Today I have a new trading strategy, that I want to share with you. In this trading strategy, you don’t make your profit out of the price change, but from the swap interests (fees). If You don’t know what the swap fees is, go read the carry trade lesson from babypips school first. As usual if you carry a trade you buy the high yielding currency against the low yielding currency and cash in the swap interest. The swap interest is charged to your account at 5 pm New York time (11 pm UTC +1). If you carry a trade you have to make sure that this trade will be open for a long time and that you will be able to close the trade in green or at least at a loss that is equal to the swap interest you have cashed out, so that you don’t exit the market losing any of your account balance. When I come to carry a trade, I have two strategies, the long-term strategy and the short-term strategy.
First, I will write about the long-term strategy. The trade must be holden for a very long time (months or years). I take in considration that the price would stay stable or move in the same direction of my holden trade. My goal is to close the trade in green, at 0 profit or at loss equals the swap interest that I have cashed out of the market (worest case scenario). To manage my risk proberly, I optimize the lot size to the price range, in which the pair is expected to move in. I don’t forget my SL Calculations !! A very good example for a carry trade at the time I post this article is selling the EUR/USD. With the FOMC tends to increase it’s interest rate and the ECB would mentain a zero or a negative interest rate over a long time, you can start selling the EUR/USD and make sure you can hold the trade open for more than one year from now. Moreover, the EUR/USD has been in a correction the whole 2017. from my point of view ,technically and fundamentally, the EUR/USD has two main resistances. The first is 1.2 and the other is 1.24 and will be able to reach 1.11 by the end of the first half of 2018.
Second, the short-term strategy. It’s really shorter than you can expect. Some times I open a trade for a few seconds and sometimes It lasts for a max. of one-hour duration. The idea is to execute your order just before the market’s daily close-reopen and close it as quick as possible after the daily close-reopen. Here, the timing and the price level are very important. Technical analysis and fundamental analysis must be applied for the following reasons: 1) To decide if the market is suitable to execute your trade today and for which pair. 2) to set your entery and your exits. Last but not least, the risk aversion must be taken in considration. Take care! Sometimes, the right decision is not to entert he market.
Must follow instructions:
To maximize your profitability out of this strategy, I recommend you to follow the following instructions
- Profit… The main profit is the swap interest. A profit from the price difference is possible, however it should never be a trading goal. The profit from the price difference is used to substitute any loss occured while executing the order
- Risk:- The risk is defined in the negative price defference. For wheather methodes, this negative price difference should be minimum.
- Maximum trade duration (for Methode One), and minimum trade duration (for Methode two)
- Trade on many pairs and not just one.
- Remember that sometimes the right decision is not to trade.
Now let me apply this strategy in another way. A way that will change the strategy performance. Now I will show you more opportiunities. Note that the brokers are different. Some brokers pays more swap interests than the others. Mainly the daily close-reopen time benchmark of the market is 5:00 PM New York Time(23:00 UTC+1 in winter), but some brokers calculate the swap fees at 4 PM or 6 PM. The difference between the brokers can be also found in the swap itself. Some brokers provides higher swap than the others.
At the end of my article, I hope you found this article helpful