In placing an option trade, the center of attention for the forex trader is on where the spot forex price is. The spot price is called the at-the-money strike price. Whenever a call or put option is purchased, the strike price is either in the money (ITM), at the money (ATM), or out of the money (OTM). Options can also be deep in the money
and deep out of the money. The term moneyness refers to this relationship of the option price to the at-the-money price.
Since there is no “free lunch” in trading, the trader has a range of choices in putting on an option trade regarding increasing the probability of success. The most likely option strategy for success is buying an in-the-money option position. This means that he will get the maximum movement of the option with the spot. Once a position is in the money, it moves on a 1:1 basis with the spot. The advantage of an in-the-money option versus a spot position is that it will cost the trader only the premium and no other risk is associated with it. The disadvantage is that the premium costs a lot more.
The next type of trade relating to moneyness is the at-the-money option. This is when the option strike price is where the spot is. This kind of positioning allows the trader to be close to the action without paying as much as the in-the-money option. ATM options are very common in hedging a position. ATM options move with the spot at 50
percent of the movement. This is called a delta factor and will be discussed in more detail shortly.
The out-of-the-money option trade is the most popular trade. Let’s see why: By selecting a strike price that is away from the spot, the trader is anticipating the move. The hope of the forex trader is, of course, that the price will (during the duration of the option trade) move toward the strike price or exceed it. The option trader makes money
by being right not only if the spot price actually moves to and beyond the strike price at expiration, but whether along the way it is expected to move in the direction of the price.
The objective is trying to use all the tools that are available to increase the probability of being right about the direction of the option trade about market expectations, and about its timing.
Showing posts with label make money. Show all posts
Showing posts with label make money. Show all posts
Wednesday, September 16, 2009
DIAGNOSING GLOBAL ECONOMIC CONDITIONS
Generally, the forex trader needs to anticipate the economic growth of the country or region associated with the currency. There are many locations to access up to date data on economic growth. Foremost among them is the central banks themselves. Once again, it is a question of timing. Economies move in cycles and take time to slow down or turn around. This is an area of great ambiguity for the forex trader. The trader has four decision rules:
1. Trade with the current economic cycle.
2. Trade a slowing down of economic growth.
3. Trade a stagnant economy.
4. Trade a growing economy.
If economic growth is projected to be slowing down, then the probability of the central bank’s increasing rates must be considered as declining. Central banks do not increase rates when growth is slowing down.
Also, the trader needs to consider the time frame for the option. The longer the time frame, the greater the risk of being wrong. But a longer time frame allows time for fundamentals to work out and express themselves in the price action. The forex option trader chooses a longer time frame to allow for countertrend moves to occur and then resume a fundamental direction. So, whether a forex option trade should be one week or several months is very much a judgment call. However, there are fundamental criteria for choosing a time of duration that should be considered. Depending on the economic conditions, forex option trades can range from very short term to longer term. Basically, a 3-month duration for an option trade will allow a reasonable period of time for fundamental forces
to express themselves.
1. Trade with the current economic cycle.
2. Trade a slowing down of economic growth.
3. Trade a stagnant economy.
4. Trade a growing economy.
If economic growth is projected to be slowing down, then the probability of the central bank’s increasing rates must be considered as declining. Central banks do not increase rates when growth is slowing down.
Also, the trader needs to consider the time frame for the option. The longer the time frame, the greater the risk of being wrong. But a longer time frame allows time for fundamentals to work out and express themselves in the price action. The forex option trader chooses a longer time frame to allow for countertrend moves to occur and then resume a fundamental direction. So, whether a forex option trade should be one week or several months is very much a judgment call. However, there are fundamental criteria for choosing a time of duration that should be considered. Depending on the economic conditions, forex option trades can range from very short term to longer term. Basically, a 3-month duration for an option trade will allow a reasonable period of time for fundamental forces
to express themselves.
GROUP CURRENCIES BY PURCHASING POWER PARITY (PPP) (BIG MAC INDEX)
Ranking currency pairs for the PPP is a valid use of fundamental data to detect if a currency pair is overvalued. The theory of PPP basically asserts that a good way to detect if a currency is overvalued or undervalued is to compare prices of similar products across countries. A well-known version is the Big Mac index. The idea is that a product like a McDonald’s hamburger should have the same cost in different countries. If one compared a global product such as Coca-Cola, the differences in prices in one country compared to another would demonstrate an imbalance in the currency value. To learn more about PPPs, visit the Organisation for Economic Co-operation and Development’s web site to read this article: www.oecd.org/dataoecd/61/54/18598754.pdf. (Source: Main Economic Indicators, pp. 280–81, March 2008, _C OECD 2008.)
