Hi All Been a while since my last post - but it has been for...

Hi All

Been a while since my last post - but it has been for good reason. I have been analyzing brokers in the last few weeks. As a result, it has significantly changed my strategy - and the bottom line.

You may recall that I had absorbed a 250 pip loss. 100 pip losses were from EURCAD. In hindsight though, If i had held it long enough, I would've been well into the green. In short, volatility is whipping me out of the trade. I had held the right pair, but the trouble with my trading strategy at this point in time is that losses build up to unsustainable levels. Certainly, I can be in a position that could be well lot more than the accepted risk I wanted to take initially.

Since volatility was an issue, I was then looking into a trading instrument that had the following characteristics:
* Forex - trends take a long time to break
* Limited losses - ruled out margin-based instruments
* Unlimited gains

Those characteristics lead me to FX Options. I have discussed this in the past. However, one thing I did not mention is that volatility is absorbed much better in FX Options than Spot FX. For instance, in the extreme case that the currency loses 20% in a day (here's a real live example you can dance to), a guaranteed stop *may* get you out (you're at the mercy at your broker). In the case of an FX option, you'll only lose your premium. The interesting thing with FX Options is that if the price then bounces back to where it left off, you've practically lost nothing, as opposed to be in the negative with Spot FX.

Sounds good? There's a catch - In order to profit - you'll not only need to guess the trend correctly, but you need to make sure that the price you believe the currency will reach (strike price) will be achieved when you close your position (either at expiry or manual close). Of course, you will be awarded according to the risk you take.

How has this played out practically in the last couple of weeks? Well, it's worked out well actually.

I have been trading a demo account with Saxobank and the results have been good. The problem is though is that Saxobank doesn't give me a dump of my trades from end-to-end in the demo account. It also doesn't show my P/L in AUD either. This makes it very difficult to track how I'm progressing.

Here's the best I can do with the data:

Here's the running balance of my trades in % figures.

So, at the end of one week, my demo account appreciated 10 times (10 bagger) my average position size, which was about $1000 AUD. The chart lines up with my demo account balance (started with $100K):

Most of the gains were due to a spike in USDZAR that netted me $7K. I'm still in one open position (USDZAR).

What's next from here? Just tweaking my strategy to make sure I consistently hit strike prices with good payouts (aiming for 1:1 risk:reward). Stay tuned.