Mastering the Forex Market A Scientific Approach to Trading Success

By Leonardo Guiliani

If you're interested in forex trading, then this book is for you! "Forex Trading Strategies: A Scientific Approach" offers a comprehensive and scientifically-backed guide to help you navigate the world of forex trading. From understanding the basics of forex trading to developing your own strategies, this book provides practical insights and real-life examples that will help you succeed in the forex market. With its clear writing style and in-depth analysis, this book is perfect for both beginner and experienced traders looking to enhance their knowledge and skills. Don't miss out on this valuable resource – get your copy today!

Leonardo Guiliani

• Language: English
• Publisher: Leonardo Guiliani
• Release date: Aug 20, 2023
• ISBN: 9798215590331

Book preview

Chapter 1.1: What is Forex Trading?

Forex, short for foreign exchange, is the world's largest and most liquid financial market. Forex trading is the process of buying and selling currencies with the aim of making a profit from the fluctuations in their value. The forex market operates 24 hours a day, five days a week, and has a daily turnover of around $6.6 trillion, making it the most traded market in the world.

The forex market is decentralized and does not have a physical location. Instead, it is an over-the-counter (OTC) market where traders buy and sell currencies through electronic platforms, such as the internet. The currencies traded on the forex market are always traded in pairs, with the first currency in the pair being the base currency and the second currency being the quote currency. For example, in the currency pair EUR/USD, the euro is the base currency, and the US dollar is the quote currency.

The forex market is driven by various factors, including macroeconomic events, government policies, and geopolitical tensions. Currency values are affected by changes in interest rates, inflation, and the overall health of the economy. Forex traders use various strategies to make decisions on when to buy or sell a currency pair, including technical analysis, fundamental analysis, and sentiment analysis.

Forex trading offers the potential for significant profits but also carries a high level of risk. Successful forex trading requires knowledge, skill, and discipline, and traders must be prepared to accept losses as part of the learning process.

References:

Chaboud, A. P., Chiquoine, B., Hjalmarsson, E., & Vega, C. (2014). Rise of the Machines: Algorithmic Trading in the Foreign Exchange Market. Journal of Finance, 69(5), 2045-2084. doi:10.1111/jofi.12179

Dorn, J. A. (2018). Foreign Exchange Market Structure, Players and Evolution. In Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning, Volume 4 (pp. 1113-1144). Springer International Publishing. doi:10.1007/978-3-319-91508-9_37

Evans, R. D. (2015). Foreign Exchange Market Organization in the Post-Crisis Era. Journal of International Money and Finance, 57, 29-40. doi:10.1016/j.jimonfin.2015.06.001

Chapter 1.2: History of Forex Trading

The foreign exchange market has a long and fascinating history that dates back to ancient times. Currency trading can be traced back to the early days of human civilization when people used to exchange goods and services for other goods and services. The first recorded currency transaction occurred in Mesopotamia around 4,500 years ago when people used silver to exchange goods and services.

The modern forex market, however, evolved during the 19th century with the establishment of the gold standard. The gold standard was a monetary system that linked the value of a country's currency to a fixed amount of gold. This meant that the value of a currency was determined by the amount of gold it could buy. The gold standard remained in place until the outbreak of World War I, after which it was abandoned by many countries.

After World War II, the Bretton Woods Agreement was established, which fixed the value of the US dollar to gold and other currencies to the US dollar. This created a stable environment for international trade and investment, and the forex market began to grow rapidly. The Bretton Woods Agreement remained in place until the early 1970s when the US government ended the convertibility of the US dollar to gold.

The 1970s saw the emergence of electronic trading platforms that revolutionized the forex market. With the development of computer technology and the internet, forex trading became accessible to individual traders and small investors. Today, the forex market is the largest and most liquid financial market in the world, with an estimated daily turnover of $6.6 trillion.

References:

Bordo, M. D., & James, H. (2010). The International Monetary Fund: Its Present Role in Historical Perspective. In A. Capie & G. E. Wood (Eds.), Monetary Unions: Theory, History, Public Choice (pp. 221-235). Routledge. doi:10.4324/9781315804763-11

Galati, G., & Melvin, M. (2004). Why Has FX Trading Surged? Explaining the 2004 Triennial Survey. BIS Quarterly Review, September, 37-46. Retrieved from https://www.bis.org/publ/qtrpdf/r_qt0409f.pdf

Lien, K. (2010). The Foreign Exchange Interbank Market. In Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves (pp. 15-36). John Wiley & Sons. doi:10.1002/9780470688101.ch2

Chapter 1.3: Why Trade Forex

The foreign exchange market is the largest and most liquid financial market in the world, with an average daily turnover of $6.6 trillion. Forex trading offers a range of benefits to investors, including high liquidity, low transaction costs, and 24-hour trading.

One of the main advantages of forex trading is its high liquidity. The forex market is open 24 hours a day, five days a week, and allows traders to buy and sell currencies at any time. This means that traders can easily enter and exit positions, and the market is less likely to experience price manipulation or sudden movements.

Another advantage of forex trading is its low transaction costs. Unlike other financial markets, the forex market has no central exchange, which means that trading fees are generally lower. In addition, forex brokers often offer leverage, which allows traders to trade with more capital than they have in their accounts, which can potentially increase profits.

Forex trading also offers a range of investment opportunities. Traders can use a variety of strategies, including technical analysis, fundamental analysis, and automated trading systems, to identify profitable trades. In addition, the forex market is highly interconnected with other financial markets, such as stocks, commodities, and bonds, which means that forex traders can use correlations between markets to make profitable trades.

However, it is important to note that forex trading carries a high level of risk, and traders should always be aware of the potential for losses. It is also important to have a solid understanding of the market and the factors that can impact currency prices.

References:

Galati, G., & Melvin, M. (2004). Why Has FX Trading Surged? Explaining the 2004 Triennial Survey. BIS Quarterly Review, September, 37-46. Retrieved from https://www.bis.org/publ/qtrpdf/r_qt0409f.pdf

Pring, M. J. (2015). Introduction to Forex Trading. In Technical Analysis Explained: The Successful Investor's Guide to Spotting Investment Trends and Turning Points (6th ed., pp. 231-255). McGraw-Hill Education.

Sarno, L., & Taylor, M. P. (2002). The Economics of Exchange Rates. Cambridge University Press. doi:10.1017/CBO9780511753932

Chapter 1.4: Understanding Currency Pairs

Forex trading involves the buying and selling of currency pairs. Each currency pair consists of two currencies, and the value of the pair reflects the exchange rate between the two currencies. Understanding currency pairs is essential for successful forex trading.

In forex trading, the first currency in a currency pair is called the base currency, and the second currency is called the quote currency. The exchange rate between the two currencies determines how much of the quote currency is needed to purchase one unit of the base currency.

Currency pairs are typically expressed in a standardized format, with the base currency listed first, followed by the quote currency. For example, the EUR/USD currency pair represents the euro as the base currency and the US dollar as the quote currency.

Currency pairs can be divided into three categories: major pairs, minor pairs, and exotic pairs. Major pairs are the most heavily traded and include the USD, EUR, JPY, GBP, CHF, CAD, AUD, and NZD. Minor pairs, also known as cross pairs, do not include the USD as one of the currencies and include pairs such as EUR/GBP and AUD/CAD. Exotic pairs involve currencies from emerging or developing economies and are less commonly traded.

The value of a currency pair can be influenced by a range of economic, political, and social factors, including interest rates, economic growth, inflation, and geopolitical events. Forex traders use a range of analytical tools and