Individual (Retail) trader: These are the nonprofessional traders who speculate for their own account (under $1 million), either for earning money or for fun.
Interbank Market: This is a loose term used to describe the Forex trading done by banks between each other. Another word to describe it is a “wholesale” FX market. This is not a physical market of exchange, but a web of credit facilities built over time where banks trade with each other through electronic matching platforms like Reuters and EBS.
Retail FX Broker: It is also called a Futures Commission Merchant (FCM). They are companies created to bring the spot currency market to retail traders. In theory they are the middlemen between the Interbank Market and the Individual Traders, charging a small fee (usually the spread) for their service.
FX Dealer: If we described the Interbank as the wholesale, and the brokers as the middlemen, then the dealers are the salesmen. They usually work for FCMs or banks, and their primary responsibility is to process client transactions (buy/sell orders). Retail dealers are the ones hunting for stops.
If you want to know more, check out this great book Beating the Forex Dealer:
The U.S. Dollar Index measures the value of the U.S. Dollar against a basket of six currencies (EUR 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1% SEK 4.2%, and CHF 3.6%). Its symbol is $DXY (called Dixie), and the index is trades on the ICE Futures Exchange, 24 hours a day, seven days a week.
Thanks for the intro. But how do I use the Index in Forex trading?
Forex traders mainly us it to confirm USD trades, mostly against the Euro. Let say you have a short EUR/USD position (betting on Euro weakness and USD strength), and you want to make sure the EUR/USD will go lower. What you do is open a chart (you can find it anywhere on line, and even your broker might have it) and you make sure the patterns or indicators you use in your trading confirm that the Dixie shows strength.
What about other currencies? Can I use the Dixie to confirm my other trades?
Mostly you can. If the Dixie shows strength it will often push against the entire basket of currencies, but that may not necessarily be the case. If, let say, the YEN had a good news or a hike in interest rates, then the Dixie will push against all currencies but the YEN.
You said I can find it online. Can you be more specific?
Sure. The U.S. Dollar Index can be found at www.netdania.com (go to charts=>instruments=>dollar index), http://www.bloomberg.com/quote/DXY:CUR/chart, or, as I said, some of the brokers have it on their trading platforms.
Where can I read more about using Dixie in Forex trading?
You can read it all in this great book by Ed Ponsi:
The Trendy Kangaroo Tail is a price pattern which involves not only the regular kangaroo tail, but the neighboring candlesticks. To be more precise – the kangaroo tail must print during a trending market, and unlike the regular kangaroo tail (which is a reversal pattern), this is a continuation patter.
Where do I look for this pattern?
Let say, the market is in a strong downtrend. Sooner or later a market pause will appear (several candlesticks between 3 and 10) all trading within range. This is where the trendy kangaroo usually appears.
How will I recognize the Trendy Kangaroo Tail?
The candlestick will stick out beyond where the market has paused. The strength of this pattern is determined by how far the tail sticks out beyond the market pause (see image). If there is much of the tail sticking out then the pattern is deemed an excellent trading set-up.
Sounds too good to be true. Anything I should be aware of?
As the Forex Market goes, yes, you should always be aware of something. In this case, there are many trendy-kangaroo-tail set-ups that are not ideal. To be sure your set-up is good to go, it must have the following: trendy kangaroos must stick out from the consolidation range; and the best time for it to appear is during a pause in the market trend.
How do I enter a trade?
If the trend is upward you should place your buy stop above the trendy kangaroo and you place the stop loss below its tail. For downtrend the reverse applies: you place sell stop below the body of the kangaroo, and the stop loss above its tail. You can read more about other patterns like: The Last Kiss, The Big Shadow, Wammies and Moolahs, The Big Belt, and The Kangaroo Tail in this awesome book called Naked Forex:
The Kangaroo Tail is a reversal candlestick pattern, and one which is easy to spot. It may give buy signals – bullish kangaroo tails, and sell signals – bearish kangaroo tails. All kangaroo tails are a single-candlestick formation, one with body and a tail. It sometime may look like a dragonfly doji or a gravestone doji.
How do I read the candlestick if it looks like a doji?
Kangaroo tail pattern has a long tail, which in turn suggests that the market has gone too far and it’s preparing to turn. Usually, this pattern will have two candles on both sides which are higher than the tail (if it’s a bullish signal) or lower than the tail (if it’s bearish signal). Check the image above.
How do I use it in my trading?
A good question. You should look for support/resistance zones. If the price reaches that zone and it prints a kangaroo tail, that should give you a good sign that reversal is coming.
Anything else I should be aware off?
Yes. Beware of giant candlesticks. If you have a giant bullish candlestick and you get a small reversal kangaroo tail patter it might mean that the bullish momentum is strong and the market can break the resistance, and vice versa.
Okay, I got that. Now how do I enter a trade?
You should always place your entry above (for a bullish kangaroo tail) or below (for a bearish kangaroo tail) the kangaroo’s body, and your stop below/above the tail. If it’s a false signal you’ll get stopped in time. You can read more about other patterns like: The Last Kiss, The Big Shadow, Wammies and Moolahs, The Big Belt, and The Trendy Kangaroo in this awesome book called Naked Forex: