Consistency and Patience Leads to Big Gains

Kathy Lien|Chief Strategist, DailyFX.com
Friday, 23 May 2008 | 11:42 AM ET

It's the second official day of trading for the currency portion of the contest and the patience of our traders are finally paying off. Yesterday all our three leading contestants banked their gains in the British pound and interestingly enough, the pound is also the currency of choice for our three new leaders.

Contestant number 1 ended yesterday with a portfolio value of $133,046.34. She has been particularly active in the currency market having made more than 10 different trades in three different currencies. She is fairly consistent with her bias on a day to day basis. On Wednesday, she was short dollars against the Euro, Swiss Franc, Japanese Yen and on Thursday, she went long dollars across the board.

Based upon our observations, the key to her success is being patient and holding onto her positions. The longer she kept the position open, the larger her profits. More specifically, most of trades that she held for less than 20 minutes tended to be losers. On the other hand, she held GBP/JPY overnight, which allowed her to capitalize on the big move in the currency pair that came from the UK retail sales report. Her second biggest winners were her positions in USD/CHF and the EUR/USD, both of which she held for four to five hours.

We frequently consider GBP/JPY the Google of the currency market because of its sharp intraday volatility. To trade this currency pair properly, patience is very important because if you focused on wild swings of the currency pair on a minute-to-minute basis, you may be whipsawed out even though it may eventually move in your direction. GBP/JPY was a great popular currency pair to trade yesterday because the tight consolidation, which is very uncharacteristic of this currency pair, finally broke on the better than expected UK retail sales report.

The majority of the profits made by contestant number 2 were also in GBP/JPY. The second highest portfolio value in the currency portion of the contest as of 5/22/08 was $128,519. Unlike contestant number 1, contestant number 2 focused on only one currency pair yesterday and added to the winning position. Patience once again proved to be the key to profits. This trader initiated the GBP/JPY position after the release of the FOMC minutes on Wednesday and was still holding onto the position last night.

The same can be said for our third leading contestant who also traded GBP/JPY. The only difference is that contestant number 3 doesn't get much sleep. He woke up at 3:40 a.m. in the morning to place add to his GBP/JPY position less than an hour before the UK retail sales report. With the currency pair already trending higher at that time, he was probably hoping that the data would trigger a sharp breakout -- and it did.

Congratulations to our top three traders! Being patient, consistent and combining technical analysis with fundamental analysis are very good trading habits.

With just over eight weeks left in the contest, there's plenty of time for other contestants to take the lead -- best of luck!

Kathy Lien, Chief Strategist, Forex Capital Markets LLC

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