Make Money With Carry Trades

I don't know if I can call my current state of Forex trading a slump but February has been tough going for a couple of reasons.  I've been experimenting with a couple of new strategies and unfortunately I always do so on a live account.  This may not be the smartest thing to do but what's done is done.  I'm currently at -217 for the month.  The H-system is at -102 and Lien Schlossberg is at -83.  I found out the other day that when I signed up for the service, I signed up using quarterly payments.  This means that I have 3 months of their service.  I'm going to see what I can do to change this to monthly because what I've seen so far from them is less than impressive.  It's still early in the month so I have plenty of time to recover.

One addition to my trading history is the tracking of interest.  I've been talking to another trader about carry trades and I've also been reading about an interesting strategy on the Oanda forums.  You can read more about it but basically, this trader will buy a pair where the base currency has a higher interest rate, such as the GBP/JPY.  The GBP has an interest rate of 5.25% and the JPY is at .25%.  The easiest way to try to explain this is with an example:

First day: He'll buy the GBP/JPY at some predetermined time in the evening. 

• If target hits 100 pip profit, he will close position
• There is no stop loss
• If 100 pips profit target is not hit, the position remains open 
• He is collecting interest equal to GBP, JPY differential

Second day: 

• If the current price is below the price he entered but not more than 100 pips below, he sits tight.  Remember, this position is collecting interest.
• If the current price is over 100 pips below the price he entered at, he opens another position based on 1 percent of his NAV.  So he is scaling in (on a losing position)
• If the current price is above the price he entered, he closes the position at a profit

To continue the example, I'll assume that he either had to scale in or sit tight.

Third day: 

This is basically a repeat of second day steps. 

• If the current price is below the price he entered but not more than
  100 pips below, he sits tight.  Remember, this position is collecting
  interest.
• If the current price is over 100 pips below the price he entered at, he
  opens another position based on 1 percent of his NAV.  So he is scaling
  in (on a losing position)
• If the current price is above the price he entered, he closes the position at a profit

This strategy could incur significant drawdowns but he's also collecting a nice amount of interest on money that really isn't his (leverage.) 

I hope I'm understanding this.  It's not the easiest thing to explain.  Read over the thread at Oanda.  I'm not saying I'm going to use this but I've never really investigated carry trade strategies and I find it very interesting.

Oanda post

Popularity: 3%

Journal Entry for 46 pip profit trade last night

Click [Read More] to see video of EUR/JPY Trade last night, my first +40 pip profit trade in a long time. 

[Read more]

Popularity: 2%

Trading in La La Land

I've said this before but there is no easier way to take the emotion out of a trade by placing the trade, setting your stops and limits and going to bed.  I made a decent trade last night going short on the EUR/JPY and woke up to a nice surprise, +42 pips (limit reached, trade closed.)  I'll post the journal entry for this one later.  I still see a favorable trade lower but I'm waiting for certain levels to hit.  

Today should be quite a crazy day to trade.  I already missed a trade at 7 this morning on the AUD/USD that I was going to go long on but thought twice because of a resistance line up above.  I'm trying to show some discipline by not going into the trade 2 candles late.  By then the risk/reward isn't what it was and it's a good way to lose money.   

Have a good trading day and be safe.   

Popularity: 2%

Asian Session May 8th

Journal Entry

{mosimage}

I decided to trade the Asian session and shorted the USD/JPY.  I was just stopped out at 0 profit/loss. 

I shorted the pair on a break of the support trendline and a break of RSI trendline.  It was good entry execution.  I waited for the price to break the trendline and then waited for the 15 minute candle to close.  After I was up 20 pips, I moved my stop to break even at 111.52.  My limit was still 111.05, right above a lower support line.  The trade was up as much as 28 pips where I typically would have closed the position.  Tonight, I wanted to show a little restraint and patience so I waited.  The pair never made it back down before stopping me out for a scratch.  

Should I have taken the 28 pip profit? Would you have?  

Popularity: 3%

May 2nd NY Session

I'm in short trade right now, USD/JPY at 113.25 with a 30 pip stop.  It's currently down 15 pips.  I just really need a winning trade right now.  I'm not going to do anything stupid though and I'll follow the rules and hopefully I'll come out on top.  

I opened the trade at 8:30 am when we started to get some volatility.  It has since dried up.  There are no major economic releases today.

I'm about to get stopped out.  I have to admit that I'm fighting with myself over the stop.  I want to move it up so bad.  I won't touch it. 

I didn't touch it but I was stopped out.  Wow, I don't know how many trades I've lost in a row.  Since signing on with Rob Booker, I have 1 winning trade and 9 straight losers.   One thing is for certain, I'm great at picking the bottom when I'm shorting.

Trade Details

The red thumbtack is where I went short.  I was stopped out
2 candles later.  I went short after a close below my lower channel. 
The volatility dried up and the squeeze dissipated quickly after 8:30
am.  

 

 

 

 

 

 

 

 

 

 

 

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Forex Volume April 18th Report

The latest Commitments of Traders Report was released today.

