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Lessons from the Pros - Forex

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Sun, Sea, Sangria and Hedging

Tue, Oct 6 2009, 10:39 GMT
by Sam Evans

Online Trading Academy

I like to do things differently, that's a fact. One of the first "light bulb" moments I had during the start of my trading career was the sharp realization that if one is to be consistently successful in the Forex markets, their actions need to differentiate from the majority. The first time a new Online Trading Academy student walks into my classroom or joins us in the ongoing XLT - Forex Trading program, I say to them, "Remember, nobody cares about your money more than you do." The reaction is usually the same, with vigorous nods of approval! Trading for a living or even part-time creates new opportunities for a better quality of life and allows us to step outside the collective consciousness of doing what everyone else does and getting what everyone else gets. It is a great feeling to take control of your life and everyday, more and more Online Trading Academy graduates are stepping outside of the boundaries and opening their minds to new possibilities. Through ongoing education and support, they have developed the ability to think differently about their trading and are enjoying consistent profits in the markets as a result. The interesting thing I have noticed, however, is that this new way of thinking rarely stops at just trading itself and after time, tends to extend into other facets of life, as well. I have hard-wired myself to look beyond the "normal" and be different, not in just my trading, but in my other activities, too.

Last weekend, I managed to squeeze in a few vacation days in Spain with a large group of friends for a bachelor party or "Stag Weekend" as we call it here in the UK. To say we had a great time would be an understatement and the company, weather and food couldn't have been better. It was pretty much the perfect weekend away, except for one thing – the exchange rate! As many of you would have noticed, my home currency, the Great British Pound, has been having a hard time over the last year. It has gone from being one of the strongest currencies in the world to one of the weakest in a very short time. Going away with Pounds in your pocket used to be advantageous – now it 's just painful! The last time I was in Spain, a round of drinks cost me about 20 Euros or 13 Pounds. This time, with the EURGBP trading high and after paying over the top rates at my local Foreign Exchange office (they charged around a 3000 Pip spread by the way!), that same round of drinks equated to about 19 Pounds. And it wasn't just the drinks, but also the food, accommodations and taxi fares, too. Now this was by no means enough to spoil the trip in anyway whatsoever, but it did make me think as I am getting ready for a trip to California next week to join my Online Trading Academy colleagues for our International Conference. Last time I was in America, I was enjoying a GBPUSD rate of around 2.0100, so things were pretty cheap for me at the time. However, unless the GBP puts in the rally of its life in the next week, I very much doubt that I am going to enjoy such a discount trip as I did the last time around and I will end up with a similar financial scenario as I did in Spain last week.

With this in mind, I took action and decided to hedge my situation as best as possible. The beauty of the Forex market is that it provides opportunities all the time and after a quick bit of analysis, I found a High Probability, Low Risk setup on the British Pound Futures Contract which trades on the Chicago Mercantile Exchange. Let's take a look:

At around 10.30am, GMT, I noticed that the Pound was rallying into an objective area where Supply is greater than Demand, thus offering a low risk trade to short the contract at 1.6015 with my first target being the day's previous lows at 1.5930. I set my stop loss order to minimize my risk, just above the previous highs around 1.6030, limiting my potential losses to just 15 Pips per contract. I then popped out for a few hours to return and find that my first profit target level had been hit, locking in a profit of 85 Pips and leaving the rest of my position to run at no risk whatsoever. The next profit objective is lower at 1.5850 which would provide a very lucrative return on the trade IF it gets there. There are no certainties in trading and everyone knows what they want the market to do, but it will always do what it wants to do, so as traders we have to control risk at all times, bank profits at objective targets and stick to the plan at all times. Sure, it would be great if the trade continues to run in my favor but the most important thing is that I have already taken a considerable profit with low initial risk and I am now still in the market at no further cost to myself should the trade continue to run. In the meantime, the profits I have already made on the trade will certainly go towards the expenses for my trip to California!

Some people reading this article may think that it is unpatriotic of me to sell my own currency short and indeed, I do respect their opinion.
However, I also realize that just because the majority of my fellow British citizens are suffering from our weakening currency, this does not mean I have to as well. I know from first-hand experience that it pays to think differently and make things happen for yourself, rather than sitting back passively and waiting for things to happen. Life is all about taking responsibility for our actions and creating opportunities for ourselves when given the chance. I have a number of US-based Online Trading Academy students who now consistently trade the Dollar Index to hedge the value of their currency, ensuring they are always getting the best out of their money. Are my students unpatriotic or just forward thinking? I would suggest the latter. They are simply risk managing their finances, something that the vast majority of individuals in the world fail to do. If you haven't yet considered doing the same, then I strongly suggest you consider taking action. It may seem daunting but with the right education and support, anyone can enjoy this level of freedom. Let's face it - we all manage various risks in our day-to-day lives already, without giving it much thought at all. We tend to lock our front door when we go out, use seatbelts when driving our cars and take out insurance to protect our homes and possessions. Why should hedging the value of our domestic currencies be any different? After all, nobody cares about your money more than you do right?

Published on  Tue, Oct 6 2009, 11:28 GMT