Currency Strengths Balancing in Forex Portfolios
Forex traders know that trading in the right market direction does not always mean a winning trade. There is nothing more frustrating than watching your market gains gradually fizzle away with all your trades showing green. Trying to control this internal hemorrhage with the stop loss tool usually leads to premature termination of trade and even more losses.
Carefully matching individual currency strengths in each portfolio has proved very helpful in this situation. The same currency pair can be weak or strong depending on which is the base or top currency and whether the pair is being sold or bought (see table below).
STRENGTH CATEGORIES OF FOREX PAIRS
-----STRONG--WEAK
AUD
AUD/CAD long short
AUD/JPY long short
AUD/NZD long short
AUD/USD long short
GBP/AUD short Iong
EUR/AUD short long
CAD
CAD/AUD. long. short
EUR/CAD. short. long
GBP/CAD short long
CAD/JPY. long. short
NZD/CAD. short. long
USD/CAD. shlon. long
EUR
EUR/AUD. Long. Short
EUR/CAD. Long. Short
EUR/GBP. Long. Short
EUR/JPY. Long. Short
EUR/NZD. Long. Short
EUR/USD. Long. Short
NZD
NZD/AUD. Long. Short
NZD/CAD. Long. Short
GBP/NZD. Short. Long
NZD/JPY. Long. Short
NZD/USD. Long. Short
USD
AUD/USD. Short. Long
USD/CAD. Long. Short
USD/JPY. Long. Short
NZD/USD. Short. Long
USD/MXN. Long. Short
USD/ZAR. Long. Short
Making sure that there are equal number of weak and strong trades for each currency in every portfolio is critical. What it does is to allow double sided trading of each currency, in such a way that the strong trades are winning when the market is bullish and the weak trade are winning when the market is bearish.
This mutual hedging of forex pairs takes away most of the anxiety related to intraday crashes, overnight crashes or over the weekend crashes. It also precludes the need for the stop loss tool, which frustrates portfolio growth.
EXAMPLES OF BALANCED FOREX PORTFOLIOS
Basket 1
Long 1k EUR/USD (strong EUR and weak USD)
Long 1k USD/JPY ( strong USD and weak JPY)
Short 1k EUR/JPY ( weak EUR and strong JPY)
Basket 2
GBP/AUD. Long
AUD/USD. Long
USD/CAD. Long
GBP/CAD. Short
Basket 3
GBP/JPY. Long
CHF/JPY. Short
EUR/CHF. Long
EUR/NZD. Short
NZD/USD. Long
USD/JPY. Long
Basket 4
AUD/USD. Short
USD/CAD. Short
GBP/USD. Short
USD/JPY. Long
NZD/USD. Short
USD/ZAR. Long
AUD/JPY. Long
ZAR/JPY. Short
AUD/CAD. Long
Feel free to demo any or all of the baskets. If it makes sense, go live with it and be sure to send me thank you gifts every now and then.��
Forex traders know that trading in the right market direction does not always mean a winning trade. There is nothing more frustrating than watching your market gains gradually fizzle away with all your trades showing green. Trying to control this internal hemorrhage with the stop loss tool usually leads to premature termination of trade and even more losses.
Carefully matching individual currency strengths in each portfolio has proved very helpful in this situation. The same currency pair can be weak or strong depending on which is the base or top currency and whether the pair is being sold or bought (see table below).
STRENGTH CATEGORIES OF FOREX PAIRS
-----STRONG--WEAK
AUD
AUD/CAD long short
AUD/JPY long short
AUD/NZD long short
AUD/USD long short
GBP/AUD short Iong
EUR/AUD short long
CAD
CAD/AUD. long. short
EUR/CAD. short. long
GBP/CAD short long
CAD/JPY. long. short
NZD/CAD. short. long
USD/CAD. shlon. long
EUR
EUR/AUD. Long. Short
EUR/CAD. Long. Short
EUR/GBP. Long. Short
EUR/JPY. Long. Short
EUR/NZD. Long. Short
EUR/USD. Long. Short
NZD
NZD/AUD. Long. Short
NZD/CAD. Long. Short
GBP/NZD. Short. Long
NZD/JPY. Long. Short
NZD/USD. Long. Short
USD
AUD/USD. Short. Long
USD/CAD. Long. Short
USD/JPY. Long. Short
NZD/USD. Short. Long
USD/MXN. Long. Short
USD/ZAR. Long. Short
Making sure that there are equal number of weak and strong trades for each currency in every portfolio is critical. What it does is to allow double sided trading of each currency, in such a way that the strong trades are winning when the market is bullish and the weak trade are winning when the market is bearish.
This mutual hedging of forex pairs takes away most of the anxiety related to intraday crashes, overnight crashes or over the weekend crashes. It also precludes the need for the stop loss tool, which frustrates portfolio growth.
EXAMPLES OF BALANCED FOREX PORTFOLIOS
Basket 1
Long 1k EUR/USD (strong EUR and weak USD)
Long 1k USD/JPY ( strong USD and weak JPY)
Short 1k EUR/JPY ( weak EUR and strong JPY)
Basket 2
GBP/AUD. Long
AUD/USD. Long
USD/CAD. Long
GBP/CAD. Short
Basket 3
GBP/JPY. Long
CHF/JPY. Short
EUR/CHF. Long
EUR/NZD. Short
NZD/USD. Long
USD/JPY. Long
Basket 4
AUD/USD. Short
USD/CAD. Short
GBP/USD. Short
USD/JPY. Long
NZD/USD. Short
USD/ZAR. Long
AUD/JPY. Long
ZAR/JPY. Short
AUD/CAD. Long
Feel free to demo any or all of the baskets. If it makes sense, go live with it and be sure to send me thank you gifts every now and then.��
Mecrandie