Forex Trading as Hedging Strategy

Forex trading is one of those instruments that are very flexible on what you want to do with it. It can be a wealth accumulator, a protection or a hedge. Hedging is a strategy by investors in which they “bet” on a currency in which they think will do good, while being invested in other things that will go bad.

Let me give you an example, Oil companies consistently hedge their oil. Since they buy a lot of oil as inventory, a lot of oil, not bought in the market will result in losses as time goes by. Because of regulation, unpredictability of the market and such.. So what these company does, is “hedge” oil, which means, they take a “SELL” position on the market, such that, either way the market goes, they never lose money. They may lose money on the physical oil inventory, but they will gain money from the SHORT positions in the market.

Forex Trading as Hedging for Stocks

I will give you a personal example. Lately, I have been investing in stocks. Not just local, but also international. And the War in the middle east has been on the news lately. Its not just news, but they actually affect the economies of countries affected by the war. That includes the US. Since I am invested in the US. What can I do to protect myself from this unpredictability? So I hedge the EURUSD. I know that allowing refugees inside Europe is a bad decision. So I bet SHORT on that currency pair… And, months later, proved to be right. As seen in my position for the pair. eurusd-isisSo now I’m in a very good position currently at 803 pips in profit.. If the companies I hold in the US are affected by the instability of EUROPE, then I will still make money from my forex trading because its a hedge from my US investments.

Philippine Stocks Hedging Dollars

I also started investing in Philippine stocks. But we all know that the current president is not that business savvy. Before he sat on the presidential seat I already thought of him as a man of the people than a business/economic president. And will do anything to prioritise the people than businesses. Which means, comes a time, it might NOT be good for the stocks I hold. Or it could be that the PSE stocks is just that overhyped. But what ever the reason is, I am afraid of it going down. In which it is currently happening.

Philippine stocks is at a downward fall.

Philippine stocks is at a downward fall.

Knowing that, I immediately went to my bank and exchanged my PESO to DOLLAR, just before the new President elect take office. That was the hedge. Since I fear that the stocks would drop, the hedge would be — buying dollars hoping that $ would do better than Peso. And months later, I am again proved to be right. I bought dollars at P45.00 and it is now currently trading at P49.92. A 500 pip profit as of this moment.

While USDPHP is going up.

While USDPHP is going up.

This is not about telling you people that I am right all the time. This blog has been a journal from the beginning. And this is just my way of explaining to you how you can make use of forex trading as a protection of your money. Remember that rule #1 is to not lose money..

So when you start making money out of your forex trading, you should also think about protecting what you have gained. And that is where hedging comes in.

Total Earnings in PIPS 800 + 500 = 1,300 pips

I hope you learned something of value from this post. If you want a primer on how to trade forex, you can read this page for a short course on forex trading.

Or if you’re looking for a reliable broker, visit the forex brokers page or try out brokers that accepts paypal.

Forex Trading Charts

When you think about forex trading and charts, what comes to mind is that, what ever time charts you are in the principles are still the same. A 1 minute chart will be the same as the daily chart. What I found out last week while I try to trade intraday chart is that. It’s not always the case.

I trade successfully on daily charts and I love the freedom it brings because sometimes, I don’t have to trade everyday and I get to do something else. While I wait for the next candle stick, it will take another day. That is why when I tried trading on smaller time frames. I never got any profit.

I don’t know. Maybe its just me. I still follow my rules but the fact that intraday trading is a whole new beast than the other charts. I realize that if I really want to be successful in this. I need to master one chart at a time.

Many books claiming that their method are great on any charts. I don’t know. Maybe just my strategy is not that good. That is why I bought some books for reading. I’ll post some of the things I learned and tested once I finished reading the book.

Week 19: Money Management as Investing, Forex Trading as Professional Gambling

Taking advantage of the EURO Zone Debt Crisis.

Do you know what makes great professional poker players great? Its their money management. The reason why there are few great poker players and a lot of people just gambling using luck is because great poker players know how to use money management.

They know the probabilities of each card they are dealt. They don’t try to push their luck even with a bad card hoping that their competition has worse. In forex trading, try to make wait for the right moment to open position, rather than trying your luck just because you want to open a position. The downfall of most forex traders is that they tend to over trade. They want to open a position just for the sake of opening a position. This is detrimental to a good trading strategy, whatever the strategy is.

