Forex Strategies July 2015

At the moment I am so focused on my forex that I just use this blog to jot down notes that I can refer back to.

For now I am just a trader learning the ropes but long term I would love to take this further and so here I am providing the beginnings of forex flavoured examinations that will help my SEO over time.

Because I am trying to start the habit of saving screenshots of my trading each week so I can track the developments and see where I went wrong, it has oocured to me I will probably post these up one day when I have moved through the industry to a point I feel confident in this move.

But for now the screenshots are much like this blog, they are simply to help me track my progress since I have definitely had my ups and downs in forex trading this year!

The worst I see is that within a few months I finally crawl my way to $20k equity where I can flirt with $4k margin, and then I must grapple with the spectre of a possible $200k blow out as could possibly be roughly calculated from the idea of having $2 million in positions that take on $200k loss despite being hedged. We’re just talking worst case scenario that you open up to.

But remember it take some time – months – to distribute that extra leverage, and we’re talking about the full range here. The last 10 months have included 2 massive extraordinary moves that took me completely off guard, the USD rising vs the Euro in the beginning of the year, and the rise of the Pound vs. the Aussie more recently, made all the worse by the fact that I didn’t see it ever breaking this high.

What this means is I am running out of sheer drops. very time I retreat from the edge of the hedge, running the risk of the valley effect, as I am experiencing with the EURUSD.

How am I going to avoid that? Tighter hedges. In the future, my hedge size is proportionate to what my equity can support. I only need to build hedges if the equity is low and so I must build them early.

But there will be less on the edge play as time goes by, and those sheer drops from the edge won’t hurt because it’s all territory that’s been covered.

The next big drop we are expecting is the USD’s next move up. The pound is a dark horse? How far will it go? What’s happening now could be the big price in, it may plateau and correct jsut like the USD did, that is why I prepare reasonable rises, but no action stations for continuing, rolling building like the USD.

However there is the AUD, the AUD and euro could still fall some more short term, but correct later when doubt arises.

What would I do with EURUSD if I was in this position without knowing? Trail back the counter hedge until it broke the levels at 1.09 and 1.10 and that’s where I would have big hedges of about $10k, $20k and then come 1.106 then you jump in with the big say $40k.

You got $230 falling, but $200 rising, you are taking an equity drop, but perhaps at this point, only a few hundred dollars.

What happens if you get caught stuck there? Now you’ve got $200k coming down on your head, rolling through to who knows?

Well you still have $230. You still have the bigger number. So the moment it turns, you already have the counter hedge, $20k, in place. both these big hedges are designed to be taken off, in fact it would be hoped the profit from the $20k counter would mop up the loss from the the $40k once the trend kicks back in, then it’s rinse and repeat except you know which level was failed at before, so you wait for the test of the level.

See I’m beginning to learn my levels and it just makes me realise some really cool important stuff.

So what is our plan?

Keep 200k riding til 1.05, watching for the reversal where we might risk our first counter hedge as a test. Otherwise we’re looking for critical breaks under 1.05.

At that point we actually try proper trading. $50k positions, with stops back at 1.06 that cost

Why wait for 1.05 to do the big positions? Well I will take thos opportunities between 1.08 and 1.05 but I want to see the $225 clear out down to $100. Our mission is to keep the other side under 200k and I really think that isn’t hard.

The USD will rise against the euro and more slowly vs AUD, and the GBP will as well – just not as fast, and maybe very little at all vs the AUD and so the USD will also rise against the pound.

But where are the sheer crazed drops that destroy us?

Maybe a strong euro MIGHT can the AUD, the USD we are ready for and the pound on the euro and AUD we will stay ready for.

***

40 AUD/EUR: 88vs 48 – careful of the sheer drop here – I looking out for which pairs could in the future be ones to go off the deep end.

58 AUD/GBP: 120 vs 62 – hard times call for bigger hedges and that is where we have gone, recognising we are ready to go all the way out to 150, but we must keep the hedges in check and in line with the price movement.

51 AUD/USD:107 vs 56 – We are hedged further in again. The big hedge is not just protection, it’s standing opportune here for the australian to go as low as 71 before seeing a correction. The lucky thing about the AUD sides is we still have more room there to work with on the other side. But when the .735 level breaks we have to ramp right up to perhaps 80k so we need some $10k positions in there.

74 EUR/GBP: 122 vs 48 – this surge we actually played pretty well, we are tipping this can’t run more than a few more sense but we have been wrong, wait for the reversal, still room on the other side.

You can see the larger hedge positions and smaller hedge gaps indicate how unprepared I was with $75k gaps – not only was a caught short and put against the wall, but I also missed the opportunity to ride big hedges to a mighty result. Now I believe even $100k gaps can be too dangerous for now.

57 EUR/USD 163 vs 220 – delving into the parity dive, holding both levels as equally as we can going down.

54 GBP/USD: 84 vs 138 – Lower on both sides! Nice work. With EUR/AUD which is the fight for the bottom, this represents the fight for the top, and is therefore also uncertain, although USD strength

***

The opportunity to expand my trading makes me apprehensive about leveling up without any qualifying achievement. Picture myself in 6 months. Double the capital, double the liability. Same equity.

How do I make my money back? Well you wait, and you might make some back, and your equity would full further as you took your hedges back, and then they would recede and you would start to look good. Don’t forget I could simply add $50k to my 1st account and just leave all the hedges to unwind except after a few months, all the old stuff, the forgotten parts of the range, in my case the top of the euro and the aussie, they would never come back.

But why would you waste all that movement? But when will I ever get to a point where I see equity increase? It seems so mad.

The equity never rises, the profit we’re making never catches up with the losses increasing, so there is never anything to reinvest and grow the pace, but what can be considered is that initial target of $2k per week. Once you are no longer under pressure to grow, the $2k will slowly fill the shortfall and build up.

It’s like you’ll never be safe until you’re riding $10k margin risking $300k liability. It would still take me 40 weeks at $5k to build that up, so it would be a sketchy time. But you’d be likely to start achieving your goal.

The thing is by that stage we run no risk, and pushing out further, also not so risky but an exponential point has already been reached, you can potentially be making hundreds of dollars more each week.

We don’t need to 10x to get the

Actual Carry rates

USD/GBP: -1.3
-USD/AUD: -2.934
-USD/EUR: -.576

-GBP/USD: -.709
GBP/AUD -2.644
-GBP/EUR: -.286

AUD/CAD: +.231
AUD/USD: +.880
AUD/GBP: +.578
AUD/EUR +1.304

EUR/AUD: -3.376
EUR/GBP: -1.745
EUR/USD: -1.442

-CAD/USD: -.394
NZD/USD: +2.601
NZD/CAD: +1.951
NZD/GBP +2.298
NZD/JPY +2.745
NZD/EUR +3.024
TRY/USD +9.557
TRY/EUR +9.880

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