rarely volatile (other than at present with Brexit), and driven more by genuine market sentiment and fundamental news, than by the eternal politics that dominates the price action in the major. Here is a pair of the old school, the way forex markets ‘used to be’. Price action swings along at an even pace, supported by the economic releases and the technical picture. In many ways this is a great currency pair for ‘learner traders’.

It will never set the world on fire, but neither will it frighten you to death. It is a currency pair many traders ignore, but is an excellent one, in my humble opinion, for gauging the true market sentiment for the euro, devoid of politics, and also disassociated from the US dollar. So a clear view of the euro in every sense of the word. It is not a pair that will make you a fortune quickly, but it is a reliable and solid currency pair that behaves in the way currency pairs used to behave. You will make money with it, as it is predictable and follows the ‘rules’, and I say hurrah for that.

The EUR/GBP has a very strong correlation with the GBP/CHF pair across all time frames, with an inverse relationship.

I’ve chosen the AUD/JPY pair here, but to be honest we could have chosen any of the yen currency pairs, as they all correlate very closely, driven by the Japanese yen which dominates the pairs. Therefore, get the direction for the yen correct, and you are spoilt for choice. Furthermore, with the FXCM yen index, you have the perfect chart to reveal yen strength and weakness against the four major currencies, so use it.

The reason I selected the AUD/JPY is simple. It is a proxy pair for risk, and is the currency pair which should be checked each day for an assessment of market mood and sentiment. The same could be said for the EUR/JPY which used to have a very strong positive correlation with the S&P500, but I prefer the AUD/JPY. Here we have a commodity currency with a high yield, balanced by the counter currency of safe haven and the funding currency for the carry trade. As with all yen pairs, the index to watch is the Nikkei 225. If the index is rising money will be flowing into high risk and out of low risk. The yen will therefore weaken as Japanese (and other investors) sell the yen and move into risk.

Another of the yen pairs, and if you remember this is one that has a relatively close correlation to the price of oil. Canada as a major exporter, and the Japanese as a major importer. If oil prices are rising, at the same time as the yen is being weakened by ‘risk on’ or politics, the pair will move quickly. The weekly oil stats release on the economic calendar will also play their part here, with any build in reserves, bad for the price of oil and any draw, generally good. So there are several influences here, but as always with the yen crosses, get the direction right and you make money very quickly.

I have included this pair as it is an interesting combination of ‘commodity currency’ vs ‘commodity currency’. Near neighbour vs near neighbour. Australia and New Zealand are very similar in terms of exports and stability with similar risk profiles for their currencies. Surprisingly this pair trend extremely well, but only in the longer term timeframes, once you move beyond the hourly chart. Therefore, this is definitely a pair to consider for longer term swing or trend trading. And as I mentioned earlier, given the spreads on many of these pairs will be wider than the more usual one or two pips of the majors, a longer term approach is required.

In this pair the question is which commodities are dominating and why, and as I outlined earlier, the Australian dollar is closely connected to hard commodities whilst the New Zealand is more aligned to the ‘softs’. In addition, both now have China as their largest export market, and both have comparable interest rates. Therefore, what are the likely drivers of this currency pair, and again the answer is very much China? So, even if the Chinese economy does slow down, the Chinese people still have to eat, this is likely to have a greater impact on the AUD rather than the NZD. This would then be reflected in the pair in a move lower.

There are, of course, many cross currency pairs and impossible to cover them all here, so to round off this section, I just wanted to end with one I would suggest you perhaps do not trade, unless you actively enjoy watching paint dry. And that is the EUR/CHF. If you are prepared to wait months, and I do mean months, for a trend to develop, this pair may offer some trading opportunities. However, it remains rangebound for extremely long periods, and more likely to bore you out of a position before it moves. That said, since the SNB removed the floor of support in 2015, this pair has seen more lively price action since, so perhaps one to consider.

Finally to round of this chapter let me introduce you to the concept I call the ‘currency matrix’. The forex markets are distinctive in many ways, but one aspect in particular stands out above all others. And it is this. The fact a currency can be bought or sold against many other currencies. There are over 1000 global currency pairs, so there is always plenty of choice. This makes it extremely difficult for us as forex traders, to be able to identify where the buying or selling is actually taking place. Is it in the major currency pairs, or is it perhaps in the cross currency pairs? For example a bank selling euros and wanting to buy US dollars, might choose to do so with the EUR/USD, but they might not. One option could be to sell euros using the EUR/GBP, and then to sell pounds against the US dollar. The result would be the same, but the route would be very different.

The Interbank market makers do this all the time as they like to cover their tracks as much as possible, not just from us, but more importantly from their competitors. In addition, in moving large flows, they may put the price up against themselves in the process. So the question is this. Whenever we see a currency pair strengthening or weakening, can we validate this strength or weakness in any way? And the answer is yes, using the currency matrix.

Trading in forex is really about one thing and one thing only. Identifying currency strength and currency weakness. This is made doubly difficult for us, as we have to deal with two complex issues. First, is the currency pair being driven by strength or weakness in the base currency or the counter currency. Second, is that strength or weakness universal, in other words it is across all the other related currency pairs. And this is where we turn to the currency matrix for an answer to these questions. Moreover, it is somewhat ironic that as we come to the end of a book on three dimensional forex trading, this concept of looking at the markets in 3D comes in once more. However, this time directly and just using our forex charts.

The easiest way to explain a currency matrix is with some examples.

Suppose you are trading the EUR/GBP and the pair is moving higher. Is this move the result of euro strength or pound weakness?

