I am having a look at USDTRY short trades on the H4 & D1 candle. With a view to hold for roughly a month or two. I entered a trade which so far has played out although it might not be time to get in on shorts right now, but to hell with it, so i’ve gotten in.
the TP & SL represent 80k win or loss. tried to make them as high as possible to not to reach those levels, To be honest I think the long term trend is up but never mind. I bought a call option for 9 may to cover the downside risk, that cost 14k, but it is an in the money option so the losses are perfectly hedged. Actually I bough enough options to cover 120% of my losses if the market moves against, me so there is profit in both directions. if my calculations are right and interest rates don’t move massively, the swap interest should give a profit of 11k by around 9 May so the cost of this trade would be about 3k in all.
For me, entry now on this pair with a trade time horizon of 1-2mths is late for a reversal (which I don’t play) but early for a trend-following trade (which I do play).
The USD is weak against other major currencies all of which are more important than the TRY (I am short USD/CAD and long AUD/USD), so this is some basis for shorting, But the transaction costs will be high, dramatic USD strength is always going to be more likely than than dramatic TRY strength, while the speed and the depth of downwards price travel looks pretty weak.
Do you see something out there I don’t see by any chance that make this pair the one to go with?
I have to say that the above seems a terribly expensive and elaborate and risk-enhancing way of taking this view?
For myself, I’d need multi-millions even to consider a position that size.
But I see the chart above is from a demo account, so I’m naturally wondering whether the options are, too? Hope you won’t mind my mentioning that this all seems a staggeringly high risk-exposure for a student?
thanks for the post. I am new to options trading and looking for opportunities to combine them with my FX trades, so it is a demo and crude trial of what that might look like.
I like this trade because although the stake is 80% of the account balance the odds of reaching TP and SL are very low in the window, the window here is to the 9th of May. The options I also used to hedge this would appear to cost a lot upfront 14k but as the FX trade is short, most of that money would be covered by the interest you get in the USDTRY Swap.
That means that the cost for the option would end up being around 5k or 5% of my account balance, if I held the short USDTRY trade till then.
so by the expiry I would be risking 5% and would need to have recovered that either on and short USDTRY or the Long call option used to hedge it which covers 120% of the prospective loss on the USDTRY; there is profitable upside from the options should the prices close much higher come 9th May.
All things being said the risk on the trade is locked in at 5k - with profit from either of an ultimate bearish or bullish market
So if I’m understanding this right, for every dollar your trade goes into profit, your option loses you 1.20 dollars until your trade gets into profit by 14k - which you calculate, at May 9 will have reduced to $3k ? So what you are really betting is an unlimited profit against a 3k maximum loss ?
BUT to make a profit at all, you have to have movement one way or the other by a pip count equivalent to 5 times the monetary movement which would make your position itself $3k ie a $15k movement either way is your break - even. Less movement than that and you will lose an amount of up to but not exceeding $3k ?
How many dollars per pip does your short move by ?
It looks as though you’re trading at 0.8 lots (ish) so say $8 per pip - you need nearly 2000 pips movement upwards or about 400 pips downwards ?
So to make any real money your trade needs to Break the resistance at the double top, (3.9500 into all time high territory above 4.0000 - Or to break 3.6900 and continue down.
However, 3.69 is not that far away really, so a break of that and a retest of support at 3.55 is a distinct possibility, which could make you a whole stack of (virtual) money.
Personally, If I HAD to choose one of those I’d choose a successful test of the 4.0000, But as @tommor says USD is showing weakness, so it seems the Turkish Lira musrt be a real basket case ! - I wonder if property is cheap in Turkey ?
[Nice idea though - I hope you will keep us informed ]
Thanks for the post. I had a quick look at the trade going through the items you mentioned. the lotsize is 3.48 I was going to do the calculation but realised it would be easier to illustrate with an EA.
the Red Horizontal line is where the current open trade stop loss is… and the open price to that line represents a loss of 80k, just like the actual trade the Green Horizontal line is where the short would have to move to by 9th May to achieve a 3k profit on the Short USDTRY
Because the prices have moved slightly since the trade was opened, the EA is calculating the PnL based on a Lotsize of 3.46. but the real value is slightly higher 3.48) so the actual distance to break even on the Short is slightly shorter than shown here.
zooming in the price would have to be just around or below 3.70309 by May 9th to break even based on the short… if the short does make money there is no need to exercise the option, so no actual further losses are made aside from the upfront option premium
Although it would have to be 5 times higher for the option to make money as it only adds at 20% over the rate of the loss.
UsdTry has been rising not because of Usd strength but because of Erdogan’s coup and political turmoil, I reckon; however, waiting to short UsdTry, given that it is at record highs after its hyperbolic rise of 2015-2016 and it is unable to make higher highs at present, is a time well spent, given also that UsdTry shorts would benefit from rollover/swap due to the Central Bank of Turkey’s interest rate being at 8% - if that is, you intended to hold your short for some time.
There are also differences in quote charts: for example, FXCM (demo) shows a weekly chart for UsdTry with two peaks both around 4.0, whereas of you looked at Turkish Lira (March 2018) futures on CME you would see that the two peaks are around 4.4 and then around 4.1.
What is interesting to me is that the CME futures show a massive selling volume around the second peak (4.0-4.1 area), after which there has been a decline of about 2000 pips: given that we must look to currency futures for volume data, and that correlation between those and spot fx is strong, I would say that there is a lot of buy-side selling of UsdTry still to come.
Personally I would wait for more confirmation, especially as the pair has been sitting for thee days on the 100-day moving average but unable to break it, and that the 200-day moving average is only 1000 pips below it: a true break of both of these would open up in my opinion a huge downside potential, but again momentum in futures sell volume would be good confirmation.
Ok well that means $34.8 per pip not $8 as I interpreted it. That will affect the maths quite a bit, but the priciple holds.
{Edit, This is not a USD denominated pair, could somebody confirm then that 3.48 contracts represents 34.8 dollars ? or has the demomination of teh reference currency changed that ? ]
Hi there. What do you make of short trading the USDTRY Swap on Wednesday where it is delivered at 3 times the usual rate. I have been testing it now for a little while with an R:R 1:9 with a risk of 1k per trade, where the typical PnL on a win trade is £100 + roughly £250 - £300 on the Swap added in and the increase in spreads around market close or usually just after reopen hasn’t knocked the Win rate too much off balance so far, so I am getting around 85% wins.
SL - Red Line
TP - Green Line
Break even - Gold line
The break even is above the open price as the Swap puts the trade in profit immediately and the market would have to move against you to break even.
I suppose since you are working with the M5 candle, you could trade everyday of the week, with a lower swap, but restrict your trades to situations where the short term trend is clear bearish
Greetings, the lotsize is 4.28 and the SL distance to capture the risk is 123.80 pips, I built the EA to do the math so not sure on the numbers but it will work out to 1k loss - or actually a 1000 - 222 = 778 when you take account of the net swap.
Given the relative distance of the SL and TP assuming a random market with no edge the win rate should be around 90% on these trades. The trades are short term overnight only., 10m - 2 hr window depending on how the market moves.
I think basically you can find edge here by taking advantage of the Swap being so high - it’s built in to the trade, rather than having to take a a real view on the direction (although they are going to be shorts)
If the market is random, the the win prob depends on the relative distances of the TP & SL so in theory there no edge to be had, especially when you consider the commission and the Spread. the swap changes the maths so that a lose is effectively -750 whereas a win is 350.
the win rate you need for that is (750)/(750 + 350) = 68% but the relatives distances (random market) suggests around 90% on the win rate - so ther is edge in the trade without doing much.
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