Page 126 - Ultimate Guide to Currency Trading

While all of these three positions will capture gains in a falling market, they will all do so for
different economic reasons. It is true that you are man-aging your currency account aggressively. You
have concentrated your positions and have designed the trades to be one big directional trade. Even
though this has caused added risk, you have used diversification within your concentrated position to
hedge away some of that risk. The position is hedged across geographic and economic influences. You
are now ready for the markets to fall and for you to reap the profits. This is a good example of an
active hedge within a directional trade.

Double-Trading Volatile Currency Pairs

Double-trading volatile currency pairs is an additional method of aggressively capturing FX gains. In
order to do this effectively, you would need to trade a pair that is very risk sensitive such as the
AUD/USD or the USD/SEK. Both of these pairs move in an up-and-down fashion that follows the
movement of the U.S. stock markets. The idea is to enter a market order at the beginning of a strong
upward or downward movement. You will know the direction to take by looking at the news going
into the weekend. If the news reports are stating that it will be volatile or a bumpy ride the next week,
then this is the best time for this type of trade.

For example, the previous Friday the government might have issued a negative economic
report regarding jobs or durable goods orders. The indication is that there will be a slowing of the
economy. Over the weekend you look at your USD/SEK three-hour chart and you notice that the USD
and the SEK have been like a yo-yo for months, and seem to be range bound between two points. You
also notice from the chart that the USD has started to move up against the SEK and, in the last trading
session on Friday, it moved up considerably. You do your research and you notice that the Riksbank,
(www.riksbank .com), is not planning to have a rate meeting in the next few weeks. In fact,you gather
from your reading that the management of the Riksbank believes that growth and inflation is on
target. This information leads you to think that there will not be an interest rate hike for the next
several months.

Switching to your trading platform on Sunday afternoon, you place a long USD/SEK order. This
long USD/SEK order will capture profit as the U.S. and European markets open after a weekend of
contemplating the bad news out of the United States. Most likely the trend of the strengthening USD
against the SEK will continue. You know that this trend line will continue until the risk sentiment in
traders' minds rises; i.e., when the traders of the world reverse their tastes and decide to add more
risk to their portfolios.

Some currency-trading software will only let you close out the first trade of a
series of trades in the same currency before allowing you to close out the second and
ALERT third. This closing out in order or entry means that you might have winning trades in
which you are unable to realize the gains.