Here is how the OEC defines PPP:
PPPs are the rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries. For example, if the price of a hamburger in France is 2.84 Euros and in the United States it is 2.2 dollars, then the PPP for hamburger between France and the United States is 2.84 Euros to 2.2 dollars or 1.29 Euros to the dollar. This means that for every dollar spent on hamburger in the United States, 1.29 Euros would have to be spent in France to obtain the same quantity and quality—or, in other words, the same volume—of hamburger.
Economists predict that currency prices will revert to toward the level of purchasing power parity. The task of the forex trader is to access the PPP information in a timely way and use it to determine a potential direction for the trade. Since the process of reverting back to a mean PPP takes time, it is a perfect application of longer-term option trades. Let’s look at some recent PPP data that is easily accessible. The most overvalued currency was the Swiss franc, and the most undervalued was the Chinese yuan. The euro appears overvalued by 23 percent and the British pound by 18 percent. Based on the Big Mac theory, one would buy out of the money puts on the EURUSD, GBPUSD, and the USDCHF. In contrast, the Mexican peso, The British pound, the yen, and the yuan were undervalued, suggesting purchasing longer-term calls on these currency pairs. Where the strike prices should be can be suggested by the prediction that these currencies will retrace by at least 50 percent of the amount they are calibrated to be overvalued or undervalued. The duration of the options should be longer term than most, six months to a year! Of course, variations such as put and call spreads can be applied as well as combinations such as shorting the spot underlying and buying protective hedges.
1. The Big Mac Index, July 5, 2007, www.oanda.com/products/bigmac/bigmac.shtml
2. The OECD PPP data. Detecting very overvalued currencies based on OECD PPP parity measures can lead to longer-term option trades. Figure 4.5 depicts OECD data in a very accessible and understandable format and is available to anyone from the Pacific Forex Service. (Source http://fx.sauder.ubc.ca/PPP.html.) Figure 4.5 shows which currency pairs are overvalued and undervalued on December 27, 2007, based on OECD data. As a result, the forex trader can play a long-term reversion to the PPP equilibrium by buying puts and put spreads on the overvalued
pairs and calls and call spreads on the undervalued pairs. It is worthy to note that the yen and the New Zealand dollar are the closest to their equilibrium point. This suggests trades of a shorter-term nature.
3. UBS Data on PPPs. The UBS Bank also provides frequent updates on PPP values.
Their data showed that the GBPUSD and AUDUSD were overvalued and that the USDNOK were undervalued. (Source: www.ubs.com/1/e/ubs ch/wealth mgmt ch/research/rates.html.)
Here is how the OEC defines PPP:
PPPs are the rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives which show the ratio of the prices in national currencies of the same good or service in different countries. For example, if the price of a hamburger in France is 2.84 Euros and in the United States it is 2.2 dollars, then the PPP for hamburger between France and the United States is 2.84 Euros to 2.2 dollars or 1.29 Euros to the dollar. This means that for every dollar spent on hamburger in the United States, 1.29 Euros would have to be spent in France to obtain the same quantity and quality—or, in other words, the same volume—of hamburger.
Economists predict that currency prices will revert to toward the level of purchasing power parity. The task of the forex trader is to access the PPP information in a timely way and use it to determine a potential direction for the trade. Since the process of reverting back to a mean PPP takes time, it is a perfect application of longer-term option trades. Let’s look at some recent PPP data that is easily accessible. The most overvalued currency was the Swiss franc, and the most undervalued was the Chinese yuan. The euro appears overvalued by 23 percent and the British pound by 18 percent. Based on the Big Mac theory, one would buy out of the money puts on the EURUSD, GBPUSD, and the USDCHF. In contrast, the Mexican peso, The British pound, the yen, and the yuan were undervalued, suggesting purchasing longer-term calls on these currency pairs. Where the strike prices should be can be suggested by the prediction that these currencies will retrace by at least 50 percent of the amount they are calibrated to be overvalued or undervalued. The duration of the options should be longer term than most, six months to a year! Of course, variations such as put and call spreads can be applied as well as combinations such as shorting the spot underlying and buying protective hedges.
