Monday, September 1, 2008

Carry Trade Accumulation Strategy

As I haven't seen this forex tactic expressed anywhere else I thought I'd blog about it and share it with my small readership.

Are you familiar with trailing stops?

This is when you set a stop loss some number of points below the current price and then allow that stop loss to float when the price moves in a profitable direction.

Well, I'm not going to talk about stop losses, but the idea is similar. What I'm going to describe is a trailing limit order.

Let's say, for example, that you think the GBPJPY is starting to look like a good deal. Instead of jumping on and buying it you may want to set a limit purchase order above the current price. The odds are good, given recent history, that the price will drop further.

Bingo. You can then adjust your limit order and trail the market price by some appropriate level. Be warned that the price could spike, activating your purchase, and then continue dropping. In today's environment you can then save yourself the risk of acquiring a position until the price does show some type of strength.

I'm not aware of any forex trading platform implementing this so you'll have to execute a manual trailing limit order yourself.

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