Saturday, February 17, 2007

Be Prepared......

Market’s, like life, can hit you out of no where. Take for example the storms this week causing havoc throughout the North East. Motorists were stranded on a 50 mile stretch of highway for nearly a day. This occurred on a section of interstate 78 in eastern Pennsylvania. National Guard troops had to ferry in food, fuel and baby supplies according to the article. Think about in your own life, how often do you leave the house for a quick journey, maybe to the grocery store, or to run some other errand. Probably, if you are like me you do not dress for the weather (you are in the car the entire way right?). How often do you think you can fill up your tank on the next trip? Well I am sure a lot of the people stuck on this highway wished they had stopped to fill up the tank, go to the bathroom or stored that blanket in the trunk like AAA tells us to do.

This is quite similar to Trading in the markets. Are you prepared for an unforeseen occurrence? Do you have an exit strategy? These days with everyone (and I mean EVERYONE) talking about carry trades are you prepared is it starts to go bad. Stay the course (I frequently do this)? Double up (I almost never do this)? Cut down on the position (I sometimes do this)? What ever your plan, the most important thing is to have one. Also remember that your plan may have to change. What if your exit strategy is to cut the position, but when you are looking to get out there are no offers (or bids) in your product/currency?

Something that I find helpful is to watch currencies which trade in the same region. As an example if I am short dollars in Argentina, I know that if the “world falls a part” I am never getting out of that position. Rather I would look for a proxy hedge. Usd/Clp or Usd/Mxn might be a possibility. I would keep this on until liquidity returned to the market and I could exit my positions in a more efficient manner. Remember this is not a science, but rather a technique of knowing your market. It will not always work but if you are prepared (like I bet a bunch of people on the highway wish they were) you will be able to deal with the situation in a more efficient manner.

This is one of the FX Trading Theories that I follow.

Good Luck and Good Forex Trading




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