Tips & Trading Strategies for the Currency Market Boris Schlossberg Senior Strategist€¦ ·...

Tips & Trading Strategies Tips & Trading Strategies for the Currency Marketfor the Currency Market

Boris Schlossberg Boris Schlossberg Senior StrategistSenior Strategist

DisclaimerDisclaimerLeveraged foreign exchange and options trading carries a significant level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with foreign exchange and option trading, and seek advice from an independent financial advisor if you have any doubts.The contents provided in this seminar are subject to change at any time without notice.

There is no guarantee that the systems, trading techniques, FX PowerCourse, trading methods, indicators or other information presented at this seminar will result in profits or not result in losses. The content is provided for informational purposes only and is not intended as a trading recommendation.

B

Learn the Discipline of Learn the Discipline of Trading ProsTrading Pros

B

1) Define a Strategy

2) Money Management Rules

3) TEST, TEST, TEST

4) Understand Performance

5) Understand Drawdown

6) Improvement

Important ConsiderationsImportant Considerations

• Fundamental or Technical

• Range / Trend or Breakout

• Long Term, Medium Term or Short Term

1) Define a Strategy 1) Define a Strategy –– Part 1Part 1

• What Currencies Will You Trade?

• Majors vs. Crosses

• What Time Frame Will You Trade?

• 15 Min, Hourly or Daily Charts?

• Will You Hold Positions After 5pm

EST, Over the Weekend?

1) Define a Strategy 1) Define a Strategy –– Part 2Part 2

• Multiple Entry / Multiple Exits?

• How Low are You Willing to Buy?

• What Risk / Reward Parameters?

• When to Take Profits, Trail Stops,

Close the Position

2) Money Management Rules2) Money Management Rules

• Everything Needs to be Back Tested!

• Coding – Easy Language

• Review the Charts, Look for at Least 15-20

Examples > What Happened?

• Look at a More Granular Time Frame

• If it doesnIf it doesn’’t make money on a demo account, it t make money on a demo account, it

probably wonprobably won’’t make money trading a live accountt make money trading a live account

3) TEST, TEST, TEST3) TEST, TEST, TEST

• What is the Percentage of Profitable

Trades that you can Expect?

• What is the Profit Factor?

4) Understand Performance4) Understand Performance

• What is the average drawdown needed on

the trade?

• What is the Biggest Drawdown?

• Is that on the Close of the Trade or

Intraday?

5) Understand Drawdown5) Understand Drawdown

The Table of DoomThe Table of Doom

Amount of Equity Lost

Amount of Return Necessary to Restore to Original Equity Value

25% 33%

50% 100%

75% 400%

90% 1000%

Figure 1 - This table shows just how difficult it is to recover from a debilitating loss.

The Table of DoomThe Table of Doom

No Leverage

2:1 Leverage

5:1 Leverage

10:1 Leverage

Starting Value $10,000.00 $10,000.00 $10,000.00 $10,000.001% Loss $9,900.00 $9,800.00 $9,500.00 $9,000.001% Loss $9,801.00 $9,604.00 $9,025.00 $8,100.001% Loss $9,702.99 $9,411.92 $8,573.75 $7,290.001% Loss $9,605.96 $9,223.68 $8,145.06 $6,561.001% Loss $9,509.90 $9,039.21 $7,737.81 $5,904.90

5% To Recover 5% To Recover $10,000$10,000

70% To Recover70% To Recover$10,000$10,000

• ‘‘What worksWhat works’’ and and ‘‘What doesnWhat doesn’’tt’’

• When are the Losing Trades Usually

Made?

• Avoid News

• Limit Trading to Specific Time of Day

• Cutting Losses Earlier

6) Improvement6) Improvement

:Establish realistic goals

Top money managers risk no more than 2Top money managers risk no more than 2--5% of 5% of total account equitytotal account equity

Professional money managers (try) to beat the Professional money managers (try) to beat the S&P which averages around 8S&P which averages around 8--12% annually12% annually

How much do I hope to make every day, month, How much do I hope to make every day, month, and year?and year?

Realistic ResultsRealistic Results

Barclay Currency Traders IndexBarclay Currency Traders Index

StrategiesStrategies

Setups, Setups, Setups!Setups, Setups, Setups!

