FX STRATEGY
for many asset managers of a diversified nature, and of any class, but particularly those in FX. While in FX it’s always reasonable to have a view, as the events of last month proved, it is not always necessarily beneficial
to
have a position or
exposure
to reflect that view if market c o n d i t i o n s change rapidly. Evidence
to
support this can be found easily by
studying
intraday moves in certain currency pairs such as AUD/JPY or G B P / M X N that gyrated by several percent on various days last month, i n t e r e s t i n g l y without
any
with violent market swings and importantly if taking market risk, allow preservation of capital to be maintained on a relative basis.
This month’s column is primarily
occur. However being equipped to survive such rough spots both psychologically and monetarily could assist with ultimate goals such as future prosperity and, if readers are able to benefit from some reasonable tactics, these
latent
o p p o r t un i t i e s may become a little more within reach.
official action such as interest rate changes or egregiously out- of-line data that might normally be expected to produce such reactions. Due to the overbearing nervousness of the FX market evidenced by breakdowns in traditional correlations (e.g. Gold and USD higher simultaneously) we’d like to switch analysis this month from projections and instead offer some insights that may help readers cope
Most errors might be avoided by stripping out the human element of decision-making and improved upon by following rule-based systems
intended to share ideas and opinions with those readers who may be new to Forex, perhaps via retail accounts or through separately managed accounts.
All markets ebb and flow and it should be expected that in any strategy losses can sometimes
42 FX TRADER MAGAZINE July - September 2010
We took an u n a u d i t e d survey among FX contacts that considered the governing criteria that may have contributed to a variety of flaws within FX strategies in general. In conclusion we found that the weakest criteria were exhibited when traders:
-Risked more than 5X equity in a volatile market (even the smallest
stop-loss can get too big).
-Added to a small losing trade too soon and/or several times in the misguided hope of recovery.
-Entered a medium or long-term trade and became governed by short-term gyrations.
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