|
Market is in the strong up trend. Prices are making new highs but
momentum is trending lower. Can we place short positions? We'll test
this strategy in the following 3 pairs of currencies.
As of 4/15/07, these 3 pairs of currencies, EUR/JPY, EUR/CHF, AUD/USD
demonstrated strong up trends, higher highs and higher lows.
Fundamentally, these pairs kept breaking new highs because
- Carry Trades: Traders borrow lower yields of currencies such as
CHF and JPY and buy the ones with higher yields such as EUR
- Higher Commodity / Raw Material Costs: Usually, higher gold, oil
prices drive the commodity currencies stronger such as AUD and CAD.
- G-7 meeting on 4/14/07 has preferred not to make a specific mention
about the yen due to its weakness in its statement released at the
conclusion of the meeting. However, the statement did state that currencies
should reflect the economic fundamentals of the said country. It also stated
that the global market participants should recognize the recovery process
happening in Japan.
Technically, all three charts show that prices were making new highs but momentum
did not. It looks like
we should have a good chance making some money by entering short positions.
Can we?
Let's test it and place the following hypothetical trades in the demo
account:
| Date |
Pair |
Price |
Long Short |
Target |
Stop
Loss |
Status |
|
4/15/07
9:26 PM |
EUR CHF |
1.6440 |
Short |
1.6340 |
1.6640 |
Not Yet Filled |
|
4/15/07
9:26 PM |
EUR JPY |
162.30 |
Short |
161.30 |
164.30 |
Not Yet Filled |
|
4/15/07
9:26 PM |
AUD USD |
0.8350 |
Short |
0.8250 |
0.8450 |
Not Yet Filled |
| Date |
Pair |
Price |
Long Short |
Target |
Stop
Loss |
Status |
|
4/16/07
|
EUR CHF |
1.6440 |
Short |
1.6340 |
1.6640 |
open |
|
4/16/07
|
EUR JPY |
162.30 |
Short |
161.30 |
164.30 |
open |
|
4/16/07
|
AUD USD |
0.8350 |
Short |
0.8250 |
0.8450 |
open |
| Date |
Pair |
Price |
Long Short |
Target |
Stop
Loss |
Status |
|
4/17/07
|
EUR CHF |
1.6440 |
Short |
1.6340 |
1.6440
adjusted |
open |
|
4/17/07
|
EUR JPY |
162.30 |
Short |
161.30 |
164.30 |
Closed +100 |
|
4/17/07
|
AUD USD |
0.8350 |
Short |
0.8250 |
0.8450 |
open |
| Date |
Pair |
Price |
Long Short |
Target |
Stop
Loss |
Status |
|
4/18/07
7:50 PM |
EUR CHF |
1.6440 |
Short |
1.6340 |
1.6400
adjusted |
open |
|
4/18/07
|
EUR JPY |
162.30 |
Short |
161.30 |
164.30 |
Closed +100 |
|
4/18/07
7:50 PM |
AUD USD |
0.8350 |
Short |
0.8250 |
0.8345
adjusted |
open |
| Date |
Pair |
Price |
Long Short |
Target |
Stop
Loss |
Status |
|
4/19/07
|
EUR CHF |
1.6440 |
Short |
1.6340 |
1.6400
adjusted |
Closed
+100 |
|
4/19/07
|
EUR JPY |
162.30 |
Short |
161.30 |
164.30 |
Closed
+100 |
|
4/19/07
|
AUD USD |
0.8350 |
Short |
0.8250 |
0.8345
adjusted |
Closed
+5 |
|
It turns out
that the strategy works.
Both EUR/CHF and EUR/JPY hit the
target, while AUD/USD got
stopped out with a 5-pip profit.
The total gain for the 3 trades
is 295 pips. |
* Time Zone = Pacific Standard Time
(GMT -0700)
Last
Updated:
Sunday, October 07, 2007 10:27:33 AM -0700 |
