This article looks at what the long-term carry trade is, as well as providing a guide to setting up a position using the forex strategies.
In order to be an effective forex trader you must have knowledge of all aspects related to the forex market and forex trading. It is essential that you understand the forex strategies and are able to choose the most suitable strategy for your personality. There are three broad categories of forex strategies available on the market – the short-term, the medium and the long-term timeframe strategies. Each requires a specific temperament in order to be successful, and you must understand your personality to choose the correct style.
Which strategy is suited to me?
The short-term trading strategies are generally more appropriate for the impulsive trader who enjoys instant gratification. A long-term strategy is more suited to the patient trader who prefers to watch a position develop over time. The medium-term trader shows a personality that lies between these two styles. This trader is willing to see the trade develop over time but does not have the patience to hold a position for longer than a day.
While short-term trading can be highly beneficial, it is incredibly risky as the use of leverage is required in this strategy. Long-term trading offers a means of increasing the chance of profit over a prolonged timeframe. It also offers the opportunity of completing a long-term carry trading behaviour in addition to price action trading.
The price action and carry trading forex strategies
Two methods of trading on the foreign exchange market are through price action and carry trading. With price action trading you will be earning profits from movements in a currency pair value, whereas carry trading makes profits from the difference in the interest rates of various currencies. It is simple and recommended to combine these forex strategies when trading on a long-term basis.
In order to combine these strategies you will need to complete a long-term trade with a currency pair that can accommodate carry trading. As long as you maintain the currency pair for several days with a price action strategy you will profit from the carry trade.
How to place the long-term trade
The first step in using this long-term carry trading strategy is to open the position. There are various restrictions to be considered when doing this. The trade must be set in a way that ensures you will profit from the price action. It should also provide the ability to identify and purchase high interest rate currencies in the pair. If you do not buy this currency then you the chance of loss is greater than the chance of profit.
To open the position you will need to analyse the market movements and find appropriate trading signals. Once you have discovered these signals, open the trade ensuring you hold the high interest rate currency. This should be easy as all currency pairs offer two alternative variations with which to trade. The first has one of the currencies as the base currency, and the second has the other currency as the base.
Once the position has been opened and placed you should continue trading as normal. Carry trade profits are made passively which means you do not have to actively trade on the position.