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Inside the Currency Market: Mechanics, Valuation, and Strategies by Brian Twomey

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Options and Volatility

The latest preferred method to trade currency pairs is by option premiums and volatility. Such a new and sophisticated strategy can only say old methodologies are no longer useful as a strategy nor even as a guide.

For example, Put/Call ratios were once the measure to determine if the market was long or short. If call buyers exceeded put sellers across all strike prices, the market is considered long, while put sellers exceeding call buyers is considered a short market. Traders would then pick and choose strike prices that aligned to their preferred time frames and determined ratios of longs to short. While put/call ratios still may work for stock options or other markets, it appears to be outmoded as a currency-trading ...

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