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Summary
Want to Make Money Trading FOREX? Forex Trading Using Intermarket Analysis can help you better understand what it takes to be successful with VantagePoint. The easy to read book covers:

Fundamental factors that drive currency markets. Mechanics of forex trading. Chart patterns that can indicate break out moves. How markets drive and influence each other.

Bio
Louis B. Mendelsohn is a world-renowned pioneer in the use of intermarket analysis combined with neural-network based software to analyze global financial markets. He is President and Chief Executive Officer of Market Technologies, which he founded in 1979 to develop technical analysis trading software for the commodity futures markets. In 1983 Mr. Mendelsohn authored a series of ground-breaking articles in Futures magazine in which he outlined his vision for strategy back testing for personal computers. That same year he introduced ProfitTaker Futures Trading Software, the worlds first commercially available strategy back-testing trading software for personal computers. In 1987, Lou introduced the first commercially available software to address the emerging globalization of the financial markets through the application of intermarket analysis in trading software. In 1991, he introduced his second-generation intermarket analysis software program, VantagePoint Intermarket Analysis Software, which applies the pattern recognition capabilities of artificial intelligence to global intermarket data, and quantifies the effects of related global markets on each other in order to make short-term market forecasts. Since then, Lou has continued to improve VantagePoints predictive accuracy, which now makes trend forecasts for more than 600 global financial markets with nearly 80% forecast accuracy. Lou is a prolific author, having written dozens of articles on technical analysis and the global financial system in such publications as Barron's; Futures; The Journal of Trading; Technical Analysis of Stocks & Commodities; Stocks, Futures and Options Magazine; and the Journal of Commerce. As a contributor to TraderPlanet.com, he now brings his wealth of knowledge to traders and investors around the globe.

Chapter 1

What Is 'Forex'?
Every country has its own currency to facilitate its business and trade. The value of one currency versus another depends on the economic health of the nations involved relative to one another as well as the perception of stability and confidence in the political climate in those countries. As conditions change, currency values fluctuate to reflect the new situation. These fluctuations create challenges for corporate financial officers and institutional fund managers but also provide opportunities for traders who want to speculate on impending changes in currency values. By their very nature, currencies entail strong intermarket relationships. It is obvious that a currency cannot trade in isolation and that the mass psychology that drives changes in the value of one currency is bound to have an influence on what happens to other currencies as well as other related markets. Because government policies and economic developments that affect currency values tend to evolve over time, currencies also have a reputation as trending markets. The key to successful trading is understanding how these markets relate to each other and how patterns of past price action can be expected to occur again in the future as markets respond to ongoing financial, political, and economic forces. These patterns and trends are elusive and may not be so visible to the naked eye when you examine price charts, however. Underlying forces are constantly at work in markets, and you need to spot them early to get into what are potentially highly profitable positions. Clearly, intermarket analysis tools that can help to identify these reoccurring patterns and trends in their early stages can give traders a broadened perspective and a competitive edge in today's fastpaced Forex trading arena. It was this realization more than twenty years ago that led me to focus on intermarket analysis and to develop intermarket-based market forecasting tools that could discern short-term trend changes that are likely to occur based upon the pattern recognition capabilities of neural networks when applied properly to intermarket data. The Forex market, by its very nature, is an ideal trading vehicle for the intermarket analysis and trend-forecasting approaches explained in this book.

Why trade Forex?

The first question you may have is, "Why trade Forex? Isn't Forex something that should interest only bankers and big money managers?" The various ways you can trade Forex each have their advantages, as will be explained in more detail in Chapter 2. However, here are some characteristics that all Forex trading has in common, which should help you realize that you ought to include Forex in your trading portfolio: Diversification. We live in a world where terrorist attacks can occur at any place at any time, where geopolitical tensions over nuclear power, oil, human rights and many other issues threaten to disrupt normal trade and economic relationships, where U.S. companies are investing heavily in China and elsewhere to reduce their labor costs and China, in turn, is trying to invest in U.S. companies. Economic uncertainty seems to be a way of life. You can't express your investment concerns about many of these issues, whether for protection or speculation, in any individual nation's stock or interest rate markets. Forex is the only universal instrument that

