Page 96 - Ultimate Guide to Currency Trading

Small Positions, Big Time Frames, Long-Haul Strategies

You might sense that the market has been going up (or down) for quite some time. You might wonder
how you can place some longer-term trades in order to capture market-price movement to the
downside without exposing your-self too much to any more up movement.

Give Yourself Plenty of Margin

You might want to try some longer time frame-type trades for this purpose. The best way to do this is
to have smaller positions with plenty of avail-able margin just in case the market does not move in
your favor quickly. Better yet, plenty of margin will allow you to add to your positions even after the
market has moved against you, but you are sure that a correction is coming.

If the market has moved up (or down, just reverse long for short) for many days and the run
seems to be getting a bit long, then by all means clear out all of your trades and go on a spree of
selling risk short. You have learned the currency pairs with which this approach works best. You have
also learned the one-third margin rule. In order to capture the downward movement when it comes,
you will need to divide your margins even further beyond the one-third that you would use for a
shorter-term trade.

How can you tell it is time for the markets to turn after a big run? The best way to
know if a currency pair (or the stock markets) is ready for a reversal is looking at
both fundamental and technical indicators. Additionally, you might want to tune
QUESTION

into CNBC, as this station will be in a state of euphoria when the market is
overbought and just ready for a crash.

The smaller amount of margin that you use with each addition to the position, the safer your overall
account will be. If you use only one-twentieth of your account for each bite into the currency pair,
then you will be very safe indeed. You can pace yourself to buy into the currency pair of your choice at
small, measured paces in order to insure the liquidity of your account if there is any movement against
your position. Remember, it is okay to have movement against you in your currency account. The best
defense is to have ample margin to take the blow. It basically works as follows: As your account gains
in profit you will be adding to your available margin; as you lose in your account, the losses will be
taken out of your available margin. Once a certain level is breeched, then you will get a margin call,
and you will be forced out of your positions at that price (a loss) and you would have blown up your
account. This can be really easy to do if you are not careful and have too much product on your books
and not enough margin to handle any downturn.

On the other hand, if you ease into the position, you will be protected. In the best-case
scenario, you will be protected from the downside. In the worst case, you will limit the amount of your
gains to how much of the currency pair you have on the books when the market does finally reverse