The Ed Ponsi Forex Playbook

CHAPTER 1 We Practice Like We Play 3

A Series of Habits 4

Rules to Live By 5

From the Minors to the Majors 5

Money on My Mind 7

CHAPTER 2 The Playing Field 9

Two of a Kind 9

The Manager 11

Under My Thumb 11

The Coaching Staff 12

A Team without a Manager 13

Other Notable Currencies 13

Commonly Traded Currency Pairs 13

Other Notable Currency Pairs 13

Who Decides? 13

Method to the Madness 15

Spot and Futures Markets 16

Let’s Get Physical 16

Continual Linked Settlement 16

CHAPTER 3 Calculations and Standardizations 19

Lot Size 19

Pip Value 20

Pip Calculation 21

Position: Long, Short, or Flat 22

Long One, Short the Other 23

The Chart Tracks the Base Currency 24

Margin Requirements 25

Leverage 26

CHAPTER 4 Follow the Money 29

Hot Stocks 29

Small Scale 30

Large Scale 30

Hot Commodities 31

Hot Real Estate 32

Differentials Make the Difference 32

“Mrs. Watanabe” 33

PART II Scoring Points 35

CHAPTER 5 Using the U.S. Dollar Index 37

Origin and History 38

Making Money 39

Confirmation 39

Contradiction 42

CHAPTER 6 Contrarian Indicators and the COT Report 47

The Sucker at the Table 47

Sifting Through the Newbies 48

Commitment of Traders Report 48

Commercials, Noncommercials, and Small Speculators 49

Reportable vs. Nonreportable Positions 49

Commercial Motivations 50

Noncommercials vs. Small Speculators 51

Surprise! 51

Against the Dollar 52

A Relentless Pounding 54

CHAPTER 7 The Power of Observation 59

Explaining Trig to a 6-Year-Old 59

Bad News, Good Reaction 60

Running for Cover 62

Bigger Than the News 64

Capitalizing on Sentiment 64

The First Clue 65

Double Shot 66

Betting the House 67

The Prepared Mind 68

CHAPTER 8 Other People’s Money 71

Account Management 72

Limited Power 72

“One and Twenty” 73

Small Potatoes 73

Somewhat Larger Potatoes 75

LAMM and PAMM 75

Room to Grow 76

More Money, More Problems 77

Good Help Is Hard to Find 77

The Dark Side of Money Management 78

Madoff Scheme? 78

Final Thoughts on OPM 79

PART III Winning the Championship 81

CHAPTER 9 The Easiest Points You’ll Ever Score 83

Central Bank Intervention 83

The Bank of Japan, 2004 84

The Great Britain Pound, 1992 88

The Reserve Bank of Australia, 2008 92

The Russian Ruble, 2009 94

CHAPTER 10 Hitting It for Six 97

The Swiss National Bank, 2009 97

Pumping the Peso 100

A Second Chance 100

A Third Chance 100

A Fourth Chance 101

No Excuses 103

Teaching the Shorts a Lesson 103

No Fixed Threshold 104

The European Central Bank’s Role

First Currency =1 21

A Fifth Chance 106

The End of the Party 106

Not Exactly Breaking the Bank 107

Wrapping Up 108

CHAPTER 11 How to Trade Like a Hedge Fund 109

The Blind Leading the Blind 109

The Gunslinger Mentality 110

One Way to Emulate the Winners 110

Reward and Punishment 111

Perception of Changes in the Differential 112

Two Sides to the Coin 112

Another Possible Scenario 113

All Good Things Must End 113

CHAPTER 12 How to Trade Like a Rock Star 115

Case Study: GBP/JPY Carry Trade 115

FXEd and the Carry Trade 117

You’re Talking a Lot, But You’re Not

Saying Anything! 118

Technicals and Fundamentals Line Up Together 120

Entry and Stop 121

Trade Like a Rock Star 123

Tightening Stops to Reduce Risk 124

Eliminating Risk 125

Staying in the Trade 126

Jumping Ahead 126

Always Tighten, Never Loosen 127

Close Call 128

Onward and Upward 128

CNBC Appearances 130

Pyramid Scheme 133

Why We Do It This Way 133

CHAPTER 13 Reach for the Sky 135

EUR/USD 2008 136

USD/CHF 2008 137

NZD/USD 2009 139

EUR/USD 2009 140

S&P 500 1996–2007 141

CHAPTER 14 Seeing into the Future 145

Perpetuating the Cycle 146

The Really, Really Good Part 146

Future Projections 147

Interest Rate Futures 148

Fed Funds Futures 148

The Weather Report 149

Causing a STIR 150

Projecting Interest Income 151

Hope for the Best, Prepare for the Worst 152

A “Columbo” Moment 153

A Bad Haircut 153

So Why Aren’t You Doing It? 154

PART IV Commitment to Excellence 155

CHAPTER 15 Purchasing Power Parity and

the Big Mac Index 157

Strange But True 157

Greasy Transaction 158

King of the World 159

A Random Item 159

Help Is on the Way 159

Gustav Cassel 161

Naked in a Parking Lot 162

Time Horizon 163

CHAPTER 16 ‘‘Should I Go Long the Lobster,

or the Filet Mignon?’’ 165

Quantitative Easing 165

Inverse Relationship 166

The Downside of Quantitative Easing 166

Hyperinflation 167

How to Lose Everything 167

Your Money’s No Good Here—Literally 168

Yes, It Can Happen Here 169

Here’s How They Get You 170

Self-Defense

CHAPTER 17 Swaps and Spreads 173

LIBOR Pains 173

Greasing the Wheels 174

The Dollar and the Yen 175

The TED Spread 176

Flight to Safety 178

Somewhat Predictable 179

Overnight Index Swap 181

A Brilliant Idea 181

LIBOR/OIS Spread 182

The Spread 182

CHAPTER 18 Alphabet Soup: The BIS, the IMF,

and the OECD 185

Bank of International Settlements 185

Controversy and Conspiracy 186

BIS Survey 186

The IMF and the World Bank 188

Organization for Economic Cooperation

and Development 191

PART V Staying in Shape 195

CHAPTER 19 For Every Winner, a Loser? 197

Is Forex Trading a Zero-Sum Game? 197

A Winner and a Loser 198

Other Trading Scenarios 198

Closer to Zero-Sum 199

Multiplayer, Infinite Games 199

CHAPTER 20 Scam Avoidance Techniques 201

Dishonest from the Word “Go” 203

Summary 204

CHAPTER 21 Fire the Manager! 207

The Fed Rides to the Rescue! 208

Here I Come to Save the Day! 209

Adding Insult to Injury 209