Carry Trade System?

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Hey all,

I had a thought the other day. Has anyone developed a type of trading system that revolves around a carry trade? Here's the general idea...find a pair that pays good positive swap. Scale into a position on this trade, and then trade around that position. For example, on GBP/JPY we would scale in long GBP and then as the pair bounced around, we would trade further around that position. Has anyone tried anything like this before?

I know there's most likely not a lot of sexy programming or indicators involved here, but I think this is an idea that would be worth looking into...even though from a technical standpoint it might not be too difficult, there is plenty of complexity to explore from a strategic standpoint for those of you who like such things.

I can elaborate some more of my ideas if people seem interested.

BW

 

define: bounces around

define: trade further aound the position

apart from that swap trading is pretty cool, if you can properly hedge your bet.

 

Well, you've actually hit on the key to this type of trading, I think. How do we hedge or do we even hedge?

First, an observation. Many pairs that pay good swap tend to be quite volatile...agreed?

Here's the idea:

1) Find a pair that pays good swap

2) Go long in the appropriate currency (scale-in, so we might even buy more as price moves against us)

3) As trading ranges or congestion develops prepare hedges

For example, as a range develops, we might choose to actually play the range going against our overall position, but with a smaller position size as what we have in our original position. So if we are long 4 lots in GBP/JPY and we think that we are near the top of a congestion range, then we might choose to open a position short 2 lots once we look to be crossing back into the range. If it keeps going down, then ultimately we are still hedged and we might even choose to add to the hedge (if it finds support, we take the profit from the hedge). If it continues up out of the range, however, then we are still essentially long GBP/JPY, although at a slightly lower rate. Eventually we might remove the hedge, taking a small loss. This is OK, because our GOAL is to hold onto GBP for the positive interest.

This is just one possible scenario. We might also simultaneously do the carry trade while running other shorter-term systems. The key is knowing when to put the hedge on and when to take it off.

 

an idea in support and resistance

i remember reading a thread where someone asked for input on a post they looked at from a different forem. and to tell you the truth, the writer is partially right.

my favorite uses for support and resistance are trend channels, there is a general uptrend, or downtrend, but a channel as well. so in general, the price comes down, and back up almost, but not quite all the way, and continues down further, or vice versa.

to get the the point, i'd suggest using support and resistance to determine when to reverse the trade.

 

Yeah, I use support and resistance also. It is probably the single most useful concept I have learned in trading.

Now, how can we think strategically about carrying the trade, while also using support and resistance to maybe reduce the volatility in our positions?

Maybe what I'm looking for is not possible. I'm looking for a way to systematize and formalize carry trades. It would be desirable if we didn't have to analyze and implement on solely a trade by trade basis.

Incidentally, I think that we could use any strategy we determined here in similar situations, such as dividend paying stocks (the trick there is getting enough leverage to make it worthwhile, I think I have an idea for that too).

 

i have also mentioned this solution somewhere in the questions forem, (metatrader strategy development course)

but for support and resistance, i found theese variable codes help;

double /*variable name*/ = High;

double /*variable name*/ = Low[Lowest (NULL, 0, MODE_LOW, /*how many bars you want to use to establish what the high or low is*/, /*how many bars you start looking back*/)];
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