The Little Book of Currency Trading Book Review
Author: Kathy Lien
Subject: Introduction to Forex Trading
Audiobook: 4 hrs and 35 mins
First Published: 2011
Who’s it for: Forex trading beginners
Reputation: Kathy Lien has a high profile in the forex industry. Part of a wider series of ‘Little Book of” trading / investing books by Wiley so has proven a popular introduction title.
The Good: Goes from basics to two actionable trading strategies in one smallish book
The Bad: A bit shallow, you’ll need to do other reading. Not much of a focus on risk management or money management
Recommendation: Worth Reading
Buy it HERE
The Little Book of Currency Trading Book Review: Kathy Lien’s chatty style makes this an eminently readable introduction to forex trading, and her detailed technical trading examples give beginners a takeaway trading system to go and try in the real markets.
It is a small, almost pocket size book with enough depth to provide actionable advice but a light touch that won’t be off-putting for new traders.
You won’t be able to read this one book and then start trading currencies with all the knowledge you will need, but it can get you part of the way there.
If you already have some experience in the currency markets then this may not be the book for you. There are nuggets of wisdom in here that you may benefit from, but if you already know the theory of what a currency pair is, how interest rates affect currencies, basic risk management etc, and have a trading strategy, then this is not pitched at your level.
Intermediate traders would be better served working on their trading edge or trading psychology and reading something more advanced.
If you are a new trader or even a total beginner with no experience who is considering getting into forex trading then this is a good book for you to read.
Lien takes readers right from the very basics of currency pairs: what is a pip, what is a base currency and a quote currency, the difference between long and short etc.
She has a bright and breezy way of writing, laced with anecdotes that prevent this from becoming a dry textbook or overwhelming to total newbies.
Lien has spent many years in the trading media both online and in print and therefore is well versed in how to communicate with new traders; it is clear from this book that she is a very good communicator.
A Book of Two Halves
In terms of content, this book could have been split into two halves. The first half being the basic level introduction to currencies trading, the second being useable trading systems and some tips.
The A-Z of trading at the beginning of the book is a little gimmicky – this methodology will obviously miss out plenty of important keywords, but it again enables Lien to get a significant amount of information across without confusing the reader, or worse, sending them to sleep.
The introduction is a bit scattergun – giving an interest rate fluctuation example and explaining Options before actually covering what a currency pair is – but I can see what Lien is trying to achieve by putting a bit of meat on the bone at the beginning.
After this things pick up and progress in a logical order: what is forex and the basic practicalities of trading it (a little bit US focused but this part is brief, so if you aren’t in the US don’t worry), what causes currency movements, how to pick a trading strategy for you etc.
All of this is solid stuff and would help a new or newish trader get some clarity about what they are trying to achieve.
After this, she goes onto the second part of the book and attempts to give the reader some actionable trading strategies.
The first strategy Lien covers is a Bollinger Band setup – using this technical indicator to give buy and sell signals that can be easily interpreted. Bollinger Bands as a system (like all trading indicators and strategies, technical or otherwise) has its fans and its detractors.
Lien believes in them, however, and does a great job of explaining how the work, the market participant behaviours they are based on, and the practical steps to using them in your trading.
There are a million more things you will need to get sorted before you can trade profitably, such as psychology, money management, risk management, trading plans etc.
But if you just took this technique on its own and never looked for anything more complex, then Lien believes there is a decent chance you might be able to trade using Bollinger Bands as a standalone system.
When I first started trading forex I used Lien’s Bollinger Band system to provide my entries and exits – I liked it because it is black and white; very little room for interpretation.
On top of this, the buy and sell signals are very easy to recognise on the charts, unlike some more complex technical trading strategies, like Elliott Waves for example.
I stopped trading using Bollinger Bands because I realised that in the end, it was precisely this rigid nature of the technique that I didn’t like – my trading discipline was all over the place because I was rebelling against the ‘rules’ of the system!
Lien goes on to document another strategy based around trading in what she calls a ‘fast and furious’ manner. This is all about trading high-impact news events.
Personally, I am less keen on this as an idea for new traders as, until you truly understand the markets (as much as that is possible!), then you never really know why a currency has moved in a news event and even less can you predict what it is about to do!
I would suggest (and I have spoken to numerous traders who agree with me) that this sort of trading may be close to gambling for a new trader. Take a very recent example – the election of Donald Trump to the US presidency.
When it looked like Trump would be victorious the US Dollar fell quite significantly, as most analysts had predicted. But a handful of hours later, before he was even confirmed or given a victory speech, the markets bounced and rallied up to an even higher point than they had been before it looked like he would win!!
Some very smart, very experienced traders may have predicted this (if so, none of them told me…) but for a new trader to have called that dip and rally perfectly and not just lost loads of money in a highly volatile environment….well, let’s just say I believe it would have been better just to stay away!
To be fair to her, Lien does advocate staying away during the initial volatility, but predicting when the price will settle down is often as hard as predicting which way it will move next.
Anyone that knows Two Blokes Trading will know that we are fans of ‘fundamentals and sentiment’ trading that is triggered by certain news events. So the ideas themselves are not necessarily a problem, but the characterisation of any trading as ‘fast and furious’, even if it sells books may be a bit unwise in my humble opinion!
Regardless of whether you want to follow this second approach, Lien’s introduction to the financial news events and data that move the currencies is very welcome and doesn’t have a place in many other ‘Beginners Guide’ books in the forex space, so is to be praised.
Where’s the Risk?
Lien gives some space to Risk Management, a topic that should be at the forefront of all new trader’s minds, and gives solid advice about scaling in and out of positions (though not all traders would agree that’s the right move!)
She talks about taking much care with your trading and trying to pick the ‘high probability’ trades and stay away from the gambles.
Many experienced traders that I have spoken with, however, would probably raise an eyebrow at the fact that only 10 pages are solely dedicated to Risk Management – about 2.5% of the total length.
We have had countless traders and analysts on the podcast tell us that Risk Management is by far the most important part of trading.
Similar topics like money management and trading discipline are the reasons that traders live to trade again another day when they are wrong – not something to be covered in just a few pages!
Lien dedicates several more pages to 10 mistakes to avoid, which cover aspects of Risk Management and deserves credit for the chapter on avoiding trading scams, so I must admit that she gives this aspect of trading some good coverage.
The Little Book of Currency Trading Book Review: Final Thoughts
The book finishes with some solid general advice to successful trading and a call to keep your chin up if things don’t go to plan straight away. Her final chapters add to the overall sense that this is a well considered, entry-level forex trading book that any beginner trader would benefit from reading.
Lien’s easily accessible writing style, the good coverage of forex basics and the pocket sized nature of this book all serve to make The Little Book of Currency Trading a great place to start your trader education.
Buy The Little Book of Currency Trading HERE.