Now imagine. Instead of looking at one chart for the EUR/GBP you also had the following charts on your screen, and this is what I call my currency matrix:

Suppose in all these pairs, the euro was also rising. What conclusion could we draw? Simply and clearly the EUR/GBP is being driven by euro strength and not pound weakness, since all the other euro pairs are rising along with the EUR/GBP. In other words, these other currency pairs are validating the move higher, and indicating in clear and simple terms the move higher is being driven by strength in the euro.

Next, what this matrix of charts will also tell you, is if this is not the case, in other words, if some pairs are rising and others are not, perhaps the move is lacking momentum and therefore unlikely to develop into a longer term trend. After all, if the market is buying euros across all the other pairs, this is a strong signal the euro is being bought everywhere, and other currencies are being sold. At the same time we can also check the GBP complex, and if the same is seen here with strong selling of the pound, we have the perfect combination. Buying of the euro across the complex, and selling the pound across its complex.

Finally, the currency matrix also reveals something else. It reveals the best currency pair to trade. If you are trading euro strength, for whatever reason, it will be instantly self evident from the matrix, which euro pairs offer the best trading opportunities based on your analysis. The move higher in the EUR/GBP may be sluggish compared to a move higher in the EUR/JPY or the EUR/CAD.

This is where a currency strength indicator can also help. The indicator can guide you to those currencies that are either overbought or oversold, and together with the currency matrix quickly and easily identify where the buying and selling is really taking place.

So in summary, a currency matrix does three key things for us.

First, a currency matrix helps us to identify the driving force in the currency pair. Is it the base currency, or the counter currency.

Second, the matrix helps us to validate the move, by confirming strength across all the related pairs.

Third, the matrix identifies the best pair to trade.

Setting up the currency matrix is very simple and I am always amazed forex traders rarely use this approach. To me it is common sense and yet few traders I have ever met use this simple technique. The charts are there, you simply need to set up a workspace with the six charts according to the main currencies you trade.

Therefore, you would have a yen workspace, a euro workspace, a pound workspace, a dollar workspace and so on, each with six charts for the primary currencies. For example, the yen workspace would be as follows :

I hope you have enjoyed reading it, and more importantly I fervently hope it is has changed the way you view the forex market, forever. My purpose has been to try to explain why I believe the forex market is the most important and powerful of the capital markets. And to explain some of the least understood linkages and relationships which exist between the four principle markets. As I have written many times, trading in isolation, without reference to any other market or instrument and focused on one chart, is doomed to failure. Yet this is how most traders trade, having been seduced into thinking it is simple, and an easy way to make money fast.

However, like every profitable endeavour, it takes time and effort, and a little hard work so I make no apology for the length or scope of this book. It explains, what I believe is rarely covered, and in my view is the only way to approach the forex market with any guarantee of long term success.

In applying the principles you have discovered here, you will be laying down the foundation stones of success in your own trading career. The forex market does not operate in a vacuum nor in isolation. Furthermore, it sits at the heart of all trading and investing and is the axis around which the other markets rotate. Whilst some of the linkages may be complex and take time to master, others are more straightforward. When you think about it logically, all the financial markets are signaling, second by second and day by day, is sentiment, risk, money flow and returns, and this is always reflected first in the forex market. And the reason, is simply because it is the quickest and easiest market in which to move from risk to safe haven, and back again. As Bernard Baruch said in relation to the stock market, but which applies equally to all markets:

‘Above all else, in other words, the stock market is people. It is people trying to read the future. And it is this intensely human quality that makes the stock market so dramatic an arena in which men and women pit their conflicting judgements, their hopes and fears, strengths and weaknesses, greeds and ideals.’

I started my own trading journey in the futures markets trading indices many years ago, and came to the forex market last of all. I only wish someone had explained to me why market behavior is a three dimensional process, and its importance. The clues and signals are there in plain sight, so why ignore them. The reason most traders do, is this approach has never been fully explained, and that has been my purpose here. To explain, in what I hope has been a simple, clear and logical way, how and why these relationships exist and how to profit from this knowledge.

If I had been armed with this knowledge when I first started, it would have saved me a great deal of time and short cut my own learning curve. And I hope it will do the same for you in your own trading (and investing) career.

Finally, I would, of course, like to thank you for purchasing this book, and if you do have any comments, questions or suggestions I would be delighted to hear from you. You can contact me on my personal email at anna@annacoulling.com and I guarantee you will receive a reply. This book is based on my own personal trading experience, and from what I found has worked for me over the years. However, I am also conscious it is impossible to cover all aspects of trading in one book. The purpose here has been to demonstrate how a three dimensional view can provide the foundation and framework against which to make trading decisions.

If you have enjoyed the book, naturally I would be grateful if you could spread the word, to help other traders who may still be struggling to understand how and why the forex markets behave in the way they do. I would of course appreciate a review on Amazon, which will help others to find this book more easily. So thank you in advance.

You can find details on all my other books in the back of this one, or on Amazon where they are all available in Kindle format or paperback. You may also be interested to learn I have since developed The Complete Forex Trading Program which takes all the concepts and ideas to the next level, as well as integrating them with the complete suite of trading tools and indicators, some of which I have mentioned here. You can find all the details at https://www.quantumtradingeducation.com - The Complete Forex Trading Program

My purpose here has been to explain broad concepts, and not detail, but to provide a framework. All subsequent books will be premised on two simple concepts. First, all markets are interconnected and to succeed you need to understand the three dimensional approach I have explained in this book. And second, that volume price analysis underpins all technical analysis and trading.

Once again, thank you so much, and may I wish you every success in your own trading journey towards becoming a master forex trader.

Warmest regards, and many thanks again

PS - please do follow my market analysis on my personal site and check for the latest book, or join me on Twitter or Facebook - In addition I also run regular seminars, webinars and trading rooms where I explain the concepts and methodologies in more detail. I look forward to seeing you there, and thank you once again.