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Dollar Dilemma Part 2: Patience is a Virtue

Dollar Dilemma Part 2: Patience is a Virtue

2011-07-22 00:47:00
James B. Stanley,
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Dollar Dilemma Part 2: Patience is a Virtue

In our last article, we looked at the volatile US Dollar; and the prospect of placing a trade (or series of trades) that could potentially obviate some of that volatility.

The NZD/USD currency pair is in the process of making new All-Time Highs. In situations of continued US Dollar weakness, I want to go long on the NZD/USD, looking to take the pair to even newer and higher highs. In this trade, I would not only have the weak US Dollar assisting; I’d also have a strong ‘Kiwi,’ pushing price higher.

On the other hand, the Euro Zone is facing some very real financial concerns as numerous nation-states teeter on the point of default. On top of that – the EUR/USD Monthly chart presents a compelling picture to the trader, in which price has made a series of ‘lower lows, and lower highs.’

Dollar_Dilemma_2_body_Picture_1.png, Dollar Dilemma Part 2: Patience is a Virtue

EUR/USD Monthly Chart; Created with Marketscope/Trading Station 2

Given the fact that US Dollar strength can commonly be associated with the ‘risk-off,’ or ‘flight-to-quality,’ scenario – and also given the current financial situation in the Euro Zone, I would look to short the EUR/USD currency pair in the event of US Dollar strength (under the rationale that the news creating the ‘flight-to-quality,’ had also negatively affected the fragility of the economic situation in Europe).

Knowing that I want to go long on NZD/USD as it is making an All-Time High, or Short on EUR/USD given the propensity for negative news may seem simple enough; but how do we enter in these situations?

This is where the wonderful world of Oscillators can help us get in the trade.

My personal Oscillator of choice is the Commodity Channel Index, commonly called CCI. The Commodity Channel Index, as an oscillator like RSI or Stochastics, really just shows us whether a currency pair is ‘Overbought,’ or ‘Oversold.’

Traders looking for long positions will generally wait until the Oscillator signals the currency pair is ‘Oversold,’ and then look to enter when the Indicator moves from ‘Oversold,’ Territory.

For example – with CCI – a trader looking for long positions is waiting for CCI to climb UP and OVER -100.

Dollar_Dilemma_2_body_Picture_2.png, Dollar Dilemma Part 2: Patience is a Virtue

On the other hand, traders looking for sell positions would be awaiting the Oscillator to enter into ‘Overbought,’ territory before entering their shorts.

Dollar_Dilemma_2_body_Picture_3.png, Dollar Dilemma Part 2: Patience is a Virtue

Now that I know the currency pairs I want to trade, the direction I want to trade them, and even HOW I want to trade them – what’s next?

Well, this is one of the most difficult parts of a trader’s approach to teach. It’s something that is innately born in very few of us. Something we’ve been hearing about since most of us were children: Patience.

Lack of patience can cause traders to not only take bad trades, but it can also cause them to miss prime opportunities.

The way I’m going to approach EUR/USD and NZD/USD? I’m going to try my best to be patient. And when I get my CCI trigger entry into each, I am going to take them – and ensure that I’m able to get my minimum risk:reward ratio of 1:2 or greater.

If you’d like to be notified of upcoming articles, please email me at instructor@dailyfx.com, and in the subject line, type in ‘notification.’

This is just one of the many strategies that we talk about in the DailyFX+ Trading Room.

If you haven’t joined us in the DailyFX+ Trading room yet, please feel free to come by and see what we offer to all Live FXCM Clients. On top of the DailyFX+ Trading Course, we host live webinars 3-4 times per trading day in which we chart and diagram our trades, and student-traders can ask us questions in real-time about strategies, setups, or current market conditions. You can navigate directly to the DailyFX+ Trading Room from the link below:

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Thank you very much for your time, and Happy Trading!

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