Keeping an Eye on the EURTRY

I liquidated some profitable short positions in the EURTRY around the 1.9150 price level.

While this wasn't the absolute bottom it was well below the current levels -- due to a recent price spike. As the spreads are reasonable during the morning hours I will consider selling a small chunk tomorrow morning if it looks like things are going to turn around.

However, the EURTRY is not the place for absolute beginners to dip their toe. Not only is it volatile, but the widely swinging spreads play havoc with trying to use stops appropriately.

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.

The EUR/TRY Carry Trade

I'm dabbling in the EURTRY carry trade situation.

Due to the difference in interest rates you can pocket a bit of change as long as you maintain your short position. Obviously, however, nothing is free. The EURTRY market has a lot of volatility complete with sharp price spikes on the order of 1500 pips!

This means that you cannot leave a position completely open or you will risk the value of your entire account. However, it's possible that such a volatile market will make it impossible to execute a stop loss at the exact point you want or at the point spread you expect. Danger, Will Robinson, danger.

On the other hand there is no guarantee that another spike will happen in the short term future. You can certainly place a short sell order way up in the stratosphere and if you are lucky enough to grab it you might be lucky. It's also possible the spike will be much higher than a previous spike and you'll get burned. Alternately, the spike price could represent a new trading range and not offer you a large profit. There are no certainties - only risks and potential rewards.

Shall we play a game?

Trailing Stop Strikes

Well, whether it is a small correction or not I have no idea, but the USDJPY has gone down enough to remove me from the market. So, my profits have been pocketed and I need to look for opportunities to get back in.

The same is true for my AUDUSD holdings.

I'm starting to look into the USDCAD, in the long term, but there is always the risk that the US dollar will take a dump when the Tuesday interest rate news comes out. It would be hard to imagine that we could get to parity, or that we could stay there for long, but there is always the chance that the war in Iraq will push us there. I see an incredible load of debt being heaped on the USA combined with an inevitable drop in spending when the war ends.

On a different note, I find myself sitting on the sidelines. I don't like being on the sideslines, but I don't want to keep throwing money at a market to see if I can a place where it will stick. That costs too much. Maybe I'll investigate some carry trade ideas. For example, the EURTRY is appealing, though very risky.