My Own Carry Trade Unwind

Before accepting the fact that a pure carry trade strategy in Forex is in ways more perilous than a pure short-term trading approach, I pursued that method almost exclusively. As a result my trading account is still littered with the remains of that method, which creates a bit of a drag on my short-term trading returns due to the drag they create on my available margin.

I've got this topic on the brain this morning because I awoke to discover that my old USD/TRY (U.S. Dollar v. Turk Lira) short positions had moved very close to their break-even points. I was able to dump one of them and I have set take profit orders just past break-even on the others; based on chart formations, I expect these to trigger and close these positions within a day or two.

There are two ways I am addressing these old trades and cleaning them up:

1. As above, let them move to profit and close them out. This is the ideal scenario.

2. Some of these old carry trades are pretty far in the red and will not come up for air any time soon, so I gradually unwind them by buying them out. After I hit my weekly profit target for my short-term trading, an increase of 2.5% of starting NAV for the week, I use half of additional profits from each subsequent trade to purchase back the losing carry trade pairs. For example, if a short-term trade nets me $20, and I am whittling down an old EUR/TRY short carry trade, I'll buy $10 worth of EUR/TRY. I just keep repeating that process until the position is either purchased out of existence or it moves back to profit, enabling me to eliminate the remainder.

Many times I have been tempted to just close all losing positions and wipe the slate clean, but to do so is to eliminate capital. Sure, you can get it all back again later, but by doing so you skip the chance that the position will move back toward profit on its own.