Page 153 - Ultimate Guide to Currency Trading

Although it is normal to buy into a currency pair with full force within a few hours or days, you
will be buying into the trade only every two or three days. This will spread your entry point across two
or three weeks, which will, by nature, give you a smoothly averaged cost basis. This means that the
average price of your long GBP/USD will be divided over a longer time frame, which in turn will give
you a greater variance in price. This greater variance in price will give you the greatest chance of
buying more on the dips, as the currency pair's price will move along a wider range in proportion to
the length of time covered.

It is quite common for a currency broker to issue a buy recommendation of a currency
pair only to turn the buy recommendation into a sell recommendation within days. If
ALERT they have an idea that their original idea was not correct, brokers will not hesitate to

admit that they called it wrong, and ask you to reverse your stance.

The second prong to your long-term building of your long GBP/USD position is to add new

money to your account over the weeks and months. It is natural to feel a bit squeamish about trading
with too big a balance in your FX account. A method to ease into a position is to build it up over the

weeks using the six parts of one-third method and at the same time slowly transfer-ring in additional
money to add to your tradable margin. You might decide to add a preset amount to your FX account

every week. You might start out with a $250 balance and add $25 every Friday afternoon, just before
the market closes.

After you have added the additional monies each week, you would once again divide your
margin balance by thirds. This new calculated balance would become your new target number to have

invested in the GBP/USD over the long haul. This building up of your position every two to three days
coupled with small capital injections to your FX account will combine to form a kind of moving target

that you will continually try to build up by additional purchases of the GBP/USD pair. This process can
go over a six- to eight-week period, which is a good amount of time to slowly build up your long

GBP/USD position. Granted, your account would be diversified, but you would be hedging your

exposure by buying into the pair over time at an upward sliding scale.

Playing the Interest Rate Differentials

Another trading idea that works well in a low risk account is called "playing the carry trade." When you

play the carry trade you essentially are trading for the long, long term. If you are willing to be in a
trade for six months up to several years, then this type of trade is for you. In order to set up and

execute this carry trade properly, you would need to find a funding currency and an interest-earning