1. The Big Mac Index, July 5, 2007, www.oanda.com/products/bigmac/bigmac.shtml
2. The OECD PPP data. Detecting very overvalued currencies based on OECD PPP parity measures can lead to longer-term option trades. Figure 4.5 depicts OECD data in a very accessible and understandable format and is available to anyone from the Pacific Forex Service. (Source http://fx.sauder.ubc.ca/PPP.html.) Figure 4.5 shows which currency pairs are overvalued and undervalued on December 27, 2007, based on OECD data. As a result, the forex trader can play a long-term reversion to the PPP equilibrium by buying puts and put spreads on the overvalued
pairs and calls and call spreads on the undervalued pairs. It is worthy to note that the yen and the New Zealand dollar are the closest to their equilibrium point. This suggests trades of a shorter-term nature.
3. UBS Data on PPPs. The UBS Bank also provides frequent updates on PPP values.
Their data showed that the GBPUSD and AUDUSD were overvalued and that the USDNOK were undervalued. (Source: www.ubs.com/1/e/ubs ch/wealth mgmt ch/research/rates.html.)
THE CURRENCY OUTLOOK CHECKLIST
This section will present a set of strategies and analytical steps to accomplish this result. There are many dimensions that define the optimal condition for a forex option trade. Certainly, foremost among them is the nature of the price action. But at the start of the process is the overall fundamental environment of the price action. It is essential for the
trader to develop a currency outlook for all of the currency pairs. In order to do this, the trader can use the following currency outlook checklist to establish a framework for deciding on the direction of a currency pair. The currency outlook checklist serves to keep the forex trader accountable to assessing fundamental issues. These are too often overlooked. The forex trader will greatly benefit by being able to complete this checklist. Some traders will look to be very detailed, while others will be more cursory in their decision process. Ultimately, anticipating a direction is the key first step in developing a forex option strategy.
Currency Outlook Checklist
1. Expected Economic Growth
Negative
Slowing
Uncertain
Steady
Slow growth
Fast growth
Decelerating
2. Inflation Latest
Central bank target
Actual target
3. Sentiment Indicators
Consumer sentiment
Manufacturing sentiment
Market Sentiment
4. Possible Recession
Housing starts
Home price
Yield curve inversion
5. Central Bank Interest Rate Policies
Lowering rate mode (.25 basis points, .50 basis points)
Nothing
Increase (.25 basis points, .50 basis points)
Binary option sentiment
6. U.S. Dollar Sentiment
Central bank currency reserves of dollars
U.S. dollar index
Trade-weighted index
7. Commodity Markets
Gold
Commodity index
Oil
8. U.S. Dollar Data
% Dollar holding of currency reserves of central banks
Foreign ownership of U.S. Treasuries—declining
trader to develop a currency outlook for all of the currency pairs. In order to do this, the trader can use the following currency outlook checklist to establish a framework for deciding on the direction of a currency pair. The currency outlook checklist serves to keep the forex trader accountable to assessing fundamental issues. These are too often overlooked. The forex trader will greatly benefit by being able to complete this checklist. Some traders will look to be very detailed, while others will be more cursory in their decision process. Ultimately, anticipating a direction is the key first step in developing a forex option strategy.
Currency Outlook Checklist
1. Expected Economic Growth
Negative
Slowing
Uncertain
Steady
Slow growth
Fast growth
Decelerating
2. Inflation Latest
Central bank target
Actual target
3. Sentiment Indicators
Consumer sentiment
Manufacturing sentiment
Market Sentiment
4. Possible Recession
Housing starts
Home price
Yield curve inversion
5. Central Bank Interest Rate Policies
Lowering rate mode (.25 basis points, .50 basis points)
Nothing
Increase (.25 basis points, .50 basis points)
Binary option sentiment
6. U.S. Dollar Sentiment
Central bank currency reserves of dollars
U.S. dollar index
Trade-weighted index
7. Commodity Markets
Gold
Commodity index
Oil
8. U.S. Dollar Data
% Dollar holding of currency reserves of central banks
Foreign ownership of U.S. Treasuries—declining
Saturday, December 20, 2008
Trading the Gap in Forex
You can search the Internet, or go to your local library, and find a plethora of information on complicated, hard to understand, currency trading strategies. Though Forex education is important, there are many simple, time-tested Forex trading strategies that can be used immediately and give you profitable results. Profits are, as we all know, the bottom line.
