Kathy Lien - Trading Currency News Presentation

Strategies to Effectively Anticipate

and React to Currency News

Kathy Lien

Directors of Currency Research

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Agenda

Proactive vs. Reactive Trading

Learn How to Predict Economic Data

What is proactive trading all about?

Proactive Trading

Being ahead of the game.

Proactive Trading

Benefits

1. Lower Risk

2. Instant Gratification

3. If You Are Wrong, You’re Out

Disadvantages: It’s difficult!

Proactive Trading

The Key: Trade Pure Event Risk

Tier 1 vs. Tier 2 Data

Proactive Trading

AVOID

• Non-farm Payrolls

• Central Bank Rate Decisions

• Anything without Forecasts

TRADE

• Retail Sales

• CPI / PPI Numbers

• Employment Numbers for Other Countries

Tier 1 vs. Tier 2 Economic Data

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Avoid Data From: Japan & Switzerland

Tier 1 vs. Tier 2 Economic Data

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Rule #1

Enter a position no longer than 20 minutes

before a major news release.

How to Trade Proactively – Rule #1

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Trading AUD Retail Sales

29 September, 2009

Australian Retail Sales s.a. (MoM) – Aug.

8:00 PM ET

Expectations: 0.5%

Previous: 1.00%

Our Call: Stronger Retail Sales numbers

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Source: DealBook® 360

Trading AUD Retail Sales

Rule #2

Place stop at 30 pips.

How to Trade Proactively – Rule #2

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Source: DealBook® 360

Trading AUD Retail Sales

Trading AUD Retail Sales

Source: FX360.com

Rule #3

Buy back ½ of the position when the

currency sells off by the amount risked

(30 pips), move stop on remaining

position to break even.

How to Trade Proactively – Rule #3

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Source: DealBook® 360

Trading Australian Retail Sales

Rule #4

Trail stop on remaining position by

2 bar high, 3X risk or 20 SMA.

How to Trade Proactively – Rule #4

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Source: DealBook® 360

Trading Australian Retail Sales

Tricks of the Trade

How to Trade Proactively

How to Trade Proactively

Source: Bloomberg

Canadian GDP (July)

30 September, 2009

8:30 AM ET

0.5% Expected

0.1% Previous

Trading Canadian GDP

Our View:

Weaker Canadian GDP

WHY?

Trading Canadian GDP

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Anticipating News

What are the clues?

Retail Sales and Trade

Leading Indicators for GDP

Source: FX360.com

Trading Canadian GDP

Source: FX360.com

Source: DealBook® 360

Trading Canadian GDP

16 September, 2009

5:00 AM ET (August Figures)

U.K. Jobless Claim Change

25.0K Expected 24.9K Previous

ILO Unemployment Rate

8.00% Expected 7.80% Previous

U.K. Employment Figures

Our View:

Stronger Labor Picture

WHY?

U.K. Employment Figures

U.K. Employment Figures

http://www.markiteconomics.com/MarkitFiles/Pages/PressCenter.aspx

IVEY PMI = Canadian Employment

Another Correlation

Source: Bloomberg

Trading Canadian Employment

Source: IVEY http://iveypmi.uwo.ca/English/Welcomeeng.htm

U.K. Employment Figures

Source: FX360.com

Source: DealBook® 360

U.K. Employment Figures

Anticipating News

24 September, 2009

U.S. Existing Home Sales (August)

10:00 AM ET

Expectations: -2.70%

Previous: 7.20%

Our Call: Weaker Existing Home Sales

Our View:

U.S. Existing Home Sales = WEAKER

Risk Aversion Follows!!!

WHY?

Trading U.S. Existing Home Sales

Anticipating News

What are the clues?

Trading U.S. Existing Home Sales

Source: Bloomberg

Source: DealBook® 360

Trading U.S. Existing Home Sales

German Trade and Current Account Balance (July)

8 September, 2009

2:00 AM ET

11.3B Trade / 10.0B CA Expected

12.2B Trade / 13.3B CA Previous

Eurozone Data

Trading German Trade Data

Our View:

Trade and CA data = STRONGER

WHY?

