Trading Strategies

Trading is a speculative endeavor that requires proper training and education, and should include strong discipline, risk management and money management skills. Just like in any market, the forces of supply and demand are at play. The emotional elements of greed and fear cannot be escaped. Have a plan that focuses on proper money and risk management techniques. Use stops to protect your money and minimize losses.

Make money in both directions, up or down. Unlike the equity market, there is no “uptick rule” that limits a trader’s ability to sell short. Short positions can easily be entered by hitting the bid and are part of most speculative trading strategies. There is equal opportunity to profit in up and down markets.

There are several basic approaches that traders take, either fundamental or technical analysis, or a combination.  When using fundamental analysis a trader is going to look at issues that are fundamental to the value of a currency including the state of the economy, especially interest rates and inflation, the balance of trade (balance of international payments for goods and services), and political factors.

Technical analysis, on the other hand, is concerned with the forces of supply and demand and the behavior of price over time of a particular currency pair. The tools of technical analysis are price charts  and technical indicators (or studies). Price patterns have a tendency to repeat themselves. A knowledgeable technical trader can utilize pattern recognition to increase the probability of success and tighten risk management strategies. Technical analysis is also used by traders to develop trading systems that automatically look for a combination of technical factors to be in place before giving a trade signal. Since most of currency trades are short-term (less than 7 days)

Sample Trades and Profit Calculation

Profit/Loss Calculation

Rollover Interest Premium - Interest Rate Differential
Trades in Forex take two banking days to settle. This creates an interest calculation because you’re taking one currency where the domestic rate is (A) for another where the rate is (B). For example, you buy the GBP/USD.  In Britain the interest rate is at 3.5% and in the U.S. it’s at 2%. The interest rate differential would be the difference between the two rates (3.5 - 2 = 1.5%). A positive differential would be added to your account, while a negative differential would be debited.

Sam Seiden - Author
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.

Points of interest:
• Chicago Mercantile Exchange Floor
• Author of Market Advisory Letters
• Fund Manager/CTA
• Speaker to Investment Groups, Universities, and Private Seminars
• Contributing Author for Stocks, Futures, and Options Magazine, Active Trader Magazine, and Futures Magazine
• Trading and Investment Conference Speaker