incorporates all of these areas of potential concern and serves as another asset class for speculators and investors. Global market. Markets such as equities or interest rates tend to be traded locally during the business day in their own time zone. For example, Japanese traders focus on Japanese stocks, European traders on European stocks and U.S. traders on U.S. stocks. All of these traders certainly should be aware of what is happening elsewhere as the global integration of financial markets continues, but an event in Japan that directly affects Japanese stocks may not have the same effect in Europe, and traders of European stocks may not pay as much attention to what happens in the U.S. or Japanese stock markets. Forex, on the other hand, has become an asset class that is truly a global investment reflecting every economic development on earth. Whatever has an influence on currencies in Japan has an effect on what happens to currencies in London or Chicago. It is clear that intermarket relationships among currencies are extremely important in today's world. 24-hour trading. Forex trading begins Monday morning in Sydney, Australia (Sunday afternoon in the United States) and moves around the globe as business days begin in financial centers from Tokyo to London to New York, ending with the close of trading Friday afternoon in New York. Anything that happens anywhere in the world at any time of the day or night affects the Forex market immediately without waiting for an exchange to open before the effects can be seen. The Forex market is always open for trading. Electronically traded. With the advances of technology specifically, the Internet and online trading and electronic trade-matching platforms, most Forex trade executions are instantaneous, getting you into and out of positions with the click of a mouse once you have made a trading decision. All of the benefits of electronic trading and updates of your positions and current status are available to today's Forex trader. Liquidity. With the size of the Forex market, around-the-clock trading, and electronic trade execution mentioned above, illiquidity is not much of an issue in most venues of Forex trading. There is almost always a party to take the other side of a position you want to establish, no matter when you place your order. Forex bids and asks tend to be tight and slippage minimal. Leverage. Forex markets provide some of the highest leverage of any investment vehicle. You may have to put up only a few hundred dollars to control a sizable position worth $100,000. As a result, a small move in your favor can produce a big return on your investment. However, whenever you talk about the benefits of leverage, you also have to remember that leverage works both ways. A small move that is against your position can eat up the money in your account quickly if you are not a nimble trader who takes quick action to cut losses before they become too large. What leverage gives, it can also take away. Plenty of information. Governments issue dozens of reports every month that influence the Forex market. Information is widely disseminated by the financial media. With advances in the Internet and financial news services, prices and economic data are delivered within moments of being released and are available to Forex traders of all types throughout the world. If anything, there may even be too much information for traders to sort out at times, which has its own negative consequences.

Simplicity. You don't have to watch or analyze reports and price movements of hundreds of companies or mutual funds, trying to figure out which to buy or sell. With all of the fundamental information coming at you from many sources every day, you can make your trading life easier by concentrating on the Forex market because you could easily limit yourself to monitoring movements of a half dozen Forex pairs. In addition, you don't have to worry about going short or selling on a downtick as you do with equities because it's as easy to sell as it is to buy in the Forex market. Good technical market. Once you understand the basics of technical analysis and how you can apply a software program to your trading, you can extend that knowledge to all your Forex markets without having to learn and understand a whole new set of market factors. Because currencies are influenced by government policies and economic developments that usually stretch over longer periods of time, Forex markets are good for trend-following techniques. As a result, if you keep an eye on economic conditions and charts as they evolve, you may find that Forex market moves are easier to follow and predict than are movements in other markets. A glance at a currency chart such as euro futures is enough to show clear longer-term trends, which often have enough movement within them to also satisfy the trader looking for shorter-term swing moves.

The euro chart illustrates the trending nature of currencies. (www.tradertech.com)

Source VantagePoint Trading Software

Although currencies often have extended trends, the same euro market shows they also tend to have tradable counter-trends that appeal to the active trader who moves into and out of positions. Source VantagePoint Trading Software (www.tradertech.com)

Active price movement. Whether looking at price movements intraday or over a number of days, currencies tend to have trading ranges that are wide enough to produce attractive trading opportunities. Volatility is necessary for a trader to make money in any market, and the Forex market usually provides more than enough volatility because there are new developments that affect the Forex market every day. But not too volatile. Forex markets can have abrupt price movements, but as a 24-hour market where price changes are always flowing through the system, Forex markets rarely make the type of price move you sometimes see in stocks or futures. Stocks can plunge or soar 10 percent or more on some overnight earnings report or other announcement, leaving gaps on price charts when an exchange opens. A $3 change on a $30 stock is not that unusual, but a 10 percent move in a currency for example, 14 cents if the euro were at $1.40 is quite unlikely. In addition, while emerging markets may incur some extreme currency price movements, the major currencies are not like an Enron or Worldcom or dotcom stock that will fly all over the chart or even plummet and declare bankruptcy. If you have thought that Forex trading was too volatile and risky for you, it may surprise you to learn that the Forex market is probably more stable than the equities markets.

Pairs, pips and points

Unlike markets such as soybeans or T-notes where you are either long or short the market when you enter an outright position, in the Forex market you are always trading pairs of currencies that is, you are always long one currency and short another. Forex trades are expressed in terms of the first currency of the pair. For example, a U.S. dollar/Japanese yen position USD/JPY to the Forex trader means you are long the dollar and short the yen, believing the value of dollar will gain relative to the value of the yen. Together with the U.S. dollar, six other major currencies the Japanese yen, euro, British pound, Swiss franc, Canadian dollar and Australian dollar account for more than 90 percent of all Forex transactions. For the most part, the Forex trader can focus on just six major currency pairs: Euro/U.S. dollar (EUR/USD) U.S. dollar/Japanese yen (USD/JPY) British pound/U.S. dollar (GBP/USD) U.S. dollar/Swiss franc (USD/CHF) U.S. dollar/Canadian dollar (USD/CAD) U.S. dollar/Australian dollar (USD/AUD) Changes in currency values are quoted in terms of "price interest points" or "pips." Pips are also called points and are similar to ticks in stocks or futures markets, the smallest increment of price movement. In most cases, a pip is a one-point change in the fourth digit to the right of the decimal for example, a change from 1.3918 to 1.3919 for the euro. The value of a pip depends on the size of the contract or lot being traded, and that depends on where you trade Forex, as you'll see in the next chapter.

