worthwhile FX Strategy?

mik1973

Well-known member
290 13
As i'm a glutton for punishment i thought i'd put forward the following strategy (if only to get some constructive criticism) and to tell me where the main flaws are.
Before i begin i want you all to know that i'm a total new comer to this market- so go easy on me.
Here we go-Main points:
As the FX markets can be extremely volatile, the strategy aims to place bets (with stops )in either direction of a trade.
As i have only traded with Finspreads i can only give an example of prices which were available mid afternoon.(GBP/USD)

Daily Spot 1.8209-1.8215
March Forward 1.8189-1.8197

*The reason i have selected 2 different time periods is that if i had a bet in each direction on the same price one trade would cancel the other out (this is probably the first flaw already)

Lets say I want to go long the £ - I buy the spot at 1.8215 (placing a stop at 1.8175).-40 pip stop
I then sell the forward at 1.8189 placing a stop at 1.8229-another 40 pip stop.

*I have followed how the daily spot and forward react to movements and they seem to move in line pip for pip

Lets say the market advances to :
Daily Spot 1.8289-1.8295
Forward : 1.8269-1.8277

I could then sell my long at 1.8289-(74 pip profit ) and be stopped out on my sell at 1.8229 (40 pip loss)
net position would be 34 pip profit.

Rather than write down the opposite of a 80 point move in the opposite direction the outcome would be roughly the same- about 32 (wider spread for forward)pip profit .

The flaws i can see are as follows:
If the market doesn't move much i wil be caught in a wide spread
If the market over reacts with wild swings in both directions i would be stopped out with an 80 pip loss
I'm sure there are other more economical ways to hold this position (ie without the wide stops mentioned above)
Could only be used for day trading

I thought this may be a useful technique to use before the announcement of any major figure fomt he BOE or from over the pond where investors knew there would be a big movement but unsure of the direction.

The strategy i've mentioned above is something i have thought about from reading posts from other members and i don't claim any originality for the idea.

Ok that's got it out of my system- so come on - SHOOT ME!
 

TheBramble

Legendary member
8,395 1,170
Mick, why not just place the buy/sell on the spot price?

If the future moves pip-per-pip with it, what's the benefit of splitting your trades over the two instruments?

You say that if you did that they'd cancel out - yes - but only up to 40pts (or whatever stop you were using).

Notwithstanding the two potential exposures you already mention of course...
 

JonnyT

Senior member
2,560 22
Consider yourself well and truely pepered with bullets.

You assume the market doesn't take out your stops then reverse...

Forex is great just follow momentum for hours...

JonnyT
 

mik1973

Well-known member
290 13
Thx for your replies- told you i was new- that's my excuse and i'm sticking to it!
Bramble - reason why i selected spot and forward is because i'm pretty sure Finspreads dont allow 2 open positions on the same instrument- i could be wrong and i do understand your point
JonnyT- never thought about stop and reverse to be honest but i can see the value- do you know if Finspreads offer this facility

May as well shoot myself here while i'm on --the risk reward is pretty poor too.

Ok i'm off to sort me life out
Thanks for the friendly fire!
Mick
 

TheBramble

Legendary member
8,395 1,170
Mick, you got off lightly. Last time someone upset JT they couldn't put on a straddle for weeks...

Seriously though, your strategy is valid and identical to that employed in a high volatility options spread.

FX is volatile in comparison to other markets/instruments, but that is very relative.

You'd need to be expecting unusual volatility to make this pay long-term rather than just trading it on a regular basis on the hope.
 

BBB

Experienced member
1,071 3
I dont think there is any other trader on these boards who is as enthusiastic as Jonny Forex about his chosen markets.

It's getting infectious!
 
 
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