Money management, i believe, is the best part and makes the most part of a forex trading strategy. Systems for entry and exit like fibonacci, technical analysis and whatnot are just the small portion. A poker player does the same thing, to survive the table, he must manage the money if there comes a time when he suffers consistent losses. Trading is the same way, you must survive consistent losses until the next big trend comes where you can make back your losses and then some.

Forex Trading Expectations

People who are new to forex trading or people who are aspiring to trade in the forex market always baffles me. You know the typical people who have 9 hour job Monday to Friday and thinks that they can self sustain themselves with their job and become a millionaire in forex trading.

There is nothing wrong with this train of thought and many people have started with this. But to think deeper, if you’re going to divide your time with forex trading and your day job, doesn’t that make it only a half assed effort to begin with? You’re half assing your work and half assing your trading. So you get, nothing done at all… I’m not saying you should quit your job to do forex. What I’m trying to instill to new forex traders is the open mindedness and the real expectations in forex trading. If you’re dividing your time, juggling trading and work, you’ll achieve your “self sustenance” in forex trading more than a few tens of years.

Never ever underestimate forex and say “I can do this part time and maybe someday, I’ll be rich”. C’mon man, you are competing against the most competitive traders in the world who do this job for full time, with millions of money depending on them . And to think that you’ll be rich with half ass effort is like trying to go to the moon with a bicycle.

If you want to succeed in forex trading, you should be competitive, have focus and never ever underestimate the market. You can do part time work part time trading all you want, but nothing comes out anything good about being a wishy washy son of a gun.

Managing Risks and Currency Hedging

I realized that you can really minimize the risk in trading. To do that, you want to open your position on currency pairs that are correlated. If I want to open a position on EURUSD, you may realize after a while that you might be wrong, an attitude that is always good to have.

Having said that, you may want to look at the correlation table below.

As of September 2011

If you want to manage risk for the EURUSD trade. You may want to open a position on AUDUSD and other correlated pairs.

Hedging and Managing Risk

Lets say you go SHORT EURUSD, to hedge that risk you need to go:

  • LONG AUDUSD
  • LONG EURGBP
  • LONG GBPUSD
  • SHORT USDCAD
  • SHORT USDJPY
  • SHORT GOLD

if LONG EURUSD

  • SHORT AUDUSD
  • SHORT EURGBP
  • SHORT GBPUSD
  • LONG USDCAD
  • LONG USDJPY
  • LONG GOLD

Doing this strategy may give you lesser risk because once EURUSD may go downtrend other currency may go uptrend thus minimizing the risk. But it also minimizes the reward. If you want to be a daredevil and amped up your profits, you may use the one below.

Doubling the Risk & Reward

Your position SHORT EURUSD, to double the risk you need to go:

  • SHORT AUDUSD
  • SHORT EURGBP
  • SHORT GBPUSD
  • LONG USDCAD
  • LONG USDJPY
  • LONG GOLD

if LONG EURUSD

  • LONG AUDUSD
  • LONG EURGBP
  • LONG GBPUSD
  • SHORT USDCAD
  • SHORT USDJPY
  • SHORT GOLD

Knowing what currency relates to one another gives you the advantage to play your cards well in case you are not sure.

Week 22: I Have Never Been More Determined Ever

This days passed. I lost quite a bit this week because of some positive news about the Eurozone and news about the USD and all good news. I was short on EUR USD and it hit me with a loss. But I’m still in this game. And will probably for a long time. This week has been so emotional for me. Not because I lost and I’m down emotionally, but because I have never felt so determined like it feels like a burning passion inside.

This is the exact same feeling that I felt before. Its a burning passion to change. To get the things that I want, and to do whatever it takes to get it. Seeing things that I want and know that there’s no chance to get it until I change myself, my attitudes or habits, makes me mad in a good way. Makes me crave for change. Makes me risk. Makes me live life.

I know you would probably not understand what I’m talking right now. But for those of you who have done something in their life at a roll of a dice and risk everything just for that one moment, I know you understand. Its a great feeling to risk something and be rewarded. Its a great feeling to pursue something, no matter how impossible it may seem, and just enjoy the journey. Because at this point, I’m living life.

Simply put, I think I have found my purpose and real goal for the next 10 years. And I thank Forex Trading for making me realize all that.

Forex Trading on AUD USD Feb 9

picture-31

I spotted this market on AUD/USD pair and made a “short entry”. I believe it will go down because of the momentum of the buying pressure has now (probably ended). I am still not sure. I have nothing to back up this trade but instinct. :D I might screw this up but at least its listed here and I can still go back with all the forex trades I made.

