Managed Forex Accounts Trading Strategy

Trade Strategy

Our trading strategy is a unique, proprietary blend of technical and fundamental analysis. The process begins by analyzing the charts to find high probability technical trade set-ups. This is done using a variety of technical analysis tools, including but not limited to, price movement, support/resistance levels, fibonacci retracements and projections, Elliot wave, stochastics, macd, and moving averages.
Once technical trade set ups are defined, we then look for confluence with the underlying macro-economic fundamentals of the corresponding countries for the pair. If there is no confluence found, a position entry is negated. Though the position may be technically sound, the probability of success is greatly decreased…thereby increasing risk of loss if the technical picture is in stark contrast to the fundamentals. Conversely, if confluence is found, the trade set up will then enter our risk analysis stage in order to formulate a trade plan.

Unlike many currency funds that are strictly trend following or system based “robot” trades that have either a very high trade frequency or long hold time…or both, our analysis looks for high probability, low risk/reward positions. Because of this, our hold time on positions is much shorter…typically closing positions within 5-48 hours after entry. The trade frequency is also much lower, ranging from the low end of 5-6 trades per month to the high end of 12-14 trades per month depending on market conditions.

Risk Management

The foundation of our trading is disciplined risk management. This starts from what was just mentioned above in regard to the low trade frequency of the account. Not only does this increase the liquidity of funds to our clients, but it helps to reduce risk of loss by limiting the amount of time that funds are exposed to the market. That same logic continues into the risk analysis stage of our trade development. Employing our risk management guidelines, it reduces the overall amount of capital at risk at any given time in the market. An important thing to note is that simply because the Forex market offers a high degree of available leverage, that doesn’t mean that it is wise to use it.

Many traders look at available margin as a way to gauge position size. For example, a trader or fund may look at a 50k account that has leverage available of 100:1 and decide to establish trade size on the account of 5 standard lots, or 10 standard lots per trade (which would theoretically be leveraging at 10:1 or 20:1 respectively). That looks great of paper when there’s a winning position, but losses trading in such a manner can be staggering. Consider this…5 standard lots with a 30 pip loss (assuming a $1 pip value), would be $1500, or 3% of the balance. Not an outrageous loss obviously…but a 30 pip move is not an outrageous one either. Imagine that loss at 100 pips…$5000, or 10% of the account on a single position. Considering the average daily range of the most liquid USD pairs is somewhere between 100-140 pips, the latter of those two seems a bit more likely. A trader would be hard pressed to be able to trade exclusively with a 30 pip stop loss as different technical levels call for varying degrees of price fluctuation before the overall direction develops.

Our fund trades around a set risk-to-balance per trade model which allows us to capitalize on high probability trades while significantly limiting large losses per trade. Our risk to balance per trade typically runs around 2-2.5%. By structuring our trading this way, it allows us to tailor the position sizing to a particular trade set up or market condition, thereby reducing our risk of loss in the event that we are on the wrong side of a trade. In contrast to the example in the previous paragraph, our position size would be significantly different on a trade that required a 30 pip stop loss versus a trade requiring a 70 or 100 pip stop loss. This type of risk management also allows for the flexibility to scale into and out of positions at various levels adding additional risk protection and the ability to lock in partial potential profits.

For a more in depth explanation of our trade strategy, position sizing, and risk management, please feel free to email or call our office anytime.

*Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.