Chapter 2

The Forex Marketplace

Forex trading can be accomplished in three main venues: Interbank market, cash Forex firms, or exchange-traded futures and options. By far, the greatest share of Forex trading takes place in the interbank market, a global over-the counter network that includes, as its name suggests, the world's largest banks as its backbone along with other large financial institutions and corporations that have to be members of the network to participate. There is no centralized marketplace, no standardized contracts, and no central regulator. However, unless you are a corporate treasurer or global money manager or someone in that type of position, the interbank market is probably not something with which you will be involved.

Cash Forex trading

One of the fastest-growing segments of trading in recent years has been in cash Forex as dozens of new firms have sprouted up, taking advantage of online trading and less restrictive regulations. Cash Forex trading offers a number of advantages:

Low entry cost, as low as a few hundred dollars. High leverage, sometimes 100-to-1. Real-time quotes provided by the cash Forex firm. No commissions or fees. Cash Forex firms make their money on the difference in the bid/ask spread.

Forex futures trading

Traders must put up more margin money exchanges prefer performance bond to trade futures, but Forex futures do provide some specific advantages: One central market, with many buyers/sellers making bids/offers distilled into one market price and not just one firms bid/ask quotes. Tight bid/ask spreads in a very competitive environment. Transparent pricing available to all traders of all sizes at the same time. No counter-party risk. The exchange's clearing organization is actually the counter-party to every trade.

Chapter 3

Analyzing Forex Markets

The underlying cause of price movement in any market is fundamentals those factors that affect the basic value of that market. For many markets, the focus is on supply and demand as free-market forces determine what is "expensive" or "cheap," depending on how much is available and how badly someone wants to buy or sell it. Forex markets go far beyond basic supply and demand figures. Everything that affects the political and economic situation of the two nations involved in a Forex pair has some bearing on the value of the two currencies against each other. Forex traders have plenty of fundamentals to consider as traders are bombarded by news broadcasts, government reports, newsletters, brokerage firm research, television analysts, and many other sources. In fact, the amount of information can become overwhelming. The challenge for the Forex trader is not in finding enough information but in determining what is most significant from the enormous amount of information available and interpreting what the effects on the markets are likely to be. When you don't know something is going to happen, it's naturally pretty hard to prepare. How could a Forex trader have prepared for the terrorist attacks of September 11, 2001? Or for a massive tsunami or hurricane or other natural disaster? Such shocks are a part of trading in the real world but, fortunately, are still rather infrequent. Even if you could anticipate such an event, you probably would not be able to predict how and to what extent the markets might react. The mass psychology of the marketplace sometimes does funny things that you might not expect. So it's hard to trade unknown, untimed shocks.

Preparing for the known

Sometimes traders know an event or announcement is coming. Elections, meetings of the Federal Open Market Committee or European Central Bank, releases of government reports, and other such events are scheduled, and the timing is known in advance to traders. That doesn't mean the market won't react in an unforeseen manner that could surprise you in fact, these events or announcements often do produce market reactions that are not widely expected. But those are situations for which a trader can make some preparation with a sound trading strategy that can help to minimize the risk of being caught off guard. A few general points should be made about these fundamental factors. First, when the government releases an economic report, most of the numbers are estimates based on other estimates. Yes, the estimates are tabulated by experienced officials who have access to extensive data, but they generally are not precise counts. Nevertheless, these are numbers that all traders have, and the market has to live with them. Second, when traders react to the numbers or results, they may actually be responding to what the market expected rather than the numbers themselves. A report that might seem bullish may instead send prices sharply lower. You have probably heard the market axiom, Buy the rumor, sell the fact. In some cases, bullish numbers may not be bullish enough to drive the market higher the way you think they should. Or bad news may not be as bad as expected, and prices actually go up instead. In addition to being aware of the date and time of a report or announcement, you should also have an idea what the market expects so you can reduce your chances of being surprised and hurt by subsequent price action. Third, an outcome or number that may be bullish at one point may not be bullish the next time. Perhaps traders have become conditioned to the contents of a report and don't react as you might expect. Old news is old news; markets usually require something new to spark price moves. Fourth, your analysis may be correct but too far ahead of what the market is thinking, so you may be positioned way before the market is ready to move. The fundamental numbers may be just what you anticipated, but the timing of a price move is off because it takes time for traders to digest what they've seen.

Applying Technical Analysis to Forex

As you consider all the possible unknown and known events and reports collectively known as the fundamentals, you may have been overwhelmed by all the news you would have to follow and numbers you would have to digest and understand to trade Forex on the basis of fundamentals. That's why most traders tend to prefer technical analysis, a study of price action that can be applied to any market. Technical analysis combines the influence of all the fundamentals affecting a market into one element, the current price. Rather than try to keep up with all the fundamentals, traders can analyze price movements on a chart, knowing that the price synthesizes every factor known to the market at the present time at least, in the perception of traders. Price is the visible reflection of all underlying market forces, much like limbs and branches are the visible parts of a tree and fundamentals are the roots that feed and nourish their growth.

