Active Trading
I presently use two Forex trading styles amongst three portfolios: one active, two semi-passive.
In my active trading I have spent the past year and one-half using what amounted to a scalping method: very short time frames, very quick entries and exits with most positions closed intraday (or, since Forex runs 24/7, before I went to bed). I made use of MACD indicators with a histogram and Bollinger bands to identify entry and exit signals, and I would look at longer time frames to determine the dominant price trend. I would respond to entry signals that were in the direction of the trend and then claw and bite my way to profit.
It was fun for a while, but then it got aggravating. Trading that way demands one's full attention. There is not room for any distractions when you're trading like that. This is fine if you truly have no other interests in life aside from staring at candlestick charts, but unfortunately for me I am flawed and I do care about other stuff.
I decided to trade in longer time frames, from one hour charts up to daily (my broker, Oanda, doesn't presently offer charts beyond daily). My prior signal detection method doesn't work at all in such time frames, however, so I had to kick around a bit to find something new. Eventually I found my way to babypips.com, and in particular their education section on trading oscillator divergences. I took that information, replaced MACD on my charts with a simple RSI oscillator, and off I went. This change of strategy has turned out to be very profitable and a lot more relaxing!
Another change that has occurred in my trading is that I am no longer dependent on trading for income. Thanks to the growth of my passive income projects elsewhere, and some budget trimming, I do not require a particular amount from trading each month to cover my expenses. This has been a huge relief and it has changed my perception of each trade immensely. Trading is now something I enter into only when choice opportunities appear, and now my profits are dedicated to helping me retire my debts faster (as a supplement, that is - my debt servicing is otherwise fully covered by my budget, so there's no pressure there to hit a particular profit target each month either).
Passive Trading
My "passive" approach to Forex is the USD/TRY/CAD hedged carry trade that I've been working with for quite some time now. My method has gone through changes over time with the span between the last post I wrote about it and now being no exception.
My current approach is not truly passive but is instead a very long time frame USD/TRY "buy and hold" strategy (short USD, long Lira, of course) with USD/CAD occasionally opened long and closed out when no longer needed. All I do is keep an eye on overbought and oversold RSI levels for USD/TRY on daily charts. When USD/TRY reaches oversold territory I open USD/CAD longs, up to 75% of my total existing USD/TRY short units. When USD/TRY returns to overbought conditions, it tends to be the case that the USD/CAD longs will be in profit. I then cash these out and add more to my USD/TRY short position (no more than 10% of available margin). I started doing this instead of just holding USD/CAD as a hedge against a retreat of the Lira versus the USD because a) it's unnecessary to hedge against a Lira decline when Lira is advancing (duh), and b) holding USD/CAD long, at present, incurs a daily interest expense. Handled this way, I am able to protect my available margin when my USD/TRY positions are threatening a move into the red and my cash position grows every time I jettison the USD/CAD positions. Lately, with USD/CAD positions greatly reduced (I wasn't able to completely eliminate them during the last go around) my two hedged carry portfolios' incomes increased roughly 10%.
2 comments:
I think I'd have to just watch you do this a few hundred times, because it sounds quite complicated from a beginner's perspective.
TK - It can be, but I don't think it has to be. There are a lot of variables that it is a good idea to keep track of, of course, but my suspicion is that a lot of people overload on information and end up losing money because of it.
My broker, Oanda, offers free game accounts. You can crash and burn again and again and again without losing a penny, until you don't anymore. I think babypips.com has a lot to offer beginners, too, as long as you go straight to their school section and avoid reading their daily blogs while you learn (distraction, temptation). The other thing that's key, the point that I'm finally at, is to not rely on trading profits for income. The absence of that pressure is immeasurably beneficial, I think.
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