Top 3 Traders Exhibit Very Different Trading Styles

For the sixth consecutive day, we have the same contestant on top as this trader ended Monday with a currency portfolio balance of $274,425.27. He is still holding on to the same long USD/JPY position from last Wednesday, as he got in near 107.00. However, USD/JPY has done little but consolidated between 107.65 – 108.35, similar to the consolidation of the DJIA between 12,076 – 12,300. Indeed, we tend to see that the Japanese yen crosses have a strong correlation with US equity indexes, as they both tend to gain at times that the markets exhibit risk-seeking behavior and usually decline when risk aversion returns. Nevertheless, contestant number 1 is ahead by a comfortable margin, so he certainly has the option of leisurely holding on to a profitable position and waiting for a larger move.

Contestant number 2, who ended Monday with a portfolio balance of $210,425.32, is the polar opposite of contestant number 1 when it comes to trading styles. This contestant shows a clear preference for EUR/USD, which is the most popular pair to play amongst traders in the currency portion of the contest. The unusual thing about contestant number 2 is the sheer number of trades he executes. During Monday’s trading session, he entered 61 different EUR/USD positions and held them for approximately 1-5 minutes. This method is known as scalping, as he takes small profits of 2-8 pips at time. Just looking at his trading from Monday as a sample, his trades were in the money almost 70% of the time. However, contestant number 2 must be feeling a little tired: looking at his trading up until the time of writing, he has traded a total of 111 times since Monday’s close as he executed positions every few minutes all day yesterday, last night, and throughout the early morning. As contestant number 2 has shown, taking small profits on multiple positions can get you ahead in the game, but can also be extremely time consuming.

Meanwhile, contestant number 3 trades at a much more measured pace, but still finished in the top 3 with a currency portfolio balance of $203,889.39. His most recent gains were on the back of a long USD/CHF position that he held yesterday morning, as the pair recovered from a test of 1.04. Currently, he is holding a long GBP/CHF position that he entered this morning. He is likely looking for a recovery in the British pound in general, as the currency plummeted across the majors following the release of UK inflation data at 4:30 EDT.

At first glance, the move was somewhat surprising as the annual rate of UK CPI growth rocketed to a nearly 16-year high of 3.3%, prompting Bank of England Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how inflation had gotten so out of control, and how the Bank plans on bringing CPI back down to the 2.0% target. When we see indications of strong consumer price growth, the news is usually bullish for the nation’s currency as it raises the risks that the country’s central bank will increase interest rates in order to maintain price stability. However, it was the very letter than Mr. King penned that hammered the British pound lower, as he indicated that the Bank of England’s attempts to quell inflation growth would be over the course of two years, rather than one. Furthermore, Mr. King said that the “path of Bank Rate that will be necessary to meet the 2% target is uncertain,” killing any hopes in the markets that rate hikes by the Bank of England were a sure thing. Indeed, the Bank of England has a dual mandate to maintain both price stability and economic growth. With the UK economy already slowing markedly, the Bank is worried that rate increases will push the country into recession. As a result, they are likely to leave rates steady throughout the year, as the Bank hopes that the UK economic slowdown will help to drive down domestic price growth.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst of DailyFX.com