Saturday, April 12, 2008

Trading The EUR/AUD

I've spent the better part of a year focusing my attention on the AUD/JPY. I think it's time to start looking into other pairs...

Last week I started trading (shorting) the EURAUD.

The EURAUD is another pair suitable for the carry trade. [For you beginners, some currency pairs earn interest while you hold them. Those that do allow you to participate in the so-called carry trade. See my recent forex roadmap post for a nice list.] However, I've been trading it instead of trying to hold onto it... and so far it's been good to me.

The question is, what will next week bring?

I haven't focused on active day trading before. I've got a chunk of carry trade holdings across a variety of currencies, but that is a completely different game. Basically, as long as you don't overtrade [buy too much and hence expose yourself to excessive risk] it's very slow paced. When you have some extra capital in your account look for an opportunistic pricing situation and grab a small slice of a pair you are willing to hang on to.

Active trading is a lot faster paced. I'm finding that if I want to spend a lot of time on the market I need to be have the lure of gains. Yes, that means risk! So, I've created a sub-account where I put a few dollars at extreme risk. Assuming I can make some wins I'll shuttle those wins to a safer sub-account.

So, I'm no longer executing a purely boring long-term carry strategy. Seriously, it's very boring to put a few bucks into your account from time to time and then make a purchase once in a blue moon when your capital reserve makes it safe to do so. I want to do this, but I also need to drive the Ferrari once in a while, y'know?

Yep, shorting the EURAUD is my currency trading Ferrari. It seems to sidestep the volatility of the AUDJPY somewhat by avoiding the EURUSD and USDJPY influences. It handles well since the EUR is such a huge and active market and acquires some nimble moves from the AUD.

Tuesday, April 8, 2008

Forex Roadmap

Do you have a roadmap?

Over time it is easy to lose your way. You may forget the current trading ranges of some currencies. You may forget long term position viewpoints that you had previously determined. Frankly, things get hectic at times, and you don't always have the luxury of spending all day reminding yourself about previous conclusions. Some pointers can be very helpful.

Here's an abbreviated version of mine:

PairIntTypeHistStrategy Notes
GBPJPY030(L)HighTrade -- expect GBP up long term
AUDJPY020(L)MidTrade -- overloaded, reduce risk if possible
GBPCHF017(L)LowAcquire -- expect GBP up long term
EURJPY016(L)MidTrade -- expect EUR down long term
GBPUSD016(L)LowTrade -- buy on 1 day lower bollinger hits
AUDUSD013(L)HighTrade -- expect USD up long term
CADJPY009(L)LowAcquire -- expect CAD up long term
EURUSD006(L)HighTrade -- expect USD up long term
EURCHF006(L)MidTrade -- expect EUR down long term
USDJPY005(L)LowAcquire -- expect USD up long term

PairIntTypeHistStrategy Notes
EURTRY062(S)HighAcquire -- sell on large spikes
EURAUD015(S)HighAcquire -- sell on 1 day upper bollinger hits
EURGBP006(S)HighWait -- consistent uptrend for over a year

Here is what it means:
  • Which currency pair am I talking about.
  • Carry trade interest ranking.
  • Long or short positions.
  • Position relative to prior year.
  • Things to keep in mind while trading.

  • I'm a carry trader. I like to find buying opportunities in currency pairs that pay positive interest.
  • Interest rates change. Don't assume this roadmap will remain static for any length of time.
  • Your opinion may conflict with my strategy notes. That is fine.
  • Remember, opportunities will come to you from time to time as long as you don't overtrade.
Finally, I think it is worth mentioning that even when my strategy is to acquire positions, this does not mean I will simply continue to buy. It means that if I can put a protective in-profit stop loss above a position it is okay to acquire another when an opportunity presents itself. Strategy notes simply aid in decision making they don't replace rational trading tactics.