When it comes to technical analysis, what Forex traders really need in the way of information for their decision-making boils down to answering four questions: 1 Which direction is the market heading? 2 How strong will the move be? 3 When will the current trend lose its strength and make a top or bottom? 4 What will tomorrows high/low trading range be?

Enter charts
Many traders then turn to charts, starting with basic chart analysis such as trendlines and chart patterns. Much of the basic charting education material today is the same as what was available more than thirty years ago when I first began trading, except for the updated charts, graphs and revised hypothetical track records. We dont have space in this brief e-book to discuss chart analysis, but I recommend that you read a book or attend a seminar on technical analysis to learn the details.

Chapter 4

Intermarket Analysis of Forex Markets

Traders need to look back at past price action to put current price action in perspective. They also need to look forward to anticipate what will happen to prices if their analysis is to pay off in the real trading world. To be able to look ahead with confidence, however, traders need to look in one other direction, and that is sideways to what is happening in related markets, which has a major influence on price action in a target market. Intuitively, traders know that markets are interrelated and that a development that affects one market is likely to have repercussions in other markets. No market is isolated in today's global marketplace. Many individual traders still rely upon the same types of mass-marketed, single-market analysis tools and information sources that have been around since the 1970s when I first started in this industry. And a large percentage of traders continue to end up losing their trading capital. If youre still doing what the masses are doing, isnt it likely that youll end up losing your hard-earned money, too? In the Forex markets especially, you cannot ignore the broader intermarket context affecting the market that you are trading. You still need to analyze the behavior of each individual market to see the double tops or broken trendlines or indicator crossovers that so many other traders are following because that's part of the mass psychology that drives price action. However, it is increasingly important that you factor into your analysis the external intermarket forces that influence each market being traded.

Historical roots
Intermarket analysis is certainly not a new development for traders, having roots in both the equities and commodities markets. You are probably familiar with equities traders who compare returns between small-caps and big-caps, one market sector versus another, a sector against a broad market index, one stock against another, international stocks versus domestic stocks. Portfolio managers talk about diversification as they try to achieve the best performance. Whether they are speculating for profits or arbitraging to take advantage of temporary price discrepancies, intermarket analysis in this sense has been part of equities trading for a long time. Traders in the commodities markets have also been into intermarket analysis for a long time, trading spreads that have a reliable track record. Farmers have been involved in intermarket analysis for years although they may not have thought of what they do in those terms. When they calculate what to plant in fields where they have several crop choices between corn and soybeans, for example they typically consider current or anticipated prices of each crop, the size of the yield they can expect from each crop and the cost of production in making their decision. They do not look at one market in isolation but know that what they decide for one crop will likely have a bearing on the price of the other, keeping the price ratio between the two crops somewhat in line on an historical basis.

The next logical step

So, a quantitative approach to implement intermarket analysis, which has been the basis of my research since the mid-1980s, is neither a radical departure from traditional single market technical analysis nor an attempt to undermine it or replace it. Intermarket analysis, in my opinion, is just the next logical developmental stage in the evolution of technical analysis, given the global context of todays interdependent economies and financial markets. Bottom line: If you want to trade Forex markets today, you have to use a trading tool or adopt an approach or trading strategy that incorporates intermarket analysis in one way or another. An important aspect of my ongoing research involves analyzing which markets have the most influence on each other and determining the degree of influence these markets have on one another. Many market inter-relationships are obvious, but others may seem more distant and unrelated, such as the importance of stock indices, U.S. T-notes or crude oil prices on pricing of the USD/JPY Forex pair. Research has verified that these related markets do have an important influence on a target Forex market and can provide early insights into the Forex market's future price direction.

Multi-market effect
The amount of influence that one market will have on another market will naturally shift over time so these relationships are not static but should be the subject of ongoing study. Forex traders should also be aware that the impact from related markets may not be instantaneous. It may take some time for a policy decision or other development to have an impact on the ever-changing marketplace, or an influencing condition may have a bearing on market direction for only a short time, meaning traders may have only a brief window in which to capitalize on a trading opportunity.

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Correlation studies do have limitations because they compare prices of only two markets against each other and do not take into account the influence exerted by other markets on the target market. In the financial markets and especially the Forex markets, a number of related markets need to be included in the analysis rather than assuming that there is a one-to-one cause-effect relationship between just two markets.

Nor do the correlation studies take into account the leads and lags that may exist in economic activity or other factors affecting a Forex market. Their calculations are based only on the values at the moment and may not consider the longer-term consequences of central bank intervention or a policy change that takes some time to play itself out in the markets. The Forex market is a dynamic marketplace, constantly shifting and evolving. It is not one currency versus the world but all currencies affecting all other currencies to a greater or lesser degree. Forex market inter-relationships cannot be ferreted out with single-market analysis tools. If you are serious about Forex trading, you need to make the commitment to get the right tools from the get go, or you are likely to struggle to keep your account intact. Since we are talking currencies here, we might interject another familiar saying: "Penny wise and pound foolish" when it comes to investing in analytical tools.