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Anticipating News

What are the clues?

• Leading Indicators for German Trade

• Manufacturing PMI Increased

Trading German Trade

Source:FX360.com

Trading German Trade

Stronger than Expected

Source: FX360.com

Trading German Trade

Source: DealBook® 360

Trading German Trade

Reactive Trading

Reactive Trading

The FX Market is HUGE.

Prices do not adjust instantly.

Reactive Trading

AUD/USD

AUD Retail Sales - 29 September, 2009

Source: DealBook® 360

Reactive Trading

AUD/JPY

AUD Retail Sales - 29 September, 2009

Source: DealBook® 360

Reactive Trading

AUD/NZD

AUD Retail Sales - 29 September, 2009

Source: DealBook® 360

Reactive Trading

What makes reactive trading so compelling?

1.No guessing of data.

2.Limited exposure to market risk.

Reactive Trading

Reactive Trading Recipe

for Potential Success

Reactive Trading

1. Understand the Calendar

Source: FX360.com

Reactive Trading

2. Know the Expectations

Reactive Trading

Source: FX360.com

3. Watch the Price Action

Source: DealBook® 360

Reactive Trading

Money Management:

The Final Component

Reactive Trading

A reactive strategy requires swiftness.

Reactive Trading

Rule #1

Establish a bias from the data.

How to Trade Reactively – Rule #1

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Rule #2

Choose the currency pair to express the trade.

How to Trade Reactively – Rule #2

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

Rule #3

Wait for technical confirmation on

5-minute chart.

How to Trade Reactively – Rule #3

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

30-point Stop

15-point T1 Target

Trail Rest by 20

Reactive Trading

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading

strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author

may not prove to be accurate.

30 September, 2009 8:30 AM EST

CAD – Gross Domestic Product

0.0% vs. 0.10%

Reactive Trading

Trade Idea: Long USD/CAD

1. Risk aversion!

2. Disappointing Canadian growth.

Reactive Trading

Reactive Trading

Source: FX360.com and DealBook® 360

Source: DealBook® 360

Reactive Trading

Source: FX360.com and DealBook® 360

Reactive Trading

16 September, 2009 4:30 AM EST

U.K. Jobless Claims Change

24.4K vs. 25.2K

Reactive Trading

Trade Idea: Long GBP/USD

1. Risk is ON!

2. U.K. Employment Looking Stronger

Reactive Trading

Source: FX360.com and DealBook® 360

Reactive Trading

Reactive Trading

Source: FX360.com and DealBook® 360

Proactive/Reactive

Best of Both Worlds

Proactive/Reactive Trading

1. Enter one lot 10 minutes before event.

2. If event confirms your thesis, add 2nd lot.

3. Move stop to B/E on the whole position.

4. Exit both when price reaches +15 in money on

2nd lot.

Reactive Trading

The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a

particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the

market provided by the author may not prove to be accurate.

Trade Idea: Long EUR/USD

Proactive/Reactive Trading

Proactive/Reactive – Best of Both Worlds

Source: DealBook® 360

Proactive/Reactive Trading

Fast and Furious Trading, Part 2

Fast and Furious Trading

What qualifies as short-term trading?

Trend vs. Countertrend

How to Trail

Trading Strategies

Improving Performance

Agenda

Short Term• 10 pips a day

• 20-30 round turns

• Short attention span,

low risk tolerance

• Quantity, not quality

• 5-15 minute charts

Fast and Furious Trading

Long Term• 100+ pips

• Wider target, larger risks

• Patience

• Quality, not quantity

• 60-minute charts or greater

K

Trend vs. Countertrend

• Trend moves tend to develop slowly and require patience

• Countertrend moves are quick

• Countertrend moves require good timing

• Countertrend moves must obey strict money management

• Every trend has countertrend moves as early winners cash out

Fast and Furious Trading

B