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Carry Trade + No Stops

  • #1
  • First Post: Jul 22, 2011 5:23pm Jul 22, 2011 5:23pm
Hey everybody,

I had posted a thread in the rookie discussion which i got some good responses and I've adjusted a method my dad and his friend pitched which involved just buying or selling at market price and not using stops in hopes of said currency pair to return to BE and hopefully a profitable level.
I've modified the idea and would like to bounce off the members of this forum.

1. The system would involve only positive carry trades where evidence to support direction exist.
2. Not using a stop.
3. Scaling into a losing position.

Would this be sustainable with a $2000 investment trading 1 micro lot (1000)?
If the idea is pitched and accepted ill post trades and other related info for other users benefit.

Happy pipping
  • #2
  • Jul 22, 2011 6:14pm Jul 22, 2011 6:14pm
Pairs chosen so far:

1. AUD/JPY
2. AUD/USD
3. AUD/CHF
4. GBP/AUD
5. NZD/JPY
6. NZD/USD
7. NZD/CHF
8. GBP/NZD
9. EUR/USD

These seem to be a diversified choice considering the exposure.
  • #3
  • Jul 22, 2011 6:41pm Jul 22, 2011 6:41pm
Quoting Matt795
Hey everybody,

I had posted a thread in the rookie discussion which i got some good responses and I've adjusted a method my dad and his friend pitched which involved just buying or selling at market price and not using stops in hopes of said currency pair to return to BE and hopefully a profitable level.
I've modified the idea and would like to bounce off the members of this forum.

1. The system would involve only positive carry trades where evidence to support direction exist.
2. Not using a stop.
3. Scaling into a losing position.

Would...

can you explain a ''carry trade'' ? what is it.
  • #4
  • Jul 22, 2011 7:32pm Jul 22, 2011 7:32pm
Quoting whatfx
can you explain a ''carry trade'' ? what is it.
A trade where you are long a currency that pays a higher interest rate than the one you are short which means you earn difference which is called rollover. normally over a long time.
here are some videos explaining it a bit better:
Inserted Video

Inserted Video

Inserted Video
  • #5
  • Jul 22, 2011 8:25pm Jul 22, 2011 8:25pm
Matt, for your reference, there is a wealth of information on the topic in this thread... You might take a gander at it if you have the time...

http://www.forexfactory.com/showthread.php?t=70480
  • #6
  • Jul 22, 2011 8:49pm Jul 22, 2011 8:49pm
Quoting Matt795
Pairs chosen so far:

1. AUD/JPY
2. AUD/USD
3. AUD/CHF
4. GBP/AUD
5. NZD/JPY
6. NZD/USD
7. NZD/CHF
8. GBP/NZD
9. EUR/USD

These seem to be a diversified choice considering the exposure.
Don't go entirely on current Interest Rates, they're just like an indicator: they reflect past performance. Look at AUDUSD for an example of what I mean. 4.75% versus <0% (factoring-in QE) and it's in a long-term sideways range. At the very least, wait for a significant pullback, which could be hundreds or thousands of pips.

For a Carry Trade you're better-off researching fundamentals and picking one currency which has the best prospects for 5-10 years from now, paired with one which has the worst. Neither EUR nor GBP fit into either, and if economies stabilize nor will CHF.

And yeah, you don't really need a stoploss, unless you want to trail a stop by the Monthly ATR.
  • #7
  • Jul 22, 2011 9:21pm Jul 22, 2011 9:21pm
Quoting Matt795
Hey everybody,

I had posted a thread in the rookie discussion which i got some good responses and I've adjusted a method my dad and his friend pitched which involved just buying or selling at market price and not using stops in hopes of said currency pair to return to BE and hopefully a profitable level.
I've modified the idea and would like to bounce off the members of this forum.

1. The system would involve only positive carry trades where evidence to support direction exist.
2. Not using a stop.
3. Scaling into a losing position.

Would...
Matt,

Your idea has potential, but you need to be very careful. Carry currencies rise when the market sentiment is in risk-on mode. When sentiment shifts to risk off (i.e., flight to safety), carry trades begin to quickly unwind creating what could be very large swings against you. Given the current volatility of the markets due to the various sovereign debt crises currently unfolding, I would not recommend trading without a stop loss, but if you do, you should never, EVER, add to a losing position (actually, this is sound advice no matter if you use a SL or not). I've tried a similar variation of this strategy and got burned big time. I've done both of the things I'm warning you against, that is, I've traded without stops and I added to losing positions because, after all, I had the weekly/monthly trend on my side. Well, I blew over half of my $1500 live account doing that. I know you're planning on trading small (so was I), but when you start stacking positions, they add up quickly and even at $0.10 a pip, you could find yourself in trouble rather quickly.

By all means, use the carry trade in your favor, but I'd suggest you do it while using S&R to try to get halfway decent entries with a reasonable stop under/over a swing high/low on a weekly chart and let it run (could be a 300, 400, 500+ pip stop if working off the weekly). Once it's well in the money (300 pips or so, which could take days or weeks), move your stop to breakeven and start looking to add another entry on a pullback to support/resistance and do it all over again. You will get stopped out more often than you like, but it will save your account. I've been trading for a while and the most important concept new traders have trouble with (I know, I struggled with it myself) is money management. Set reasonable stops, anticipate what the market is going to do and see if it does it. If it does not, cut those trades short. Much better to take a 100 pip loss when the market does not move the way you think it will, than take a 1000 pip loss because you were certain that it was going to turnaround... eventually. These are the time tested rules of trading and there's a reason for that. The markets are not as predictable as we'd like, which is why successful traders look for high odds entries and above all else, they manage their risk. It was only after I began following these rules religiously that my trading began to drastically improve.