Chapter 5

Using Neural Networks to Analyze Forex

When you consider all of the many intermarket relationships in the Forex markets discussed in the previous chapter and all of them shifting and changing at the same time you might wonder how you could possibly pick out patterns and relationships from such a mass of data. Unlike the subjective approach of chart analysis, neural networks provide an objective way to identify and analyze the complex relationships that exist in Forex and related markets. They can reveal hidden patterns and correlations in these markets that the eye could never spot on a chart or through the use of traditional single-market indicators that tend to lag the markets. A neural network is not a human brain, but it takes on some brain-like functions as it studies data, "learns" relationships within and between markets, recognizes patterns in past data and uses this information to make forecasts about the target market. The neural net is essentially a modeling tool that accepts a variety of data and processes information in a manner similar to how the brain functions.

Input layer
A critical first step in neural network analysis is data input. The forecasts you get out of a neural network will be only as good as the data you put into it. Collecting, cleaning, selecting and preparing the data for analysis are all important. Neural networks are not limited to single-market data inputs nor are they limited solely to technical data inputs. The data can go far beyond just price or technical indicators but can include such items as volume and open interest for the target market as well as intermarket data from related markets and even fundamental data.

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Once all of the raw input data has been selected, it is preprocessed or massaged using various algebraic and statistical methods of transformation which help to facilitate "learning" by the neural network. That means it is converted into a form that the learning algorithm in the next layer can best exploit to get the most accurate forecasts in the shortest amount of time.

Hidden layer
The hidden layer is the learning algorithm used for internal processing to store the "intelligence" gained during the learning process. There are a number of types of learning algorithms. The network recodes the input data into a form that captures hidden patterns and relationships in the data, allowing the network to come to general conclusions from previously learned facts and apply them to new inputs. As this learning continues, the network creates an internal mapping of the input data, discerning the underlying causal relationships that exist within the data. This is what allows the network to make highly accurate market forecasts. Training a neural network is somewhat like human learning: repetition, repetition, repetition. The neural network learns from repeated exposures to the input data, and learned information is stored by the network in the form of a weight matrix. Changes in the weights occur as the network "learns." Similar to the human learning process, neural networks learn behaviors or patterns by being exposed to repeated examples of them. Then the neural networks generalize through the learning process to related but previously unseen behaviors or patterns.

Output layer
The output layer is where the networks forecasts are made. During training, the network makes its forecasts, errors are computed and "connection weights" between neurons are adjusted prior to the next training iteration. Connection weights are altered by an algorithm the "learning law" including the back-propagation method to minimize output errors. Lots of adjustments may be necessary at any point along the way to get the desired results. Two types of real number outputs in financial analysis include price forecasts, such as the next days high and low, and forecasts of forward-shifted technical indicators. The programmer has to decide not only what output to forecast but also how far into the future to make the forecast. Then comes extensive testing to verify the networks ability to forecast accurately. Testing is performed by creating an independent test file of data not used during the training process. This is analogous to "walk-forward" or "out-of-sample" testing of rule-based trading strategies. The programmer can compare performance results from various networks and decide which network to use in the final application. Just like you dont have to become an automotive engineer to drive your car, you shouldnt have to become a rocket scientist to apply the forecasting power of neural networks in trading the Forex markets.

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Chapter 6

Wave of the Future: Synergistic Market Analysis

When I began trading in the early 1970s, there were no stock indexes futures, no Eurodollar futures, no options on futures of any kind. Futures on currencies, gold, interest rates, and energy and options on stocks were all still in their infancy. There was no electronic trading and no personal computer to analyze those markets that I was actively trading. The trading world has evolved considerably since then, offering many new markets to trade, especially in the financial arena; lots of different trading instruments; lots of sophisticated trading software, and a global marketplace that features electronic trading around the clock. It is difficult to imagine that the next twenty-five years could offer as many trading innovations as the last twentyfive years have. Whatever the future holds, one of the most promising and lucrative trading areas is likely to be the Forex market, which is so responsive to global economic shifts and geopolitical tensions. Years ago the Forex market was limited to banks and financial institutions; individual traders were not part of the picture. Then came the trading prowess of George Soros and other currency speculators who were credited with bringing down the British pound in 1993, the Asian financial crisis in 1997, the launch of the euro in 1999, and other events that brought increased attention to the Forex markets, both for speculation and as a means for knowledgeable traders to protect or hedge themselves against adverse changes in currency values. The introduction of the Internet in the mid-1990s gave Forex trading a big boost as it made it possible for individual traders to get information and to trade on a level playing field with any trader of any size any place in the world at almost any time of the day or night. As a result, numerous cash Forex firms popped up in the late 1990s and early 2000s to accommodate this exploding interest in Forex trading, making Forex trading available to almost any pocketbook. Electronic Forex futures trading volume has skyrocketed, and the growth in trading Forex options promises to be just as dramatic in the next few years as exchanges facilitate that type of trading. The global war on terrorism and other geopolitical, economic and hurricaneomic shocks and events will undoubtedly keep Forex markets at the center of the global financial marketplace. The growing influence of China and other Asian markets on the global economy will affect many markets, the Forex market foremost among them. With unprecedented trading opportunities provided by the Forex market, what the individual trader needs in today's world of speedy telecommunications and sophisticated trading techniques is what I call Synergistic Market Analysis. As I have emphasized in this book, I believe that includes: Intermarket analysis. No country, no currency, no economy, no market is isolated in today's global economy. When you look at one market, you have to look at a number of related markets to get the full story about the market forces driving any one market. With Forex, that obviously means other currencies, but it also means interest rate and equities markets as well as commodities, particularly international markets such as gold and oil. Single-market analysis just isnt sufficient anymore.