Profiting from Gap Trading
Gap trading is not a new strategy. It's been used in all investment markets for a very long time. To learn this Forex trading technique is relatively easy. Gap trading in an attempt to take advantage of the difference, or "gap," in price between the close of the previous day with the open of the following day. If the open is above the previous day's close, this is commonly referred to as "gapping up.If the open price is below the previous day's close price, this is called "gapping down.If the open is at the same price level, then there was no gap.
Forex Trading and Gaps
Generally, in Forex trading this strategy tends to be ignored; most people feel that as currencies are traded 24 hours a day, there is no true opening or closing prices. That being said, some people maintain that gap trading in Forex trading can be successful 85% of the time. If this is the case, there is money to be made. The question becomes: How can you trade gaps in the Forex market?"
If you ignore the 24-hour time frame associated with Forex trading, and set up an opening and closing time to create an artificial market, you can provide yourself with an open high low close data range. Based on that data range, you would be able to trade gaps. Another Forex trading strategy is basically to ignore trading on Saturday and Sunday, when volume is thin and most of the world is not working. Under this scenario, you establish a closing time on Friday and an opening time on Monday. Based on the gap, you take the appropriate position.
Unlike what you might think, the Forex currency trading strategy for gaps is contrary by nature. That is to say, you do the opposite of what's intuitive. If the price gaps up, you sell. If the price gaps down, you buy.
This forex currency trading strategy works more often than not, and thus, it's a simple process that can generate great profits.
Profiting from Gap Trading
Gap trading is not a new strategy. It's been used in all investment markets for a very long time. To learn this Forex trading technique is relatively easy. Gap trading in an attempt to take advantage of the difference, or "gap," in price between the close of the previous day with the open of the following day. If the open is above the previous day's close, this is commonly referred to as "gapping up.If the open price is below the previous day's close price, this is called "gapping down.If the open is at the same price level, then there was no gap.
Forex Trading and Gaps
Generally, in Forex trading this strategy tends to be ignored; most people feel that as currencies are traded 24 hours a day, there is no true opening or closing prices. That being said, some people maintain that gap trading in Forex trading can be successful 85% of the time. If this is the case, there is money to be made. The question becomes: How can you trade gaps in the Forex market?"
If you ignore the 24-hour time frame associated with Forex trading, and set up an opening and closing time to create an artificial market, you can provide yourself with an open high low close data range. Based on that data range, you would be able to trade gaps. Another Forex trading strategy is basically to ignore trading on Saturday and Sunday, when volume is thin and most of the world is not working. Under this scenario, you establish a closing time on Friday and an opening time on Monday. Based on the gap, you take the appropriate position.
Unlike what you might think, the Forex currency trading strategy for gaps is contrary by nature. That is to say, you do the opposite of what's intuitive. If the price gaps up, you sell. If the price gaps down, you buy.
This forex currency trading strategy works more often than not, and thus, it's a simple process that can generate great profits.
Easy Steps For Developing A Forex Strategy
There is no successful forex trader out there that hasn't got to where they are without developing their own long term strategy and system for making profits day after day. All businesses work that way, and forex is not an exception. Here are some steps that you need to take to develop a long term strategy.
The time frame of trading: There are a lot of different things you can trade, but what is often overlooked, is how long you hold onto a trade. You could simply be a day trader, or you can hold onto currency for the long term. You need to really sit down and think about what has really worked for you.
Identifying indicators of trends: This is a very nice thing to understand. Being able to see where a currency is going before it is there gives you a tremendous advantage to making a nice profit. I use Forex Killer software to help me identify these trends.
How much are you willing to lose: You need to understand that you're not going to make 100% profitable trades. Some trades will be losers. The key to long term success is maximizing your successes and minimizing your failures. You could make 10 profitable trades and 1 gigantic loss, and you're down in money. You need to assess how much you're willing to lose, so your profitable trades will keep you in the black.
