Page 103 - Ultimate Guide to Currency Trading

One of the best times to get into an overnight trade is if the world's markets have been doing well for
the past few sessions, and the Asian markets begin to fall on the second or third day. It is then a good
idea is to short the EUR/CHF, go long the EUR/SEK, and short the AUD/USD. These three trades spread
in 9 percent of your portfolio will go a long way in capturing any price movement that is risk adverse.
FX markets usually go risk for a few days and then reverse and go risk averse for a few days. The idea
is to set up two or three overnight trades to capture when the world's FX traders are going to set their
trades in a less risky fashion.

The short EUR/CHF, short AUD/USD, and long EUR/SEK is a good hedge that the world's risky
assets will decrease in value. As you will notice, there is only one long USD position. This is because a
USD trade is a bit more difficult to predict against the EUR and other currencies. Since the USD has the
position of being the most widely traded currency, it can sometimes move illogically and therefore be
difficult to predict. With overnight trades, the euro proxies and the carry trades can be very easy to
predict.

For one, a carry trade is considered a risky position, and if there is any indication that
European and U.S. markets are beginning to go down (as predicted by the lower Asian markets in
Hong Kong and Tokyo) then most of the world's currency traders will sell out of their long AUD and
other carry trades such as NZD, Mexican peso (MXN), and South African rand (ZAR), etc., which are
more risky in nature and go long the corresponding safer counter currencies such as the USD. The
other suggested trades involve a long Swiss franc position against the euro and a short Swedish krona
position against the euro. In this case, the Swiss franc will gain against the euro since the Swiss franc is
considered a safe-haven currency. Conversely, the Swedish krona is considered a risky asset when
compared to the euro, as the Swedish krona closely follows the U.S. stock market. This combination
will offer you a slight hedge if there is any rise in the price of the euro against the Swiss franc.

More on Setting Up an Overnight Trade

You will most likely get an indication as to the direction of the world's stock markets a few hours
before midnight Sunday through Thursday nights. After making an evaluation whether it is a good
time to place an overnight trade, you must then decide if it is going to be a risk trade or a risk-averse
trade. To determine this, you must be a bit of a contrarian investor. Contrarian investing is a fancy
word for going against the wave.

If you have been watching the world's stock markets along with your FX positions and you
notice that there has been a strong direction in the past two or three days (whether up or down), then
this movement should put you on alert to keep watch for the next reversal of fortunes in the Asian
markets. If the Asian markets such as the Hang Seng or the Tokyo markets are leading in a different
position of 0.65-1 percent, then this is a perfect time to set up an overnight trade.

If all things look good for the setup of an overnight trade, then get your calculator out and
determine the size of each trade. You can use a bit of ratio to help you get a feel of how much of the
9-10 percent should be in each trade. If there has been a really big run-up in the markets in the past