Chapter 1. Making Money in Up and Down Markets

Learn the rules or the game is over before it started.: 2006 "Fxstreet.com. The Forex Market." All Rights Reserved.

Figure 1.1. Learn the rules or the game is over before it started.: 2006 "Fxstreet.com. The Forex Market." All Rights Reserved.

People like to buy. That seems to simply be a fact of human behavior. One of the things that most traders and investors look for are markets that are heading up and will continue going higher. I can no more tell the future than anyone on Wall Street, and my guess is that your crystal ball is at the repair shop as well. So what can we do? Given the widespread preference for buying, the best thing to do is find a market where you can find a bull market no matter what. That's the forex market.

This is where the U.S. dollar comes in. The six most popular pairs in the forex market are either U.S. dollar–correlated majors or U.S. dollar–based commodity currencies also known as "comm dolls." You didn't think I was going to let you sound like a newbie now, did you?

Let's briefly discuss the difference. U.S. dollar–correlated majors are the euro/U.S. dollar, the U.S. dollar/Japanese yen, the British pound/U.S. dollar, and the U.S. dollar/Swiss franc. The four pairs trade against the U.S. dollar. The reason these are "correlated" is that the movements of these pairs have a strong relationship to the U.S. dollar, which we can track with the U.S. dollar Index. We'll talk in the next section about the relationships in detail, ...

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