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Am I missing something - Interest rate differentials...

Discussion in 'Forex Trading Systems and Strategies' started by Cesil, Mar 1, 2009.

  1. Cesil

    Cesil Private, 1st Class

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    Hello all,

    I've been trading very successfully for over a year now, & I've done alot of hunting around on the internet to find some kind of vindication of my trading strategy. I trade one pair, & I (almost without exeption) only trade it in favour of the interest rate differential. I know this is sounding like a carry trade, but its not, not quite...

    By trading in favour of the interest rates (only where the pair has a differential historically always in favour of one direction), & only one pair, I can calculate exactly where my stop loss is & keep this outside of the long term range, effectively giving me 0 risk unless things go really, really spectacularly t*ts-up (ie a nuclear war or similar apocolyptic event!!).

    By doing this there is no such thing as a losing trade. If you hang onto it long enough it'll come good, & if you have enough margin to keep trading when sitting on a couple of dodgy positions, the money keeps coming in. I combine this with 3 different timeframes of trading as well, making consistent money day trading (usually 2-3 trades per day of 50-100 pips), sporadic larger returns on swing/weekly trades (1-2 per week of 3-400 pips) & finally, long term monthly/quarterly moves (roughly one every 4-5 months, approx 10-15,000 pips).

    Am I the only one that does this? I've not found anything written anywhere about a similar strategy that doesnt bang on about focussing on the carry side of it. This has produced around 420% ROI for me over the last 12 months & my account utilization rarely goes over 15-20%. It seems so simple, am I missing something? :err:
     
  2. pinguino

    pinguino Recruit

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    Hello,

    when you are talking about Interest rate differential, are you talking about International Interest Rate Parity, countries with higher nominal interest rates should deprecciate and other way around.............................????

    cheers,
     
  3. Cesil

    Cesil Private, 1st Class

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    Correct - same principle as a carry trade but actually actively trading it over multiple timeframes rather than just sitting on a trade. If it moves out of range - wait & it comes back around, & if it doesn't then it gradually improves. I read somewhere that over 70% of trades placed by successful traders are losers but the other 30% make up for this & provide the profit.

    I just don't get why you'd put yourself thru that if you're prepared to be patient at least you're protecting your margin after a (in somecases very long winded) fashion, you'll get it all back eventually if you can hold the trade open. Works for me anyway...
     
  4. pinguino

    pinguino Recruit

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    Hi again,

    How would you calculate the Interest Rate differencial either Nominal or Real, or whichever you're using in order to set up your stop/loss??, no pretty sure about your explanation.
    I've just readed another or your quotes about scalpers, are you happy with Saxo?

    Regards
     
  5. Cesil

    Cesil Private, 1st Class

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    The bank lists what the rates are, but as a general rule the cost to borrow is 0.75% above the primary currencies' country's OCR/base rate, whilest the interest earned going the other way is 0.25% above. Hence when I say, short GBP/NZD, I gain about 2-3pips per day based on the two OCR's of approx 0.5% (GBP) & 3% (NZD).

    I'm quite happy with Saxo, never had any problems with them at all. & no I don't work for them as someone else implied. Their liquid club is very good as well.
     
  6. pinguino

    pinguino Recruit

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    Hi Cesil again,

    I will keep an eye to check if it works in the long-run time, let you know what my impressions meanwhile.
     
  7. yiehom

    yiehom Private

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    Carry or not?

    I thouht this is carry trade? please explain to this student of yours why it is not.
    Thanks
     
  8. Albert.b

    Albert.b Sergeant

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    Take a Look Above!

    Hi Cesil,

    Have you seen my 'How to Increase an EA's Profit', a few posts above/below this one?

    On long drawdown trades, it can bring you lots of extra profit!

    All best wishes for your future trading.
     
    #8 Albert.b, Feb 10, 2011
    Last edited: Feb 10, 2011

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