Forex Patterns and Probabilities: Trading Strategies for Trending and Range-Bound Markets

CHAPTER 15

The Interest Rate Edge

Wouldn’t it be nice to get something for nothing? Wouldn’t it be great if the next time you filled up your tank, the station attendant gave you a few extra gallons of gas (or liters of petrol, for my friends outside the United States) at no cost?

Or how about if you went to dinner, and after a sumptuous meal, the maître d’ refused to accept payment. “This one’s on us,” she says. “Please come again soon!”

Sounds too good to be true, doesn’t it? That’s because we’ve been conditioned to believe that if something sounds too good to be true, it often is. In the real world, there is always a hidden “catch.” But occasionally, there really is a way to “beat the system.”

For instance, wouldn’t it be great if the next time you entered a forex trade, you turned a profit even though the currency pair didn’t budge? Wouldn’t it be nice to make money off of your trades, even when the market is uncooperative? Do you think this would make trading easier?

If you answered yes, you’d be correct. Although it may sound farfetched to the uninitiated, this is exactly how the “big boys”—banks, hedge funds, and other institutional traders—play the forex game.

THINK LIKE THE BIG BOYS

This technique requires that we think big, in terms of both potential profit and time. The long-term forex trader’s perspective is similar to that of the institutional trader, because hedge funds and institutions tend to hold foreign exchange trades for months at a time.

Since institutional ...