Seven Day Extension Fade – Statistical Significance

Trading Rules

• Look for 7 consecutive bars of weakness (where each bar’s close is below the prior)

• Buy at the open of the next bar• Place stop at the low of the seventh bar minus 10 pips• First target is amount risked, move stop on remaining half to

breakeven • Second target is three times the amount risked

**Reverse for Short

B

Seven Day Extension Fade Seven Day Extension Fade –– AUD/CADAUD/CAD

Seven Day Extension Fade Seven Day Extension Fade –– NZD/USDNZD/USD

B

Seven Day Extension Fade Seven Day Extension Fade –– GBP/USDGBP/USD

B

Seven Day Extension Fade Seven Day Extension Fade ––GBP/USD HourlyGBP/USD Hourly

B

Seven Day Extension Fade Seven Day Extension Fade –– Failed TradeFailed Trade

B

- 17 pips

Stop at 1.2974

Strategy # 3

RSI Roller coaster

Rule 1

RSI Reading Must Be Above 70

Wait For Candle to Close With Reading < 70

Rule 2

Go Short At Market on the Open of The Next Candle

Place Stop +10 Pips Above Swing High

Place Stop 10 pips Above Swing High

Rule 3

Take Profit on ½ Position When Target Reaches ½ Risk

Move Stop To Breakeven

Take Profits on ½ Position and Move Stop To Breakeven

Rule 4

Exit 2nd Half After RSI

Drops Below 30 On A Closing Basis

1131 Pips Profit on 2nd Half

RSI 29.73

Does RSI RollerCoaster Work

On Short Term Charts?

Yes. But Differently

Rule 1

RSI Reading Must Be Above 70

Wait For Candle to Close With Reading < 70

Rule 2

Go Short At Market on the Open of The Next Candle

Place Stop +5 Pips Above Swing High

Rule 3

Move Stop To Breakeven When Target Reaches ½ Risk

Rule 4

Exit After RSI

Drops Below 30 On A Closing Basis

Why 1 Lot on Short Term Time

Frames?

Many More Misses

Strategy # 5

Inside Days

What are Inside Days?

Rule 1

Look for at least 2 Inside Days

Look for TWO Inside Days

Rule 2:

Place 2 Orders:

1) Buy at the High of the Most Recent Inside Day

2) Sell at the Low of the Most Recent Inside Day

Go Long Above the High

Rule 3:

Place Stop and Reverse Order at Least 10 Pips Below Low of

Nearest Inside Day

(Long Trade)

Go Long Above the High

Place Stop 10 Pips Below this Low

Rule 4:

Take Profit at 1x Risk,

Trail Stop on Second Lot by

2 Bar High or Low

Strategy 2

on Hourly Charts?

No.

- Stops are Too Tight

- Subject to Sharp Volatility

Our Motto:Our Motto:Combining Technical Combining Technical With FundamentalsWith Fundamentals

Trading in Action = Anatomy of a TradeTrading in Action = Anatomy of a TradeShort AUD/USD

Fundamental Reasons

• Looking for a strong October non-farm payrolls – Recent Jobless claims, ADP and Hudson Employment Reports were very strong

Technical Reasons

• Statistical Significance – Over Past 10 Yrs, AUD/USD saw a 7 day move 14 times, with only 3 of those 14 lasting for longer than 7 days

AUD/USD ChartAUD/USD Chart

BK

Went short AUD/USD at 0.7735, 0.7765 stop, exited ½ at 0.7712, ½ at 0.7687 = 58 pips in 24 hours.

Intelligent Tools From DailyFX.comIntelligent Tools From DailyFX.com

The Pairs To Range Trade This WeekThe Pairs To Range Trade This Week

1. Uses Technical and Fundamental Filters

2. Technical's Include: S/R, Fib Analysis etc.

3. Fundamentals Include: Careful Analysis of Event Risk

The Pairs To Range Trade This WeekThe Pairs To Range Trade This Week

The Pairs To Range Trade This WeekThe Pairs To Range Trade This Week

Picking Tops and BottomsPicking Tops and Bottoms

1. Picking Turn Trades Can be Dangerous and Frustrating

2. Simple Overbought and Oversold Measures are not Enough

3. Yet Taken Properly these Trades Can be Very Lucrative

Picking Tops and BottomsPicking Tops and Bottoms

Picking Tops and BottomsPicking Tops and Bottoms

Hedging RadarHedging Radar

• What is Hedging? - Buying and Selling the Same Currency Pair at the Same Time

• Why Hedge?

• Continuous Position in the Market

• 2 Positions but 1 Margin

Hedging RadarHedging Radar

Hedging RadarHedging Radar

Dynamic Carry Trade IndexDynamic Carry Trade Index

• Why Trade the Carry?

• Most Successful Strategy Over Last 3 Years

• Generates Positive Interest Every Day

Dynamic Carry Trade IndexDynamic Carry Trade Index

Trading the NewsTrading the News

1. Shows the Past Three Event and its Price Reaction

2. Uses Highly Disciplined Approach for Both Entry and Exit

3. Provides Possible Scenarios for both Upward and Downward Surprises

Trading the NewsTrading the News

Trading the NewsTrading the News

Trading the NewsTrading the News

Durable Goods

-7.8%a vs. -3.0%e

Ex trans

-3.1% vs -0.2%e

60 pips in 12 hours

Why Wait? Why Wait?

Get these Ideas on a Get these Ideas on a DAILY Basis!DAILY Basis!

Thank You,Thank You,Good Luck And Good TradingGood Luck And Good Trading