Set an exit after you buy: You need to know when you're going to sell. There's no need to buy and not know when you're going to sell. Setting an exit helps eliminate emotion from a trade. Most people like to ride the wave to see how high the currency can go, but act smart get out at your exit point.
Get yourself forex software: Don't underestimate the power of automated forex software like Forex Killer. This software will analyze all the currency charts and identify profitable trends for you. This is a significant tool help you make profit. Use it.
The time frame of trading: There are a lot of different things you can trade, but what is often overlooked, is how long you hold onto a trade. You could simply be a day trader, or you can hold onto currency for the long term. You need to really sit down and think about what has really worked for you.
Identifying indicators of trends: This is a very nice thing to understand. Being able to see where a currency is going before it is there gives you a tremendous advantage to making a nice profit. I use Forex Killer software to help me identify these trends.
How much are you willing to lose: You need to understand that you're not going to make 100% profitable trades. Some trades will be losers. The key to long term success is maximizing your successes and minimizing your failures. You could make 10 profitable trades and 1 gigantic loss, and you're down in money. You need to assess how much you're willing to lose, so your profitable trades will keep you in the black.
Set an exit after you buy: You need to know when you're going to sell. There's no need to buy and not know when you're going to sell. Setting an exit helps eliminate emotion from a trade. Most people like to ride the wave to see how high the currency can go, but act smart get out at your exit point.
Get yourself forex software: Don't underestimate the power of automated forex software like Forex Killer. This software will analyze all the currency charts and identify profitable trends for you. This is a significant tool help you make profit. Use it.
Choosing The Right Forex Strategy
It is important to choose your Forex trading strategy. Two basic areas of strategy are fundamental analysis and technical analysis. This is the same in the equity market as it is the Forex market. For most Forex traders, the most widely used strategy is technical analysis. The following article is explains how each strategy basically works and how they are used in Forex trading:
Technical Analysis
Since technical analysis is the most common, we’ll start with it. Technical analysts in the Forex market analyze price trends, exactly like in the equity market. There is only one real difference between using it in the equity market and using it in Forex. This difference is that the Forex market is open 24 hours a day, changing the time frame.
On account of this, your technical analysis has to be changed a bit so it can function in the 24 hour Forex market. Generally, the forms of technical analysis used in Forex are:
- The Elliott Waves
- Fibonacci studies
- Parabolic SAR
- Pivot points
To make more accurate predictions, a lot of technical analysts will combine these studies. The most popular combination is Elliott Waves and Fibonacci studies. However, others do choose to create trading systems in an attempt to continually locate related buying and selling conditions.
Fundamental Analysis
Valuing one company is difficulty enough. Imagine valuing an entire country. Because it is often very challenging, fundamental analysis in the Forex market is normally just used to make long-term predictions of trends. Some traders do use it to trade short term, though. There is quite a variety of fundamental indicators of currency value. Some of them are:
- Retail Sales
- Purchasing Managers Index (PMI)
- Non-farm Payrolls
- Consumer Price Index (CPI)
- Durable goods
However, there are more fundamental factors that you have to keep an eye on than just these. A lot of different meetings are available where you can get quotes and commentaries that sometimes affect the markets just as much as the reports. In these meetings, you can discuss inflation, interest rates, and other matters that can have an influence on the Forex market.
Merely taking a look at commentary and reading reports can be very beneficial to Forex fundamental analysts in grasping a better comprehension of the long-term market trends as well as help short-term traders to survive tremendous fluctuations in the market.
Choosing Your Strategy
Choosing a strategy and working on it until it is perfected down to the details is how most successful, experienced traders operate. There are many options for your style and methods. Some traders will concentrate on one certain calculation or study, and others focus on a broader analysis of trends. A combination of technical and fundamental analysis is what most professional Forex traders will advise. But everything is up to your decision and what you think fits your way of trading best.
A great way to develop your individual strategy is to create a demo account and trade “paper money” until you get the hang of it. This way you don’t have to risk your money in an investment until you are absolutely sure that you know what you are doing.
Because the Forex market is the largest in the world and the number of traders keeps increasing, it is crucial that you make sure you know your trading strategy and are ready to execute it.
Technical Analysis
Since technical analysis is the most common, we’ll start with it. Technical analysts in the Forex market analyze price trends, exactly like in the equity market. There is only one real difference between using it in the equity market and using it in Forex. This difference is that the Forex market is open 24 hours a day, changing the time frame.
