Sunday, March 23, 2008

March AUD/JPY Free Fall

On February 27th the AUDJPY reached 100.41 at it's highest. Less than a month later, on Mar 20th we got as low as 88.18 for a short period of time. That's a difference of more than 1200 pips in approximately 3 weeks!

There's no way to be sure, except to wait and see how things turn out, but on the 16th we hit 88.16 when the AUDJPY bottomed out. At the very least there is some healthy resistance around this level.

So, what to do? Should we panic and run away from the market? Should we dump our entire life savings into the market based on our belief of this being a local bottom? Just how should we tackle this situation?

The fact that we've seen a massive fall, enough to create margin calls in those that are careless, generally means we are looking at an opportunity. However, the flip side is the fear of a continuing fall. So, greed and fear are both sitting on our shoulders whispering in our ear.

My advice, or at least my own plan anyway, is to stay disciplined and trade within margin percentages that provide a high relative level of safety. However, when the markets are down like this I do want to increase my holdings and be ready to participate in a rebound.

The plan? Allocate small amounts of additional capital, if required, to buy lower and lower positions. Remember though, I'm a carry trader and am very happy to hang onto AUDJPY through any type of downturn as long as I can avoid putting my account at risk of a margin call.


Rocko Chen said...

If you're good at forecasting volatility, currency options might be more profitable for your style.

Just a thought!

nikifo said...

But I opened long position:)))
Good luck in your trades!

FOREX Rookie said...

Hey, thanks for the real live comments. I get a lot of spam style comments given the subject area...