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Accurate, reliable market forecasting. The trader who wants to have an edge in today's trading needs to look ahead using techniques and tools such as predicted moving averages that do not lag behind the market but have the ability to anticipate what is likely to happen to price and trend direction in the near term. Because of their trending tendencies, Forex markets are especially good candidates for such market forecasting. Failure to incorporate leading indicators and information on related markets into your trading strategy puts you at a great disadvantage in competing with other more sophisticated traders including professionals who make their full-time livelihood trading Forex markets. Neural networks are not only well-suited to analyzing these markets from both a single-market and intermarket perspective but can also incorporate fundamental data as inputs. By using the computational modeling capabilities of neural networks in a structured framework that synthesizes these three approaches and integrates seemingly disparate technical, intermarket and fundamental data, quantitative trend and market forecasting, I believe, will continue to be at the cutting edge of st financial market analysis in the early decades of the 21 century. Trading education. Many people get into trading with only a vague notion about how to analyze markets, how to trade them successfully, how to assess risk/return in trading, and many other factors that trading involves. With today's more volatile and erratic markets, education and information will be even more important for successful trading in the future, and traders will need to go to web sites such as www.TraderPlanet.com for valuable assistance and free information on trading. Even if you take the Synergistic Market Analysis approach, a myriad of additional factors can affect your chances for trading success. These include mass psychology, judgment, trading experience, risk propensity, fear, greed and amount of risk capital that you really have available. It probably will never be possible to predict the trend direction of financial markets with more than perhaps 80% accuracy, due to randomness and unpredictable events, as well as the difficulty of developing effective forecasting tools. I am, nevertheless, determined to continue my research to push the forecast accuracy envelope as far as it will go since this has been my intellectual passion for the past several decades and continues to excite me. I hope that this book has helped to make you more aware of the implications that the globalization of the financial markets has on your own Forex trading. By broadening your perspective to include intermarket analysis and various forecasting techniques that I have outlined briefly in this e-book, I am confident that you will be able to improve your trading performance by gaining more selfconfidence to make better trading decisions, whether you trade only the Forex market or also trade equities, options, or futures.

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About the Author and Market Technologies, LLC

Louis B. Mendelsohn is a world renowned pioneer in the application of personal computers and trading software to the global financial markets. He is President and Chief Executive Officer of Market Technologies which he founded in 1979 to develop technical analysis trading software for the commodity futures markets. Mr. Mendelsohn, himself, began trading equities and stock options in the early 1970s. Then, in the late 1970s he switched to commodities, as both a day and position trader, and developed trading software for the commodities futures markets. In 1983 Mr. Mendelsohn authored a series of ground-breaking articles in Futures magazine in which he outlined his vision for strategy back testing and optimization for personal computers. That same year he introduced ProfitTaker Futures Trading Software, the worlds first commercially available strategy back-testing trading software for personal computers. By the mid-1980s these capabilities had become the standard in technical analysis trading software for both stock and futures traders throughout the world. Following the October, 1987 global market crash, first predicted by ProfitTaker in August, 1987, Mr. Mendelsohn took technical analysis to the next generation when he introduced the first commercially available PC software in the financial industry to address the emerging globalization of the financial markets through the application of intermarket analysis in trading software. Several years later, in 1991 he introduced his second generation intermarket analysis software program, VantagePoint Intermarket Analysis Software, which applies the pattern recognition capabilities of artificial intelligence to global intermarket data, and quantifies the effects of related global markets on each other in order to make short term market forecasts. Since then, Mr. Mendelsohn along with his research and development team, The Predictive Technologies Group, has been focused on the accelerating globalization of the financial markets and has continued to make improvements to VantagePoints predictive accuracy, which now makes trend forecasts for more than 600 global financial markets with nearly 80% forecast accuracy. These achievements have been responsible for Market Technologies phenomenal growth over the past decade, with thousands of trading software customers in nearly 100 countries worldwide, and three wins since 2004 in the Inc. magazine competition of the fastest growing privately-held companies in the United States. Mr. Mendelsohn is a prolific author, having written dozens of articles on technical analysis and the global financial system in such publications as Barron's; Futures; The Journal of Trading; Technical Analysis of Stocks & Commodities; Stocks, Futures and Options Magazine; and the Journal of Commerce. Following the October, 1989 aftershock exactly two years after the 1987 crash, Mr. Mendelsohn warned traders about the likelihood of more frequent and severe global financial aftershocks and the potential for a full-scale global meltdown. In numerous articles and editorials he called for clearing firms, regulators, and central banks to develop coordinated, worldwide contingency plans before, not after, the onset of a crisis that could ripple through the global financial system and bring about a fullscale meltdown. In a Journal of Commerce editorial on February 5, 1990 entitled Build a Global Safety Net, Mr. Mendelsohn argued that vital security, clearing and regulatory issues must be resolved to assure the fiduciary integrity of the international financial and banking systems, particularly during times of worldwide financial or political crisis. In this editorial he went on to caution that The integrity of the world financial and banking systems necessitates that international coordination and cooperation