On account of this, your technical analysis has to be changed a bit so it can function in the 24 hour Forex market. Generally, the forms of technical analysis used in Forex are:
- The Elliott Waves
- Fibonacci studies
- Parabolic SAR
- Pivot points
To make more accurate predictions, a lot of technical analysts will combine these studies. The most popular combination is Elliott Waves and Fibonacci studies. However, others do choose to create trading systems in an attempt to continually locate related buying and selling conditions.
Fundamental Analysis
Valuing one company is difficulty enough. Imagine valuing an entire country. Because it is often very challenging, fundamental analysis in the Forex market is normally just used to make long-term predictions of trends. Some traders do use it to trade short term, though. There is quite a variety of fundamental indicators of currency value. Some of them are:
- Retail Sales
- Purchasing Managers Index (PMI)
- Non-farm Payrolls
- Consumer Price Index (CPI)
- Durable goods
However, there are more fundamental factors that you have to keep an eye on than just these. A lot of different meetings are available where you can get quotes and commentaries that sometimes affect the markets just as much as the reports. In these meetings, you can discuss inflation, interest rates, and other matters that can have an influence on the Forex market.
Merely taking a look at commentary and reading reports can be very beneficial to Forex fundamental analysts in grasping a better comprehension of the long-term market trends as well as help short-term traders to survive tremendous fluctuations in the market.
Choosing Your Strategy
Choosing a strategy and working on it until it is perfected down to the details is how most successful, experienced traders operate. There are many options for your style and methods. Some traders will concentrate on one certain calculation or study, and others focus on a broader analysis of trends. A combination of technical and fundamental analysis is what most professional Forex traders will advise. But everything is up to your decision and what you think fits your way of trading best.
A great way to develop your individual strategy is to create a demo account and trade “paper money” until you get the hang of it. This way you don’t have to risk your money in an investment until you are absolutely sure that you know what you are doing.
Because the Forex market is the largest in the world and the number of traders keeps increasing, it is crucial that you make sure you know your trading strategy and are ready to execute it.
A Forex Strategy That You Must Use
There are numerous strategies available to allow you to trade in the forex exchange. Some of these strategies work well, others not so well. This article details one strategy that works well.
This strategy has to do with following the trends. Professional forex traders say the trend is your friend, until it ends. Here is an extremely short-term trading strategy that follows the trend. This trading strategy usually has profits of about 40 pips per trade.
The foreign currencies often have dynamic price changes immediately after news stories that pertain to those currencies have been released. These news stories report on various economic metrics, such as the CPI, unemployment, etc. There are economic news stories like these released weekly.
How can you capitalize on this news? As I stated above, the forex market often moves significantly after these news stories. This movement can be 30, 40, 50 or even more pips, immediately. This move can be either up or down. So how do you know if you should be long or short on any particular currency for this strategy? A few seconds after the news comes out, determine which way the currency trend is going. If it is trending up, go long that currency. After you establish your position on this currency, set a tight stop-loss of 10 pips below the current price. Soon the currency will likely move 30, 40 or 50 pips. Once it has, close out your position. If conversely, the currency has trended downward more than 5 pips, then short the currency. Follow this strategy and you will be rewarded with controlled risk.
This strategy has to do with following the trends. Professional forex traders say the trend is your friend, until it ends. Here is an extremely short-term trading strategy that follows the trend. This trading strategy usually has profits of about 40 pips per trade.
The foreign currencies often have dynamic price changes immediately after news stories that pertain to those currencies have been released. These news stories report on various economic metrics, such as the CPI, unemployment, etc. There are economic news stories like these released weekly.
How can you capitalize on this news? As I stated above, the forex market often moves significantly after these news stories. This movement can be 30, 40, 50 or even more pips, immediately. This move can be either up or down. So how do you know if you should be long or short on any particular currency for this strategy? A few seconds after the news comes out, determine which way the currency trend is going. If it is trending up, go long that currency. After you establish your position on this currency, set a tight stop-loss of 10 pips below the current price. Soon the currency will likely move 30, 40 or 50 pips. Once it has, close out your position. If conversely, the currency has trended downward more than 5 pips, then short the currency. Follow this strategy and you will be rewarded with controlled risk.
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