The Currency Trader's Handbook

Posted by Allison on 13 April 2009, 10:47

Trading on the foreign currency exchange market can be a great way to bring in a little bit of extra money or a profitable career in and of itself.  Regardless of whether you are dabbling in currency trading or want to make it your full time occupation, The Currency Trader's Handbook is a valuable resource you will want to read over and over again.  It contains excellent tips, guidance, strategy, and methods anyone can use successfully. 

More than just the facts about trading foreign currency

Where other books provide many long pages of technical explanations about the foreign currency exchange trading market, The Currency Trader's Handbook relies less on detailing the intricacies of the market and more on detailing the mental and emotional intricacies of being a successful foreign currency trader.

A key assertion in the book is that most individuals who trade in foreign currency make the biggest mistake of all when they try to make huge amount of profit on every single trade.  When that doesn't happen, of course, they try harder and harder to make up for it by taking bigger risks and trading more aggressively than they should.  It is this cycle of emotional trading that leads to losing large amounts of money, and The Currency Trader's Handbook addresses this issue in a very straightforward and enlightening way.

Two of the emotions discussed are revenge and greed.  Now, you might not think that revenge would be something a foreign currency trader would feel at any point, but the reality is this is a big one.  It starts when a trader has lost some money on a trade, even just a little bit of money, and feels the strong urge to “stick it to the market” and take revenge in some way.  Unfortunately, the foreign currency exchange trading market is not a place where revenge is possible; rather, it is a place where trading with a revenge frame of mind will lead to even greater losses.

Greed is a little bit different than revenge because it is not about being angry with the market, but is about wanting to make as much money as possible in the shortest amount of time possible.  The Currency Trader's Handbook shows very clearly why this approach doesn't work, because true success in the foreign currency market occurs through steady, measured progress over time.

Strategy 10 and the power of defensive trading

A central lesson in The Currency Trader's Handbook is on what the author calls Strategy 10.  It is very simple:  every time you sit down to trade your goal is to earn 10 pips.  That's all, just 10 pips total for whatever length of trading session you choose.  What's more, as soon as you get to the 10 pips mark it's time to quit the trading session and go do something else for the rest of the day.

The emphasis here is on a defensive approach to trading on the foreign currency exchange market.  Instead of going for the “kill”, go for the “reasonable” profit and then step aside.  It's a solid approach that you don't see recommended anywhere else in this way.  Why is it so strong?  Because it directly counteracts the two most dangerous emotions in foreign currency trading – revenge and greed.

By avoiding huge losses and being satisfied with reasonable, steady gains, you avoid putting yourself in a position where revenge and greed start to creep in to your mind.  There's no need for revenge because the market hasn't gobbled up a huge amount of your money, and there's no need for greed because you are perfectly satisfied with the reasonable 10 pip per day achievement.

More about defensive trading strategy

Another part of a solid defensive trading strategy, according to The Currency Trader's Handbook, is taking an overall perspective to each day's trades rather than becoming too focused on just one or two trades.  Look for opportunities to create overall success based on the cumulative effects of the day's activities. 

For instance, let's say you make ten trades in a single day.  If you lose 50 pips on one trade, break even on two trades, and make 10 pips each on seven other trades, that's a good day.  Many foreign currency traders make the mistake of dwelling on the 50 pip loss, berating themselves for a whole range of mistakes they made on that trade.

An overall perspective, however, looks at that day as a success because this perspective looks at the cumulative effects of all ten trades.  A trader in this frame of mind understands that not every trade will be profitable, but with a steady strategy and approach the overall results will be on the plus side.

You can make bigger profits

The Currency Trader's Handbook doesn't pretend that 10 pip profits are all you can hope to achieve, however.  It also talks about how to make even bigger profits once your 10 pip profit is secure.  The key is in how you set your stops on a trade so that once it gets to a 10 pip profit you can reset the stop at the break even point. 

It also emphasises that the 10 pip trading strategy is not the only strategy you will ever use as a foreign currency exchange trader.  There will be other situations where you will go for bigger profits, depending on the nature of the trading opportunity and the market conditions.  The book includes information about when and how to take advantage of these opportunities so that you can generate some of the larger profits you want.

A bit about the author

The author, Rob Booker, is a long time currency trader who is well known for his assortment of e-books, newsletters, and personalized training for currency traders.    The Currency Trader's Handbook is a collection of several of his most popular e-books, updated and put together into a solid trading manual. 

Booker's style is extremely conversational, almost humorous in some cases, as he shares his experiences and insights.  This book is noteworthy because of the quality of its information as well as the honesty with which this information is presented.  Booker does not hide any of the challenges of foreign currency exchange trading, but he does not make them seem impossible or insurmountable.  His “can do” approach offers a terrific mix of facts, real life stories, humour, and encouragement, making The Currency Trader's Handbook one of the best and most enjoyable books on this subject.

Final thoughts

One of the greatest strengths of The Currency Trader's Handbook is the way it presents important information in a way that is easily understandable and even fun to read in some instances.  The real world examples and descriptions are invaluable, as are the trading strategies discussed throughout the book.

Where the book really shines, however, is in its emphasis on understanding and overcoming the dangers of foreign currency trading based on feelings and emotions.  Revenge and greed are two of the major sources of danger, but Booker does an excellent job of detailing why they are so dangerous and how to set up your trading to avoid them.  Mental toughness and mental discipline are critical, because without them you will lose money.  Period.

The central trading approach, called Strategy 10, brings this home.  It is based on common sense and a strong understanding of how the market and the trader's mindset influence profits.  Booker does a good job of communicating Strategy 10, clearly demonstrating the value of using 10 pips per day as a reasonable trading goal.

Throughout the book, facts and real world knowledge are combined with humour and good spirits.  The effect is dramatic, making The Currency Trader's Handbook that rare combination of factual and enjoyable at the same time.  Use other books to learn the intricacies of technical and fundamental analysis, but be sure to start with this book to set the framework and mindset you need to be success.

Direct link to this book at Amazon