Saturday, December 15, 2007

Weekend Forex Thoughts

Although it is the weekend, I can't help but think about trading.

One of the things I've noticed recently is that the EURTRY pair is much less influenced by Wall Street. The DOW is flying all over the place, dragging the AUDJPY and related pairs up and down the charts, while the EURTRY drifts sedately instead.

However, a caution, the EURTRY has historically had some very violent and large moves during unwinding events. You do not want to get caught unprotected during one of those events.

Another thing I am thinking about, as an early idea, is the concept of being strategic with the use of sub-accounts. When thinking about the carry trade it is obviously best to buy into positions when their has been a large drop, over some period of time, and the pair in question seems most likely to start drifting back in the direction of it's natural inclination.

Sub-accounts could allow you to segregate buy and sell activities by price range. For example, if a pair you are trading has historically had a maximal total movement of a couple thousand pips, then you might create sub-accounts with fixed amounts of capital and execute trades in them when the price is in a range that corresponds with a particular account. So, account ABCXYZ100 would be used for prices at or above 100.00 while account ABCXYZ090 would be used for prices between the 100.00 and 90.00 points.

This gives you a segmented absolute limits and the ability to fire and forget, since you won't have to look at the sub-accounts or wade through the open positions every time you look at your main account. I don't know, I certainly haven't put any serious thought into it, but don't discount the ability to "fool yourself" or "avoid" seeing things that could have an emotional impact.

Hmm, something else I've noticed, it's hard to reverse trades when you've been following a trend for a while. When it does turn, it is very easy to get caught trying to trade the previous trend -- which of course is costly. In this case, it's easier to start trading against the previous trend using a sub-account. In fact, it's also necessary, as a counter trade generally take you out of the countering position. Just don't go crazy straddling the pair as there is no point in doing that either.

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