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among the various stock and futures exchanges, central banks, finance ministries, regulatory agencies and international banks be implemented through formal agreements and informal understandings to replace the last minute, frantic telephone discussions during a crisis [which] has been the modus operandi. Months later in an April, 1990 editorial in Futures magazine entitled 24-Hour Trading: Lets do it right, Mr. Mendelsohn warned that aftershocks following Black Monday's financial earthquake may become more commonplaceas the 24-hour electronic trading systems are fully implemented -unless serious clearing, security and regulatory deficiencies are overcome, and that Global trading on a 24-hour basis, without a real-time global clearing mechanism, presents a major threat to the integrity of the world's financial markets. In 1995 in a seminal book entitled Artificial Intelligence in the Capital Markets, Mr. Mendelsohn devoted Chapter 5 to a detailed overview of the global financial system and the systemic risks that would become an ever-present danger for traders. In this chapter, Mr. Mendelsohn indicated that few traders comprehend the intricacies of derivatives Since most derivatives did not exist during the last major bear equities market in 1974, the degree of influence that derivatives might have in precipitating or accelerating a major worldwide financial crisis, more severe than 1987, can not yet be measured. Mr. Mendelsohn has been widely quoted in other financial publications over the past quarter-century, including the Wall Street Journal and Investor's Business Daily, has contributed to more than half a dozen books on the global financial markets, has been interviewed live on CNN, Bloomberg, and CNBC, and since 2000 has authored three books on the global financial markets. His book, Trend Forecasting with Technical Analysis: Unleashing the Hidden Power of Intermarket Analysis to Beat the Market, released in December 2000, has more than 45,000 copies in print to date. Chapter 1, entitled Trading in the Global Economy, addresses the factors that have brought
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about the global financial system in the 21 century and cautions traders and investors about the increasing risk that financial crises can spin out of control quickly, as interdependent financial markets fall, setting off a chain reaction that reverberates worldwide. His next book, Forex Trading Using Intermarket Analysis: Discovering Hidden Market Relationships That Provide Early Clues For Price Direction was released in March 2006. In this book he discussed the role of the currency and foreign exchange markets in the global financial system. The following year, in a cover page article entitled Ripple Effect Looms Large in FX Markets in the November, 2007 issue of Stocks, Futures and Options Magazine, Mr. Mendelsohn was prophetic in his prediction of an impending worldwide financial meltdown. In this article he warned that The commodity markets, such as crude oil and gold, have a tremendous effect on other financial marketsincluding U.S. Treasury notes and bonds, which, in turn, have a powerful impact on the global equity, debt and derivatives markets. They subsequently affect the U.S. dollar and Forex markets, which then further influence prices of commodities. This dynamic has already played itself out a number of times since the 1987 crash, including the 1997 Asian currency crisis, the 1998 Long Term Capital Management debacle and the crisis following the 2001 terrorist attack on the United States. Each occurrence underscored the far-reaching implications regarding the fragile stability of the global financial system, itself, amid the ever-present prospect of a worldwide Category 5 financial meltdown. Again, in Mr. Mendelsohns most recent book published in June, 2008, entitled Trend Forecasting with Technical Analysis: Predicting Global Markets with Technical Analysis, he spelled out exactly what actions traders needed to take to protect their wealth and prosper at the onset of a global crisis that he believed would roil the global financial system and precipitate a full-scale meltdown of the financial markets. Traders who have applied Mr. Mendelsohns global intermarket software tools