Name	Open Int	Long Pos	Short Pos
Crude Oil	495795	183102	116353
CAD	40999	23225	16307
CHF	43779	10744	32912
GBP	49814	27302	22208
JPY	118999	38749	79890
USD Indx	18272	11223	4994
EUR	86016	70019	14677
NZD	6072	5272	800
AUD	30108	20597	9436

Crude Oil - ↑ Very Bullish

CAD - ↑ Very Bullish

CHF - ↓ Very Bearish

GBP - ↑ Bullish

JPY - ↓ Very Bearish

USD Index - ↑ Very Bullish

EUR - ↑Very Bullish

NZD - ↑Very Bullish

AUD - ↑Very Bullish 

Popularity: 6%

Most Volatile Pairs during Asian Session

Before I dive into this post, let me tell you that from everything I've read and watched from Rob Booker (and from everything he has directly told me) it doesn't seem like the Asian session exists to him.  Now he hasn't told me this exactly but he seems to concentrate his effort on the NY Session from 7 am EST - 11 am EST.  I told you earlier today that when he was working full-time, he was trading the European session and he did tell me yesterday that you will get a lot of trade opportunities from 4 am EST.  So from the information I've gathered, I'd have to say he recommends trading during the hours of 2 am and 11 am EST.  

What about the Asian session?  For those of you that work in the United States or Canada or anywhere close to the Eastern Time Zone, the Asian session gives us a chance to actually trade when we get home from work without having to get up in the early morning hours with 1/2 a nights sleep to trade the European session.   

I will ask Rob if he recommends trading the Asian session or if any of his student have success doing so.

What I wanted to do in this post was to mention the most historically volatile pairs during the Asian Session thanks to Kathy Lien from FXCM.  Kathy did a good amount of research on this subject and I thank her for the information though I have asked for absolutely no permission to use it.  These PIP ranges are for the time period between 7 p.m. - 4 a.m. EST

Currency Pairs	PIP Range
GBP/JPY	112
GBP/CHF	96
USD/JPY	78
USD/CHF	68
GBP/USD	65
AUD/JPY	55
EUR/CHF	53
EUR/USD	51
USD/CAD	47
NZD/USD	42
AUD/USD	38
EUR/GBP	25

As you can see from the chart above, the best options for risk-tolerant traders during this time period are the GBP/JPY, GBP/CHF, and USD/JPY.

For risk-averse traders, AUD/JPY, GBP/USD, and USD/CHF provide more moderate volatility.

The only problem I see with the risk-tolerant pairs, at least 2 of them is the spread.  The GBP/JPY spread at FXCM is 9 pips, the GBP/CHF 15 pips! The USD/JPY offers the lowest spread on FXCM at 4 pips.

The risk-averse pairs are a bit better spread wise with AUD/JPY at 8 pips, GBP/USD at 5 pips, and the USD/CHF also at 5 pips. 

Popularity: 5%

Momentum Divergence in the EUR/JPY

An observation from Learn::Forex that may pique your interest.

Euro/JPY has our attention…

Why? 

Notice
on a Daily chart we are attempting to push up into the zone of 145.00
although the momentum is clearly beginning to fall off. This is again
confirmed with the 120 minute chart as well. This combine with the
resistance area we are looking for a short opportunity anywhere from
current price up to a retest of the 144.80/145.00 zone. Targets on the
short side are 143.00 and if we get a clear break of 143.00 we could
have a second target of 142.00. We would look to place a stop up above
the 145.00 level.

  

 

 

 

 

 

 

 

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Learn:Forex Exclusive Analysis

Learn::Forex provides exclusive content for members of FXCM.  I find that out of all Guest Trading Ideas they have "keeping it simple" analysis that you have to respect.  Others have analysis that from day to day is not consistent and analysis that also can be contrued as more of an art.  (easily interpreted differently from 1 person to another)

Here is Learn::Forex's Analysis today.  See for yourself.

AUD/JPY April 12th, 2006

The pairing that has caught our attention this week is the AUD/JPY.

First lets take a look at the Daily. Two things that stand out.First, notice that we have TWO different fib pulls that are coming together and have for resistance. And second, look at the momentum.it is appearing to weaken.

Then on the 240 minute chart we find confirmation of the price action losing momentum and we also get a nice trend line to use. In SHORT there seems to be an opportunity here.anywhere from current market price all the way back to re-test the trend line and resistance zone of 87.00

We have some support at the 85.50 area with more major support coming in at 85.00 which also happens to line up with a .382 retracement fib. 

 

 

 

 

 

 

 

 

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My first trade in weeks

Just like that I'm back in the game.  I made my first trade in weeks going short on the USD/JPY.  Why did I decide to go short? Quite simply because of the strong resistance directly above my entry.  Early in the Asian session today, we saw the pair push as high as 118.69 but it couldn't hold. I'm looking for the pair to come back down to the 116.75-118.00 range perhaps retracing to the .618 fibonacci from the 4/3/06 high of 118.80. 

{mosimage} 

Popularity: 2%

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