A Publication of The Sovereign Society
Currency Cross Trader
The Sovereign Society
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Legal Notice: This work is based on what we’ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Cer-tain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recom-mendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. Please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings.
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The Currency Cross Trader
Trading Handbook
Table of Contents
I. Mission Statement and Overview:
Why Trade Spot Forex?
Mission
The goal of The Currency Cross Trader is to help you make money in the spot currency market. We aim to do that by providing you with actionable, highly-disciplined and narrowly-focused cur-rency trading ideas. Our aim is to achieve even larger gains than if we were just trading “the majors.” After all, sometimes some of the best choices and best percentage gainers are “crosses.”
Our trades are grounded both in solid fundamental and technical analysis.
Our fundamental view utilizes a global macro analytical approach in an attempt to pinpoint money flow over the intermediate-term. In the forex market, we view “intermediate term” as a few days to several weeks.
Ultimately, we aim to produce consistently profitable intermediate-term trading recommendations with optimal risk/reward characteristics.
This service was designed to satisfy two primary criteria for our Members:
Easy to understand. We don’t use complex technical holy grail black box indicators or mumbo
jumbo. We explain our recommendations in simple language, using simple technical analysis tools and reasons you can understand. We believe that if you understand the good, solid reasons for making a currency trade, you will find the service engaging and educational — as well as profitable. We want you to enjoy this service so we can keep you as our customer.
Easy to trade. You don’t have to be a “screen junkie” to make this service work for you. We don’t
expect you to hover around your email or trading screens in order to immediately enter each new recommendation. If you are there, and a trade comes in, great. But we use very generous profit targets. So even if you get to your email hours after the trade has been recommended, there still should be plenty of opportunity to enter the trade, with plenty of opportunity re-maining.
Overview
The forex market presents investors with powerful profit opportunities:
There’s always a bull market in currencies. Likewise, there’s always a bear market in currencies, too.
Another great benefit is that the currency market is non-correlated to the stock market. Some currencies tend to move with or against the Dow. But others tend to move inversely to it and some have very little correlation at all. So you can always trade independently of the stock mar-ket… and provide true diversification for your overall portfolio. Finally, since currency trends ex-ist in short-, intermediate-, and long-term timeframes, there’s always plenty of action and plenty of opportunity to profit. We happen to believe the intermediate-term is the best timeframe to garner profits in currencies, especially the currency crosses.
Small moves. Big profits! Leverage available in the forex market allows your profits to add up very
quickly. But leverage is a double-edged sword. A small move against you could also result in large losses. That’s why it’s important to cut your losses early and let your winners ride. And because we are targeting trends that can last from days to months, it’s important that you do not trade
with too much leverage. Too much leverage often means risk levels must be very tightly
main-tained. By reducing leverage and targeting greater profits, we believe it will allow you a better opportunity to stay with a powerful trend. Let’s be more specific on leverage here… this merits a conversation. Most retail forex brokers allow investors leverage of 100 times the amount of money required for deposit, and even higher. This is attractive to speculators because the high ratio of leverage can increase buying power (for example at 100:1 leverage, $1,000 has buying power of $100,000). Winning trades can be very profitable.
But as I mentioned, leverage is a double-edged sword. Since a small amount of money can purchase proportionately larger amounts of currencies, a movement in the wrong direction could wipe out an investment account that is not adequately funded, and even cause much deeper losses.
Keep in mind that I will suggest amounts to risk. I’d advise not going above the risk limits that I suggest. You will not want to risk more than 5% of your trading capital at any one time. I’ll be even more specific within each actual recommendation. But for now, use this as a general guide-line. There will be losing trades. They all won’t be winners. However, if the risk is defined prop-erly, then your account will be just fine until our next “win.”
As “efficient” as markets can get. The spot forex market achieves near perfect competition. It’s the
most liquid and largest financial market in the world. It trades electronically 24 hours a day, 5 ½ days a week.
Currencies keep you diversified. As stated above, we believe currencies are vital to a well-diversified
global portfolio. Currencies generally have a low correlation with stocks and bonds, so they are vital for decreasing risk in a portfolio. At times, currencies may be used to hedge against down-side risks in stock and bond markets.
Low relative capital investment. Because of the generous availability of leverage in the currency
II. Why Choose
The Currency Cross Trader?
