When you trade in the direction of the positive swap, you are effectively trading in the direction of the fundamentals. Interest rates rise as an economy gathers pace, and decline when an economy slows down. Since a growing economy will ultimately result in inflationary pressures and interest rate rises, it makes good sense to buy the currency. When the bought currency is paired with a counter currency where interest rates are declining or flat, you have a carry trade that will contribute interest earnings to your account balance. Admittedly, daily interest earnings will be relatively small, but they do make a contribution.
The main reason I trade in the direction of the positive swap is that it aligns me with the underlying fundamentals. This gives me greater ability to filter out all but the most relevant technical signals, and greater confidence to follow selected technical signals because I know that there is a fundamental logic behind such signals. Let me give a comparison. If you blindly follow technical signals you will ultimately buy or sell regardless of the underlying fundamental picture, however, if the fundamentals indicate currency strength, you will do far better to enter on technical buy signals only, and ignore technical sell signals. Conversely, if the fundamentals indicate currency weakness, you will do far better to enter on technical sell signals only, and ignore technical buy signals.
Tactical carry trading means that I only trade in the direction of the positive swap and that I am prepared to hold for as long as possible to maximise interest earnings, but I will close the position the instant price action begins to move against the position. Hence, I collect both interest earnings and capital gains along the way, whilst ensuring that I only trade in the direction of the underlying fundamentals. My results speak for themselves.
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