Chapter 9

Strategies for Position Traders

Three characteristics define you as a position trader:

1. You have a deep understanding of market fundamentals.
2. You are not concerned with the short-term and medium-term movements of the currency market.
3. You have a sizable account to trade with. This is necessary to support your long-term outlook and withstand possible large floating losses should the trade go against you for an extended period of time.

Two advantages come into play for position traders. The first point is that interest can be earned. This is because interest or swap is paid on the currency that is borrowed and earned on the one that is bought. This amount can be significant when trades are held for long periods of time.

Secondly, correlations between other financial instruments can be brought into play. In the financial world, capital flows in a fairly predictable manner. Position traders who have a great feel for the market can use their knowledge to predict how other markets will correlate to the flow of money in the forex market.

A great example is the commodity market. When risk is on, commodity currencies, such as the Australian dollar, the New Zealand dollar, and the Canadian dollar, tend to do well. Over time, the strengthening of these 3 currencies also translate into higher prices for the actual commodities involved. Examples include gold and oil.

This chapter explores three strategies with time frames of either the daily or weekly charts. The two aspects ...

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