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have been able to make rational, effective trading decisions during the 2008 global meltdown and are well positioned to take advantage of unprecedented trading opportunities while many other traders and investors have become paralyzed with fear and weakened financially because they lacked the
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proper analytic tools needed to succeed in the global financial markets of the 21 century. Because of his expertise and pioneering achievements in the application of computers and trading software to the global financial markets over the past three decades, Mr. Mendelsohn's biography is highlighted in Marquis Who's Who in the World, Who's Who in America, Who's Who in Finance and Industry, and in a time capsule at the White House in Washington, D. C. He has been a full member of the Market Technicians Association since 1988 and a colleague of the International Federation of Technical Analysts. Born in 1948 in Providence, Rhode Island, Mr. Mendelsohn received a B.S. degree in Administration and Management Science from Carnegie Mellon University's Tepper School of Business in 1969, a M.S.W. degree from the State University of New York at Buffalo in 1973, and a M.B.A. degree with Honors from Boston University in 1977. As an avid collector of antique office technology and equipment, Mr. Mendelsohn has antique typewriters and pre-electric calculating machines (which are early forerunners to today's personal
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computers) that date back to the late 19 and early 20 centuries on display in his private office. He has also collected classic cars, including his favorite, a 1937 Buick four-door sedan luxo-rod. Mr. Mendelsohn, his wife of 32 years, and two of his three sons live on a ranch near Tampa, Florida where they raise Paso Fino horses and a variety of cattle and other livestock. A comprehensive collection of Mr. Mendelsohn's published articles and books is available for your review at: Http://www.tradertech.com/lbm_library.asp

Company Information: Market Technologies, LLC E-mail address: info@tradertech.com Internet Web site address: http://www.tradertech.com Phone: USA and Canada: 1-800-732-5407 Others: 813-973-0496 Fax: 813-973-2700

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STUDYING MARKETS AND TRADING ...

Lane J. Mendelsohn, Publisher, TraderPlanet.com

Less-experienced traders are always asking questions about how to best learn and study "fundamentals" or "technicals" in markets. market fundamentals, and few trading books focus only on fundamentals that books on fundamental analysis of futures markets are so rare is because the subject matter is so enormous. Here is just a smattering of macro fundamental factors futures prices: weather, world politics, consumer tastes and consumer demand, interest rates, currency values, natural disasters ... and the list could go on and on. Technical analysis addresses part of the dilemma of keeping up with all the fundamental factors impacting futures market prices because price activity is a

and/or other fundamental factor known to all traders. Price activity also factors in ideas and speculation about the future prospects, and future news, for the market. But the big challenge for traders has always been to be among those people who know about all those fundamentals and chart patterns in a timely manner and can interpret what they mean for prices in the market they are trading. Now a new trading portal called TraderPlanet (www.TraderPlanet.com) gives traders a source of fresh fundamental and technical analysis information daily as well as many trading education features to help move the trader down the road of more successful trading. Markets are changing constantly every day and every minute, as anyone who has observed recent events can attest. What you read in newspapers and magazines can become outdated quickly, and traders need current information and data to succeed.

But TraderPlanet is more than just a one-way conduit of current news and information directed to users. It is a new social networking experience for traders that provides them with plenty of interaction with other traders and with top trading analysts and experts blogs on a variety of topics, chat rooms, trading contests, sentiment surveys and a new gauge of market opinion, the TraderPlanet Indexes for eight market areas. And there are even My Planet personal pages for photos and details you may want to share with other traders. Got a question and looking for an answer about a product, trading strategy or whatever else is on your mind? It is quite likely that theres someone else out there on this trading planet who has been wondering the same thing or is willing to share their experience to help you out. Want to talk to a corn farmer in Iowa or a sugar cane grower in Brazil or a banker in London? Somewhere on this planet someone may want to share their views with you, and TraderPlanet.coms goal is to facilitate those connections wherever is now a local community, and TraderPlanet.com is designed to get you acquainted with your trading neighbors. Now, TraderPlanet.com is not going to guarantee you instant market knowledge and trading success. Many traders feel almost "naked" if they attempt to trade a market when they know little about the to know all of the details about the market

I have been fortunate in my career in the futures industry. When I was a reporter and editor for Futures World News (now Dow Jones Newswires), I was forced to learn about the fundamentals impacting all the markets I covered, which included all the U.S. markets and some traded overseas. I was able to talk to traders and analysts every day for about a dozen years regarding the fundamentals and chart action that impacted the particular market on which I was reporting. Indeed, very few get that kind of unique opportunity to learn about markets. But now TraderPlanet.com gives almost any trader access to the same kind of information and insights at no charge.

Trader Planet has helped me develop my investment strategy by blogging, which is the best way I can imagine to keep a rolling journal. The trading community's comments on my investment ideas really give important feedback about complex ideas.

the timing of key economic reports, the potential head-and-shoulders top and all those other things that make for an informed trader.
Grant Stern

Chris Mahlmann

The markets volatility has made it more important than ever for the trader or investor to be educated, and TraderPlanet is the one community that brings all of us that education. It gives me the opportunity to share my experience and insight with other traders around the world, and learn from them to build my knowledge base. Having so much educational content from so many providers, in so many dierent forms like the videos, webinars, and blogs, all in one place that I can trust, helps me ultimately become a more successful trader! Keep up the great work TraderPlanet.

But wouldnt you feel more comfortable trading if you had access to current news reports and expert commentaries and could tap the views and opinions of others in the trading community around the world? And do all of this for free? TraderPlanet.com is a web site where, as its motto says, traders are likely to gravitate in the future.

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