What can you expect from The Currency Cross Trader weekly research trade alert? Good ques-tion! Here’s your answer:
Clear Reasoning
Technical analysis can easily become confusing, especially when weaving it in with the varying fundamental backdrops of each currency. But not to worry: we make our analysis easy to digest. And if you don’t understand a trade, we’ll always be here to answer any questions you may have.
Here are the technical tools we apply to the currency market: Trend line analysis
Timeframe analysis
Support and resistance levels MACD
Moving Averages Divergences Slow Stochastics Inter-market analysis
This is what we use. And we keep it simple. If there is something you don’t understand, and care to know about, please ask and we will be happy to explain.
Actionable Trades
We make clear guidelines for entering a trade. We will use two types of orders to enter a trade: market and entry orders. The advantages of each type of order differ, but we will consider them all in constructing our recommendations.
A market order says to simply enter into the trade now at whatever the price is when your order hits the market. It will usually be very close to the current quote that you see when you click to enter the order.
An entry order says to enter into the trade when the market hits the limit entry price. Depending on the trade, these order types are designed to increase the odds that:
The ample reward-to-risk characteristics we typically require to make a recommendation allow you to profit from them.
Simple, Honest Track Record
Our tracking is honest, and we do our best to reflect conservative, reasonable entry prices. Exam-ple: If GBP/JPY is trading at 149.00 when I give the order to ‘BUY GBP/JPY at the market.’ Then, by the time the order is processed and emailed to you the market has moved to 149.30, our tracking price will reflect 149.30.
Plain Recommendation Terminology
Below is a sample recommendation with accompanying terminology for a typical forex trade we issue.
As you know, an exchange rate simply means the price of one currency in terms of another. Before World War II, the currency of reference was the pound, so all currencies were priced relative to it. Following the war, the U.S. dollar replaced the pound as the currency of reference. This means that in the exchange rate, the dollar (USD) was the first in the quote. For instance, you say dollar/yen (USD/JPY) or dollar/Swiss franc (USD/CHF).
But old habits die hard. While most currencies in the world were priced as their value for one dollar, we had three exceptions: the pound (GBP), the Australian dollar (AUD) and the New Zea-land dollar (NZD). When you seek a price of one of these three currencies, they go first in the equation — even when they’re paired with the U.S. dollar. For example, it’s Australian dollar/U.S. dollar (AUD/USD) and New Zealand dollar/Japanese yen (NZD/JPY). Once the euro (EUR) was invented, the European Central Bank decided to make its currency larger in value than the dollar. Therefore, the euro is mentioned first in all pairs where it’s involved, such as: EUR/USD, EUR/JPY, EUR/GBP or EUR/CHF, etc.
HOW IT LOOKS
Here is an example of a Currency Cross Trader trade recommendation, to show how currency quotes look in action.
The Currency Cross Trader — Issue #6 Buying EUR/JPY:
Buy EUR/JPY at the market as long as the price is at 135.00 or lower. The current quote is 134.79.
Place your stop at 132.00 and your limit price at 138.00 Now let’s translate each line:
The current quote is: EUR/JPY 134.79. This means each euro is worth almost 135 yen. Order: Buy EUR/JPY at the market. [The recommendation is to buy the EUR/JPY currency cross
at the market as long as it’s at or under 135.00, In other words, don’t buy any higher than the price of 135.00]
Profit Taking: Place your limit at 138.00. [This is the price you set at which your trading station closes
the trade for a profit. Once the trade hits this target, your limit price is hit and it closes out your position.]
Now, the question you might have is: Why would you want to buy at a higher price than the cur-rent one? This gives you some room to get into the trade even if you’re not seeing the recommenda-tion as soon as it hits your email box. If you can get in lower, of course do so…unless I’ve instructed otherwise through the recommendation.
Strict Risk Management, Leverage, and Consistent Follow-Ups
Controlling your risk in these markets is vital in managing your capital, hence the protective stop-loss order included in our trading recommendations. This is hugely important when dealing with leverage in forex trading. Again, that’s because leverage is a two-edged sword. It can magnify your profits but it can work just as easily against you.
Leverage works like this:
Based on a mini lot (10k-lot size), a 50 pip profit is roughly equal to $50. I say roughly because each cross could be a little less than a dollar a pip or possibly a little more than a dollar a pip. The only large exception to this is usually EUR/GBP which can, at times be, roughly $2 a pip of move-ment.
