HSBC recently released a report announcing a new era for FX where, as a result of central bank intervention and low interest rates, currency trading has become much more volatile and harder for investors to interpret. “The demise of carry has brought ‘onion skin’ layers of uncertainty into the FX market, tears and all.”
Enter Cliff Wachtel’s The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start (Wiley, 2012). It is a beginner’s book, written for those who never participated in the glory days of carry when “the FX market had the luxury of a clear framework for understanding and trading currencies, “ a time when, if you got your interest rate calls right, you were basically home free.
Wachtel offers a different kind of framework, one centered on trader psychology and what the author calls RAMM (risk and money management). He complements these key elements with technical analysis and a smattering of fundamental analysis. Although this framework is certainly not unique to forex, Wachtel explains at length how it can help an investor identify, execute, and manage simple, low-risk, high-yield, longer-term FX trades.
The first half of the book deals with the basics; the second half with trade examples, momentum and timing indicators, intermarket analysis, and “newer, smarter” methods. If you’re one of those impatient souls who peeks at the last pages of a mystery before you’re even familiar with the characters, I’m sure you’ll want to know up front what the newer, smarter methods are. I’ll accommodate, but only with a single sentence. “For those seeking simpler ways to tap the potentially faster profits from short- to medium-term (ranging from minutes to weeks) trading of forex, with more controlled risk, we introduce two new and very useful instruments: forex social trading [and] forex binary options.” (p. 295)
Wachtel breaks little new ground in this book, but he offers a solid, far-reaching course in trading. Beginners will learn a great deal (even though, if they have little experience in the markets, they will have to stretch to grasp everything). For those who have yet to trade profitably the book may serve as a useful refresher course. Even investors who think that “trading” is a four-letter word will discover how to use currencies to diversify their portfolios and to ride long-term forex trends for lower risk, higher income.