Currency Trading for Dummies

09/01/2007 12:00 am EST

Focus:

Mark Galant

CEO and Founder, GAIN Capital

Most of you have noticed that it is difficult to go to a financial Internet site without seeing some sort of advertisement for a dealer. A corresponding trend can be seen in the flood of books on FX trading, many of which I have reviewed. Many have been quite good, but most would have been better had they not contained a sales pitch or examples that unreasonably raised ones expectations for success. With this in mind, I was a bit apprehensive when asked to review Currency Trading for Dummies, written by Mark Galant and Brian Dolan.

However, I was pleasantly surprised as I began to read the introductory chapters, as there was a significant amount of background information that is not always covered in other FX books and it was presented in a factual, ‘no nonsense’ manner. Within Chapter 4, entitled “The Mechanics of Currency Trading”, there were several sections I found quite informative. The discussion of calculating profit and loss, which is not always straightforward for stock traders, and the advice to do this calculation before establishing a position will help many beginning FX traders to survive. The explanation of rollovers is also easy to follow, and I would expect that many who are already trading FX will benefit from the information.

The second part of the book is spent on further background on both the major and minor currency pairs, along with an introduction to both fundamental and technical analysis. This section is packed with information ranging from a global review of important economic data to an overview of some of the basic aspects of technical analysis. Part three of the book concentrates on developing a trading plan. The authors do a good job of covering a wide range of subjects including: determining what type of trader you are, developing and maintaining market discipline, and, of course, planning trades and following the trades. This last part is especially important, as over the years I have come across countless traders who have blown out their accounts because of a lack of consistent, disciplined strategy, as well as others who do not calculate the risk of a trade before they take it.

I also found the discussion of studying multiple time frames to be on target, as was their approach to using candlesticks, divergences, and Fibonacci levels to find trading opportunities. About the only thing I would disagree with is how much one should risk on an individual trade. Their recommendation of no more than 10% seems too high for someone starting out, as a beginner could get so far in the hole, so fast, that it would be difficult psychologically to overcome. I feel that risking 3-5% per trade will allow one to ride out many more losing periods.

The final part of the book is titled “Executing a Plan”, which includes when it makes sense to average into a position and when it doesn’t; different ways to trade breakouts; and common sense things, such as adjusting your trading plan after a position is established. This is something that should be obvious, but surprisingly, many do not do it until it is too late. The book concludes with “10 Beginner Trading Mistakes” and “10 Rules of Risk Management”. Though I was a bit worried that this book would disappoint me, instead I was pleasantly surprised and for someone who is considering trading the FX markets, it is a must-have.

Video: Brian Dolan Discusses Currency Trading for Dummies

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