Quotations by Kathy Lien

Newer traders probably want to start off with following only the four major currency pairs, which are the EUR/USD, USD/JPY, USD/CHF, and GBP/USD, and then gradually add in the crosses. [2009] - Kathy Lien

Traders will ﬁnd a higher success rate by buying on retracements in an uptrend or selling on rallies in a downtrend. [2009] - Kathy Lien

First I will take an overall technical survey of the market and pick the currency pairs that have retraced to attractive levels for entry in order to participate in a medium-term trend. I determine if my initial technical view for that pair coincides with my fundamental view on the dollar as well as my view on how upcoming U.S. releases may impact trading for the day. Then I like to look at positioning using the FXCM Speculative Sentiment index to see if it supports the trade. If I am left with two equally compelling trade ideas, I will choose the one with a positive interest rate differential. [2009] - Kathy Lien

Buying when stochastics are in oversold territory and selling when they are in overbought territory is a strategy that is used quite often by range traders with a great deal of success, but once the market stops range trading and begins trending, then relying on stochastics could lead to a tremendous amount of losses. [2009] - Kathy Lien

One of the strongest momentum indicators is a perfect order in moving averages. A perfect order is when the moving averages line up perfectly; that is, for an uptrend, the 10-day SMA is greater than the 20-day SMA, which is greater than the 50-day SMA. The 100-day SMA and the 200-day SMA are below the shorter-term moving averages. In a downtrend, a perfect order would be when the shorter-term moving averages stack up below the longer-term moving averages. [2009] - Kathy Lien

Generally, the risk-reward ratio should be at least 1:2. A good habit of more successful traders is to employ the rule of moving your stop to break even as soon as your position has proﬁted by the same amount that you initially risked through the stop order. At the same time, some traders may also choose to close a portion of their position. [2009] - Kathy Lien

Taking a few days off from watching the market to clear your mind can be the best remedy for a losing streak. [2009] - Kathy Lien

I recommend not risking more than 2 percent of your equity on any single trade. [2009] - Kathy Lien

70 percent of a market’s moves occurs 20 percent of the time. [2009] - Kathy Lien

Use daily charts to identify the overall trend and then to use the hourly charts to determine specific entry levels. [2009] - Kathy Lien

GBP is laden with speculators. The British pound trades most actively against the U.S. dollar during the European and London trading hours. The initial movement at the London open may not always be the real one. It works best following the U.S. open or after a major economic release. [2009] - Kathy Lien

Carry trades are the most proﬁtable when investors have low risk aversion. Before entering into a carry trade, an investor should be willing to commit to a time horizon of at least six months. [2009] - Kathy Lien

The AUD, CAD, NZD, and CHF all have solid correlations with gold prices. The AUD/USD, NZD/USD, and USD/CHF currency pairs tend to mirror gold’s movements the closest. The Swiss franc is one of the few major currencies that still adheres to the gold standard. A full 25 percent of Switzerland’s bank issue notes are backed in gold reserves. One interesting incentive to go long the AUD/USD instead of gold is the unique ability of expressing the same view but also being able to earn positive carry. [2009] - Kathy Lien

The only publicly available report on positioning is the “Commitments of Traders” report published by the Commodity Futures Trading Commission, and even that is released with a three-day delay. A useful alternative is to use risk reversals, which are provided on a real-time basis on the Forex Capital Markets (FXCM) news plug-in, under Options. Risk reversals do a very good job of identifying extreme overbought and oversold conditions. [2009] - Kathy Lien

Volatilities can be obtained from the FXCM news plug-in available at www.fxcm.com/forex-news-software-exchange.jsp. Generally speaking, we use three-month volatilities for long- term volatilities numbers and one-month volatilities for the short term. [2009] - Kathy Lien

If your trading strategy calls for a risk of no more than 100 pips on each trade, currency pairs with wide ranges like the GBP/JPY and the EUR/CAD should be avoided. The CHF/JPY, for example, is a great currency pair for a range-trading strategy and a horrible one for a trend-trading strategy. Major currency pairs such as the EUR/USD or the USD/JPY tend to be very sensitive to what is happening in the U.S. dollar. [2009] - Kathy Lien

Short-term traders may ﬁnd it more proﬁtable to close their trades if they are not working after a certain number of hours or when the market switches into the Asian trading session. As for the weekend, occasionally something big may happen between Friday night and Sunday afternoon. Unless you have stops that can absorb any shocks or you know that there isn’t a signiﬁcant event risk, closing positions before the weekend may also be something to consider. [2009] - Kathy Lien

The BOJ and MOF are very active participants in the FX markets. Intervention has historically occurred when the yen moves by seven or more yen in less than six weeks. JPY crosses can become very active toward the end of the Japanese ﬁscal year (March 31). [2009] - Kathy Lien

The Australian dollar has had a very strong correlation (approximately 80 percent) with commodity prices and, more specifically, with gold prices. Australia has one of the highest interest rates among the developed countries. [2009] - Kathy Lien