Fundamental Conjecture

Something to keep in mind when you consider where the currency markets will be heading in 2009.

It appears that the Obama stimulus package will contain a $250,000 write off for business expenses. This is huge. Smaller businesses, when generating expenses, are not generally spending their money outside of the US. Vehicles, machinery, tools, raw goods or whatever else is eligible for this tax change will quickly represent income to other domestic businesses.

This is big.

Additionally, it was just reported today that mortgages on primary residences will soon be allowed to be adjusted during bankruptcy. According to some pundits this is a very large win as it is actually supposed to be better for the banks -- compared to a foreclosure. Not to mention the fact that if this done, greatly reducing foreclosure events, the downward pressure on housing prices will be released.

This is also big.

Finally, though it sounds like an insignificant item, Obama mentioned the need to restore trust in the financial system. Perhaps you are not aware, but the only thing that allows people to trade and exchange money via markets is trust. If you don't trust that you'll get a fair trade, receive ownership, or be protected to some degree from swindles and excess, then why in the heck would you put your money at risk?

This is perhaps the biggest item. However, don't be surprised if this item turns into political fodder as ideologues argue against it. What these ideologues often forget is that free markets simply require a level and trusted playing field. Rules are fine -- as long as they're enforced reliably for all players.

Don't forget that!

Trading A Longer Timeframe

FOREX Rethink
Though I've been trading the AUDJPY on a 15m chart quite a bit, and with reasonable success, I am thinking about moving to a larger time frame. Well, to be accurate, it's not so much that I plan to use a different chart. What I really want to do is accumulate positions over a longer period of time.

Do you know why?

Because, if I can accumulate a bunch of positions that are at some level of profit, I can make incredible gains during a longer term market move. For example, if you have an appropriate part of your account at risk, plus you have multiple in-profit positions protected by a stop loss, all of them will bring returns during an extended upswing.

Accumulation Strategy
To accumulate in-profit positions I have my charting software chart my average position price. When prices are above this level I'll sell a profitable position that was purchased above the current average price. Then, when the market moves south, I'll buy a new position further down.

It's important to use small enough positions when using this strategy as you may end up accumulating some trades while waiting for a suitable price swing. Using small position sizes gives you the flexibility to open and close positions, some of which may be unprotected, while you wait for a major move in your favor.

I find this type of trading improves my patience. You will end up thinking it may be worthwhile making another trade and then say, I'll wait for it to hit point X instead. Either the price will hit X or it must move in my favor! With this viewpoint it is very easy to wait and see what happens. Doing this, and catching a new low price point, for example, adjusts your average price and makes it easier to find a suitable position to unload on an upswing.

Accumulation Results
Based on my own experience I can suggest that your interim results will be reduced. You won't be entering and exiting trades as often nor will you be as concerned about capturing apparent tops and bottoms. However, once you find yourself on the right side of a longer term swing you can pull in significant profits all at once.

However, keep in mind, you are at risk of a major movement against your trades. You must be willing to trust a significant top or bottom -- to the point that if it fails you could end up suffering a margin call. This isn't for the faint of heart. Of course, you could always create a small sub-account specifically for implementing this type of strategy when you think you do have a known top or bottom.