Update: Feb 10 10:30 am

picture-15

Maybe that is why we shouldn’t put emotions when trading. My trade is now at -23.7 pips. I can still see that its going down now. Might as well be on the trade.

The Evolution of my Forex Trading Style – Into the Future

As I trade into 2013, I realized that my forex trading is slowly becoming a more mature system. As I meet other traders in the forum and as I trade to my 4th year, my system, from a go-in-go-out-fast trades to a more mellow slow but profitable and safe “lets open a trade and look at it next week” kind of trade. This I think is better than suffering the stress of day trading. But as I realize this, I might also be posting less and less because the trade have nothing to be excited about as I search for longer trades, traveling and searching for the meaning of life. And I don’t want to leave behind countless newbies who still stumble in the dark.

I’ve been thinking of a membership club where I can teach them online one on one or a signal service that I could contact you should I have a trade opened and closed. My analysis and opinion and of course open questions about how I trade and my indicator, ichimoku. Of course I don’t want to charge but I think that would not be possible as I would be employing people to develop a system like that, and I don’t want to be in the red zone since I don’t want to use the money for trading for this.

What do you guys think? A signal service or a membership club or both? And how much are you willing to pay/comfortable paying?

P.S. I think $99 is highway robbery.

Week 4: Sept 26 – 30 Lessen Risk – Welcome Back – I Was Hacked!

Last week has been good forex trading not so good on local markets and stock market though. But that’s a different story. Kind of practiced patience not only in trading but in general as well. You see, last week, this site was hacked. And I thought that was a good opportunity to test patience as I never panicked and just calmed myself that everything is alright. Now looking back at it, it felt pretty good. Friday, I got a chance to enter a trade that I thought was a good time. Its in GBPJPY and USDJPY and I will review them today.

GBPJPY

Its a good buying opportunity. It seems like the trend has ended for GBPJPY but don’t be so sure. Even if it is not the end of the trend, it is still a small risk to take with great rewards. We should expect the price to go up to 50% fib entrancement. If it doesn’t break the high of Thursday, we can call this trade invalid. Nevertheless, I’m in this trade and the risk – reward ratio is good so I’m sticking with it. Weekly is on a downtrend and Monthly has just reach a support. This week will be crucial in ending this month’s price.

USDJPY

Seems to me that it already hit rock bottom. So I’m taking LONG trades from now on. Remember to use stop losses so you can lessen risk.

My Forex Trading Goal

Goal for 2011
$25,000 Net Profit in 1 Month

I will raise the steaks. My goal from September 2011 to September 2012 will be to earn $25,000 net profit in 1 month (YES! One Million Pesos a MONTH!) I LIKE TO SHOOT FOR THE MOON!. Breaking it down means I should be earning at least $833 per day.

How to Reach Goal

  • Study more about money management
  • Risk more and be defensive
  • Always think that I might be wrong in a given trade. Making me think defensively rather than offensive (taking unnecessary risks).
  • Put more risk on successful trades. And reduce risk for wrong trades.
  • Always think about the exit more than the entry.
  • Money management, psychology and exit strategy.

Main Goal for 2010 (DONE :D)
$5,000 profit per month in forex trading.

I already have a trading goal. But just to make it official, I’ll write it on this journal so I can comeback later and see my progress. This year 2010, my goal is to reach $5000 per month in profits in forex trading.

By the end of 2010 I should be earning at least $5,000 per month. Breaking it down to days $5,000 / 20 = $250. That is $250 per day.

How To Reach Goal

  • I’ll be patient.
  • Trade only on longer charts. Daily / Weekly. I’ve had very bad experience with day trading but have great success with daily and weekly, so I’ll stick with daily and weekly for now until I’m familiar with day trading on demo account.
  • Follow the trend.
  • Follow my system.
  • Remind myself to refrain from overtrading.

My ultimate goal is to earn my first million dollar with forex. But it will take a while I know. Just keeping a more reachable goal for now based on my experience.

UPDATE (as of September 1, 2011): I have reached my goal of $5,000 net profit in one month. It has been a long journey and I was late for about 1 year achieveing this goal. But it has been a very good adventure and a lot of learning curve. At first I thought its impossible and now I can move on to bigger things. Bigger means bigger profit.