You want to make it to where the number of lots that you choose to use, if stopped out, wouldn’t erase more than 5% of your trading account’s capital. Again, I’ll give “suggested” risk parameters on each trade and I’d highly suggest not exceeding them.
III. Here’s What’s Coming Your Way …
You can expect to receive one update each week. And those bulletins should include approximately 2-5 trade recommendations per month, sent via email and included in our Currency Cross Trader Members-only archive.
Each trading recommendation will include: Specific Entry Order
Stop-loss Order Profit Taking Order
Brief explanation for the trade
Currencies We Cover
You will receive recommendations from a universe of the most actively traded cross rates, in the spot forex along with some trades involving the majors:
Actively traded currency crosses:
EUR/JPY (Euro vs. Japanese yen)
GBP/JPY (British pound vs. Japanese yen) CHF/JPY (Swiss franc vs. Japanese yen) AUD/JPY (Aussie dollar vs. Japanese yen)
NZD/JPY (New Zealand dollar vs. Japanese yen) CAD/JPY (Canadian dollar vs. Japanese yen) EUR/CHF (Euro vs. Swiss franc)
EUR/GBP (Euro vs. British pound) GBP/CHF (British pound vs. Swiss franc) AUD/CHF (Aussie dollar vs. Swiss franc) AUD/CAD (Aussie dollar vs. Canadian dollar) EUR/CAD (Euro vs. Canadian dollar)
GBP/AUD (British pound vs. Aussie dollar) AUD/NZD (Aussie dollar vs. New Zealand dollar) EUR/AUD (Euro vs. Aussie dollar)
We may include a few majors in the trades when I feel they are the “best” pick at the time. Major U.S. Dollar pairs:
EUR/USD (Euro vs. U.S. dollar) USD/JPY (U.S. dollar vs. Japanese yen) GBP/USD (British pound vs. U.S. dollar) USD/CHF (U.S. dollar vs. Swiss franc) USD/CAD (U.S. dollar vs. Canadian dollar) AUD/USD (Australian dollar vs. U.S. dollar) NZD/USD (New Zealand dollar vs. U.S. dollar)
A “cross-rate” is the price of one foreign currency versus another foreign currency. That is, the U.S. dollar is not involved in the trade. So if we wanted to short the euro versus the Japanese yen, we would put out a recommendation to sell EURJPY. So what you think, if you’re shorting (selling) the EURJPY currency cross pair, you’re betting that the euro will depreciate/fall against the yen. In other words, you’re expecting the pair to head lower on the charts.
Pricing in the Forex Market
IV. Method Behind the
[Currency] Madness
We integrate three critical elements of a successful intermediate-term trade. If we correctly pin-point these criteria, more often than not we will realize our share of effective trades and pull excellent profits from the currency market.
First, we build a foundation based on global macro trends — the direction and destination of money flow. Keeping an eye on the flow of capital between countries and global financial markets is crucial towards developing a fundamental framework. This is what drives currencies.
Second, we seek to understand the market’s mood. I’m sure you’ve heard it before, “Perception is everything.” It’s no different with currencies. Investor sentiment plays a large part in how prices fluc-tuate. Without keeping a finger on the pulse of the market sentiment, you could easily find yourself frustrated if prices move adversely to fundamentals.
And last, we do our best to pinpoint trades where our risk is minimized and our potential reward is maximized. This basically means timing is hugely important.
And we use a polished group of technical indicators in our decision-making – ones we are com-fortable using because they have proven successful for us in the past.
Please be aware that The Currency Cross Trader is a trend-following service. That means we plan to hold positions over the course of several days and up to several weeks. Thus, we’ll not be issuing short-term recommendations that revolve solely around technical set-ups typically. We are most com-fortable trading with fundamental, sentiment and technical reasoning together.
One- and Two-Lot Trading Strategy
In the spot forex market, traditional mini lots are 10,000 units. That’s 10,000 of the base unit to be exact. The base unit is the first of the two currencies named in a pair. So, for example, a lot of USD/JPY is 10,000 U.S. dollars worth of Japanese yen. A lot of EUR/USD is 10,000 euro worth of U.S. dollars.
Much of the time our goal is to capture intermediate-term trends. In this case we need our stops to be wide enough to compensate for the noise and give us time to achieve our profit targets.
V. What You Need to Know
to Get Cranking...
Be prepared. We don’t want you to miss out on important market updates, bonus analysis, weekly commentary, and most importantly, trading recommendations. So make sure you’re set up to receive emails from the following address: [email protected].
