As many of the regular readers of these articles already know, I like to write about as many different aspects of Currency trading as possible, from creating a rule-based strategy, aspects of Technical Analysis, Supply and Demand, psychology and more. However, as I always tell anyone interested in gaining a firm grasp of the financial markets, there are many other factors and benefits which stem from an understanding of how and why prices move in any free market. Not only do we have the ability to generate a second income, build financial security and create more time to do the things in life which we enjoy, we also start to recognize a variety of other opportunities around us which we may or may not have even considered before. When you begin to truly understand the concepts of risk management and develop the ability to see low risk, high potential reward opportunities before you, we can stack the odds in our favor to an even higher degree and learn to think outside the box like never before. Most of the time it is even simpler than we first think as well. Let me explain.
One of the benefits of Online Trading Academy’s teaching methods is that we like to hold our classes on location at our worldwide centers. This allows us to spend a lot of time with our students when they come in for their financial education, and because of this scenario, we get to know them well. The nature of the centers also means that grads pop in from time-to-time and update us on their trading activities, and sometimes maybe even run a few questions by us, or just to say hello. Well, a few weeks ago I was working at the London center on one particular afternoon when a grad dropped by to say hello as he was passing by and it turned out that I instantly recognized him from a Forex class he took with me a couple of years ago Let’s call him Tom. I asked him what he had been up to lately and I was happy to hear that his trading was going very well. He has defined his strategy clearly, was trading for a couple of hours a day and simply sticking to his plan. In fact, he could only spare just a few hours for his intraday trading as he was still running his business and enjoying every minute of it.
I asked him if he was planning to give up the business and just focus on trading since he was doing so well, but he smiled graciously and said no. Like me, he was one of those individuals who just enjoyed what he did and had no intention of stopping yet. Maybe in a few years he said, but no way right now. Jovially, I asked Tom outright, “So, what are you planning on doing with all that extra money you are earning?” He smiled at me and said, “Well, here’s the best bit Sam. I am using my Forex trading skills to maximize my cash even further. It suddenly struck me that although I am British and residing here in the UK, why should I limit myself to thinking about my cash wealth as only being in British Pounds? Just because I am living in Britain doesn’t mean that I have to just stay Pound long does it?”
Tom’s statement made my day. Here was a student of the markets who was using his education to the maximum. You see most of us have been conditioned to think a certain way. Maybe because our parents told us so or because of what we heard in school or read in the press. Now there is nothing wrong with that, but there is also nothing wrong with challenging what you have been told to be true either and seeking out alternative ways of doing things. Just because everyone else does something one way, doesn’t automatically mean that you have to do it that way as well! So, would you like to know what Tom did to solve his “Long Pound” dilemma? Well, please read on.
Let’s look at a chart of the GBPAUD on a weekly time frame first:
The above example is a simple price chart of the currency pair in a consistent downtrend. From late 2008 until today, the Pound has been weakening against the Australian Dollar considerably. So, what does that mean for us as it is unlikely that we are going to be trading off a weekly chart alone, right? Well, maybe not. Tom noticed this weakness in the Pound and increasing strength in the Aussie and decided to take advantage of it. He had cash savings here in the UK sitting in the bank earning a very poor interest rate of just 0.5%. However, the rates in Australia have been around the 4.25% mark for some time now. Seeing this opportunity in holding Aussie Dollars for the dual benefit of both the increased rate of interest and the strength against the Pound, Tom decided to transfer a lump of his cash savings into Aussie Dollars after setting up an Australian bank account. He timed his transfer to this account using his understanding of Market Timing which he had learned in the Online Trading Academy classroom. Look to the chart below with some simple analysis applied:
Tom didn’t recognize this opportunity in 2010, but did make the most of it in the latter half of 2011. By applying his understanding of Supply and Demand levels which he used in his trading, he was also able to time the market to give him an ideal time to transfer his cash to the Australian bank account. Now, all he has to do is enjoy a higher percent yield on his cash in the new account and ride the trend lower if it continues. I have drawn in a trend line as an alternative means to trail price. Should the GBPAUD rise above the trend line, then this could be an ideal time to bring the cash back to the UK. Not only will Tom have benefitted from the better interest rate, but also would have gained extra pounds in the exchange as a result of the Aussie strength and all this from just thinking outside the box and not limiting himself to being “Pound Long.”
All I would recommend to you if you ever consider making these same kind of proactive wealth management decisions is to make sure that you don’t pay ridiculous tourist rates when you transfer your cash by asking your bank to wire the money at the Spot OTC rate. The examples below show the huge difference at the time of writing this piece in the GBPUSD:
I took the above shot from one currency exchange website at the same time as taking a shot of the live spot rates being quoted on another site. The difference we can see is around 500 pips! Remember that a solid education in trading and investing is not just for use if you want to be a full-time trader only. There are many other ways you can capitalize on those newfound skills if you are prepared to seek out the low risk object rewards on offer. I hope you found this interesting.
Until next time,
Sam Evans firstname.lastname@example.org