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Long-Term and Carry Trading: Foreign Exchange Market

Foreign Exchange Market Carry Trading

There are a lot of different ways that you can trade on the foreign exchange market.  Two of these ways is through long-term trend trading and through carry trading.  These are two very different ways of trading and you need to understand how they both work.  You should also consider how you can combine them to make the most out of the foreign exchange market.

Long-Term Trend Trading

As the name would suggest long-term trend trading is a trade that is opened to take advantage of a long-term trade.  This kind of trading is generally done fundamentally with the trade being opened after the release of a high impact forex event.  To make a profit with this kind of trading you will need to get into the trend as soon as possible.  You will then hold onto the trade for a prolonged period of time until the trend starts to lose momentum.

Long-term trend trading generally does not use technical analysis to determine the entry and exit points.  You will often use technical analysis only to determine whether or not you should still have to trade open.  You should use a momentum indicator to help with this as it will tell you how much momentum the trend still has.

Carry Trading on the Foreign Exchange Market

Another way that you can trade on the forex market is through carry trading.  With this kind of trading you will not actually look at the movements in the market.  You will open a trade based on the interest rates of the different currencies.  The currency pair that you need to use will have one currency with a high interest rate and another with a low interest rate.  The bigger the difference between the interest rate’s the better for your trade.

When you open the trade you need to be holding the high interest rate currency and selling the low interest rate currency.  You have to do hold this trade overnight to ensure that you get the rollover credits which make this trading profitable.

Combining Long-Term Trend and Carry Trading

There are a lot of traders who look at combining carry and long-term trend trading.  When you do this you increase the profits that you can make because you are looking at two income streams.  You are going to make a profit from the rollover credits and from the movements in the market.

When you combine these two types of trading you will need to find the carry trading pair.  One of the best pairs to use will be the AUD/JPY pair as they offer a large difference in interest rates.  Once you have the currency pair for the carry trade you need to determine whether or not there is a trend in the market.  If there is no long-term trend then you should consider a different carry pair.

To make this combined trading work you have to trade so that you are holding the high interest rate currency.  You have to ensure that this will also put you in line with the trend that you are going to be trading one.  Once you have to trade open you should continue to trade as you normally would with a long-term trend trade.

 

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