I hope you find this post helpful and good luck with your trading.

Regards,
Kevin
  • #8
  • Jul 22, 2011 9:53pm Jul 22, 2011 9:53pm
Starvin4Pips,

Thank you for the great advice and honestly I don't like trading long term trend, though I can I prefer day trading and I never trade without stops. But as much as i try to preach the very basic fundamental techniques of trading to my father and his friend they don't want to look at trading as a business more like a gamble where they will bet big to win big and if it works it works if not then there goes some cash.
I day trade and being new I have a very small account and will earn 5-10 dollars a day and so far I'm up 5% in my first month trading live but these sorts of returns seem to be too low, too conservative and i should bet more to win more and so goes their greedy ideas, and so they swear that the best way is to just use big lots and let the trade ride out and to have enough capital to handle the draw-down. I disagree with these ideas but they seem to like it and therefore i thought up the system above in order to give them a higher chance of success or at least a slower rate of loss.
  • #9
  • Jul 22, 2011 10:40pm Jul 22, 2011 10:40pm
Quoting Matt795
Starvin4Pips,

Thank you for the great advice and honestly I don't like trading long term trend, though I can I prefer day trading and I never trade without stops. But as much as i try to preach the very basic fundamental techniques of trading to my father and his friend they don't want to look at trading as a business more like a gamble where they will bet big to win big and if it works it works if not then there goes some cash.
I day trade and being new I have a very small account and will earn 5-10 dollars a day and so far I'm up 5% in my first...
Matt,

Okay, I see where you're coming from. Glad to hear you are practicing sound MM in your own trading. As far as convincing your father and his friend, the best thing you can do is show them a weekly chart of AUDJPY that covers the 2007 to 2009 time frame and ask them if they could handle that kind of carry unwind (approx 5000 pips July thru Dec 2008). I would assume the whole time that "correction" was taking place, they would be adding to their losing position. By the time there are ten positions stacked (assuming they add one every 500 pips or so), $0.10/pip has become $1/pip and I don't see a $2000 account withstanding that. Not only that, carry and funding currencies do change over time and at some point during a prolonged pullback or correction, even the most confident trader would start to question if that particular carry trade might be permanently over, which is when you finally bite the bullet and bank a devestating loss. Just trying to give you some ammo to talk sense to them. A "letting it ride" strategy without a predefined exit for losses will without a doubt eventually lead to a blown account.

Regarding the short-term trading: I've tried it (along with just about everything else you can think of) and couldn't make it work. It just doesn't suit my personality. If you find success there, good for you, you're a rare individual. I've run the numbers and had grand visions of 20, 30, 40% returns per month and figured it should be a piece of cake (only 10 or 20 pips per day would do it), then reality took hold as I'd hit my goal some days and then lose it all and them some the next. I couldn't get consistent results on short time frames and was not comfortable using the kind of leverage necessary to get big returns from small pip counts. It's certainly doable, but it takes the right kind of person to pull it off. If that's you, then you should be able to ratchet up the lot size and make a better return, but I wouldn't scoff at 5% in a month. Do that month after month and you're looking at over 60% annually, which could turn $1K into $1M in about 12 years. If I could do that with my 401k I'd be a very rich man before long. Of course, 5% month after month is in itself no easy task and can challenge all but the best traders.

If you haven't been there yet, check out pipEasy's Building an Equity Millipede thread. It will most likely change the way you view long-term trading.

All my best,
Kevin
  • #10
  • Jul 23, 2011 12:56am Jul 23, 2011 12:56am
Thanks for the kind words and advice Starving4pips

I'll find some charts and print them and try and convince them from risking real money in such a "system" i must say the equity millipede thread is one of the best reads I've had on FF.
  • #11
  • Aug 28, 2011 11:07pm Aug 28, 2011 11:07pm
I know this is more than a month old post, but I just want to add my own 2 cents. It's just that one strategy may fit one trader, but the same strategy might not fit the other. I've recently lost quite a sum in live trading following a strategy taught by a trader friend of mine. I've got to tell you, that friend of mine is a pretty patient trader, at times, can wait 1-3 weeks before his trades actually profit and at the same time, when it has temporary reversal, the open trades can temporarily show -2000 to -5000.

I'm not that strong hearted in the sense that I can wait 2-3 weeks and meanwhile see my temporary open trades so deep in the red. LOL. So at the same time, I lurked around, take in few indicators from here and there, bits of this piece of news and that piece of news, and now I hv my own system and using my own system, I'm already up quite significantly in 2 weeks trading mini lots (Although I'm still testing my strategy on demo acc on Oanda). I shared this strategy with the same trader friend, he can't seem to use it or rather, IMO, less interested in adopting my strategy than his.

Right now, I'm just waiting till I'm 100% sure of my strategy/system works by increasing my total balance up to 4-5 times my initial deposit.

So, I guess, in the end, each to his/her own way. Scavenge others' systems and make one of your own in which you're most comfortable with.

Cheers
  • #12
  • Last Post: Mar 31, 2021 5:30am Mar 31, 2021 5:30am
Quoting Starvin4Pips
{quote} Matt, Okay, I see where you're coming from. Glad to hear you are practicing sound MM in your own trading. As far as convincing your father and his friend, the best thing you can do is show them a weekly chart of AUDJPY that covers the 2007 to 2009 time frame and ask them if they could handle that kind of carry unwind (approx 5000 pips July thru Dec 2008). I would assume the whole time that "correction" was taking place, they would be adding to their losing position. By the time there are ten positions stacked (assuming they add one every...
Hey Starvin4Pips
I reply to your reply just because I want to "bookmark" it.

I agree to a T with what you said.
Steps to profitability: Collect data, money management, stay bored
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