Page 100 - Ultimate Guide to Currency Trading

movement. Since most currencies move up and down (if even just a bit) over the course of the night,
you can enter in a stop that will earn you a good profit from this small amount of capital committed.

Carry Trades

The fourth and final bucket of capital committed is a carry trade, or one that is intended to last many
weeks and perhaps months. With this type of trade the profits come slowly and gradually. Since you
are committing to a long time in the trade, a very small amount of your capital can be commit-ted,
around 3-5 percent would be sufficient. At 50:1 margin, huge gains can be made as a FX pair moves
over the weeks and months.

Quick Trades, Quick Profit

The risk you undertake in your trading account can be directly tied to the amount of time you are
actually in a trade. If you are in a trade for a very short time of a few minutes, you will be effectively
reducing your exposure to risk and limiting the chance of a trade going bad. It is also true that FX pairs
usually move less in shorter-time length trades. In order to compensate for this you will have to
commit a greater amount of your capital to the trade. Additionally if you are performing short-time
frame trades it would be best to commit to one or two trades at a time.

A good way to think of it is to think of short and ultrashort-time length trades as a power lifter
would think of lifting a weight above his head. When an Olympic athlete lifts 400-plus pounds over his
head, he does it in a clean, quick, jerking motion. Once the weight is over his head, he lets it go as
quickly as possible. This type of lift is called a squat; your ultrashort-term trades can also be called
squat trading. You can pile on the money in your account to one big trade and in less than five minutes
be out of the trade, with the profits going into your account. This would be similar to a power lifter
piling on the weight to the barbell, quickly lifting it, and then letting the weight drop.

The amount of money you have at risk can be reduced by just keeping out of the
market! If you are only in the currency market for five or ten minutes at a time, you are
limiting your downside risk, as a currency pair usually takes hours to move a significant
amount.

This can actually be a really good way to rack up profits at a quick, relatively risk-free rate. In
order to do this you would need to concentrate on only one or two currency pairs. The best ones are
the AUD/USD, the NZD/USD and the EUR/CHF. This type of squat trading works best in the slower
hours of the trading day, which is about the time that the late night movies are showing on TV. It is
quite possible to put the kids to bed, watch the 10:00 P.M. show, and spend a few hours entering into
and exiting out of trades on your laptop computer. Trading in this ultrashort-term fashion can be a
kind of recreation, much like playing video chess while spending the night watching reruns of Matlock
and laughing with your significant other.