Page 145 - Ultimate Guide to Currency Trading

The result will be a house cleaning of your account twice per hour. If the position looks good, close it
out and book the profits. You would be surprised at how fast your money, skill, and talent will
accumulate when you follow this procedure. Remember, a win is a win. And it doesn't take one big
win to do well in currency trading; it takes a lot of little wins that add up to big profits in your Forex
account.

Smaller Bets Relative to Account Size

One of the best ways to de-tune a Forex account is to divide your available margin into thirds. From
this, divide into thirds again. The number you end up with should be the maximum amount of margin
that you should invest at any one time. If you are trading in a nondiversified, unidirectional manner,
then three entries of the same currency pair is the best way of diversifying your cost basis in the
currency pair.

For example, if you are trading into a commodities currency in order to capture the added risk
sentiment of the world's traders, then you might choose to go long the New Zealand dollar against the
U.S. dollar. This type of position would allow you to gain if there are signs of added risk sentiment
across the markets of the world. It might be that Europe has had a satisfactory development in a
sovereign debt issue. It also might be that China's growth numbers have just come out, and they show
a year over year increase in the industrial growth of this manufacturing nation.

Either way, if you sense a growth signal, you have the all clear to place some trades that will
capture the growth orientation of the world's traders. The same would be true for a long Swedish
krona versus the USD or EUR as well as other classic currency pairs including a long NOK and long AUD
versus the USD or even the EUR. Depending upon the technical and fundamental analysis, you can
achieve your goal of capturing the movement in the currency markets by trading a number of currency
pairs.

In the case of a long NZD/USD (or other risk-loving pair) you would build your position by
three equally measured bites at the pair. If the news developed overnight, and you are building a
position after the news, then the three buy ins can be done every half hour to forty-five minutes. On
the other hand, if the news has taken place in the morning, and the U.S. markets have already reacted
to it, but you were not able to place your bets into the FX market until the afternoon New York time,
then your three trades can be placed every ten minutes. This shorter time frame is due to the fact that
there is very little movement in the currency markets between 3:00 P.M. and 6:00 P.M. New York time.
If you are trading at this time, then there will be very little difference in the prices of the currency pair
with each third. Since the markets will undoubtedly be getting ready for a second day of upward
movement, then it is best to get your positions in well before 7:00 P.M. New York time, which is just
about when the Sydney, Hong Kong, and Tokyo traders get to work in the morning.

Whether you are trading in the morning, at mid-day, or in the evening, your Forex account's
risk level can be greatly reduced by trading only one-third of your margin at any one time. Of this one-
third, three equally measured trades will get you into your position with a form of dollar cost
averaging. This dollar cost averaging is a method of buying more or less as the market moves up and