Also, be aware that each recommendation issue will be posted to The Currency Cross Trader Archive that’s accessible through the The Currency Cross Trader homepage. Only members have access to this archive. Your permanent username and password are provided on each of your advisory emails.
Brokers
In order to make use of the recommendations you receive with your Currency Cross Trader membership, you will need to establish and fund a forex trading account. You have two options:
You can use a full-service broker that can set-up your account, give you specific advice concerning your account, and offer as much assistance as you may need with our recommendations… OR
You can use a retail forex broker to establish an online trading account.
This decision is entirely up to you and should depend on your experience trading in these markets. If you don’t already have a broker that can efficiently execute forex trades, you may want to contact one of the brokers we have listed below.
(Please note: We never receive any compensation, directly or indirectly, for any brokerage referral.)
Online Retail Forex Firms:
FXCM (Forex Capital Markets): Contact them at 1-888-503-6739 or at www.fxcm.com 32 Old Slip, 10th Floor
New York, NY 10005
Email: [email protected] or [email protected]
FXCM is one of the largest and most highly regulated retail firms out there. Oanda: Contact them at 1-212-858-7690 or at www.oanda.com
Full Service Firms:
Mirus FX TradeAssist
Specialty: Forex, Currency Futures, and Currency Futures Options Contact: AJ Wustefeld
444 N Wells St, suite 502 Chicago, IL 60610 www.mirusfutures.com Tel. (800) 496-1683 x2244
Email: [email protected] or [email protected], [email protected], [email protected], [email protected]
R.J. O’Brien
Specialty: Forex, offering over 120 currency pairs with mini contracts; plus, Currency Futures and Options on Futures contracts
Contact: Kathryn Fischer, Currency Desk Manager, RJO Futures 222 South Riverside Plaza, Suite 900
Chicago, IL 60606 Toll Free: 800-441-1616 Direct: 312-373-5477
VI. Contact Us
Currency Cross Trader is an elite service — our professionals are on standby to assist you. We want to make sure you know how to contact us whenever you need more specific assistance with our recommendations.
So, feel free to contact us at 1-866-584-4096 if you have any questions related to this service, such as:
• How the service works and the investment vehicles we will be using • Understanding our trading instructions
For any questions about your subscription — renewals, changes of address, a retransmission of an issue, etc., there are three ways to reach us:
1. PHONE is the best way to reach us for routine questions about your subscription, changes of address and non-receipt of Currency Cross Trader issues. Please call 1-866-584-4096.
2. FREQUENTLY ASKED QUESTIONS PAGE on the sovereignsociety.com website is the next best way to reach us. Just log on to www.sovereignsociety.com with your username and password and click on Currency Cross Trader, then FAQ’s under the section Your Account.
3. You may also contact us here: http://worldcurrencywatch.com/contact-us
We urge you to periodically check your email program to ensure that you are accurately and promptly receiving our recommendations and alerts. Be sure to White list us at
http://worldcurrencywatch.com/files/2010/09/CCT_Whitelist.pdf
To avoid delays in responding to your questions or processing your requests, include the name of this service — Currency Cross Trader — as well as your full name.
• If you are changing your email or mailing address, please include both your current and new information.
• For security reasons, and to prevent banking errors you must contact us by phone to cancel a paid subscription. Submitted email to cancel a subscription will not be processed. Please call us at 1-877-422-1888, to process your request. Our cancel service center is open Monday through Friday, 9 a.m.-5 p.m., EST.
sub-loss, injury, damage, costs, expenses or compensation of any kind arising directly or indirectly from or as a result of any act, neglect, delay, error, omission, default, or negligence by the Company in relation to the transmission of, or any other dealing with, or other failure in the accurate receipt by you of Company publications containing recommendations, alerts, advisories, or other Company materials or information of any kind, even if advised of the possibility of such damages. In the event a transmission is interrupted for any reason, the Company cannot guarantee timely delivery.
VII. Additional Sources of Market Information
Websites for free forex news, economic calendars, charts, and commentary:
DailyFX: www.dailyfx.com
Forex Factory: www.forexfactory.com
Trading Economics: www.tradingeconomics.com
Bloomberg News
www.bloomberg.com (specifically … www.bloomberg.com/news/markets/currencies.html ) There is a substantial risk of loss trading in forex (off-exchange retail foreign currency).
