Managing FX Trades, Part 2

When I wrote yesterday’s
article regarding how to manage open positions
, I had done so based
on an extension of some reading I am doing currently.  Little did I know that
my/our existing open positions would perform in such a manner in the following
24 hours so as to allow for a real-time analysis of yesterday’s theme.

As we all know, the dollar index gapped higher on
Monday afternoon after the holiday weekend.  The data that was released was also
dollar positive, but the gains, after the gap opening, were somewhat
disappointing.  Nonetheless, the DXC closed above 83.20, a level we still view
as key support.

Overnight however, the dollar got whacked.  It
quickly sold off to 83, just a below the close on Friday at 83.06.  I had
suspected (in emails sent to my

FX Service
that the index may simply need to fill that gap before
deciding where it would go from there. 

It appears this proved correct.  Nonetheless,
when I rolled out of bed very early this morning, I was a bit disappointed to
say the least.  Nearly all the gains realized since opening some “long” dollar
positions last week were gone and then some.  Mentally, that is tough to deal
with, however, the FX market, at least in the way I approach it, is not an arena
where you let that stuff throw you off course.  I simply chalked the move up to
a fill the gap situation.  Additionally, economic numbers released at 5:30 AM
were dollar positive.  The dollar has since made a fantastic comeback, now
trading just under 83.40 (another key level).

The bottom line, despite being rattled this
morning nothing had really changed in terms of the analysis I had done to choose
these trades.  My stop losses are in place for a reason, and while they may be
altered going forward, a sell-off, which evaporates some unrealized profits is
not a reason to throw in the towel.  Many traders might have tempted to close
dollar longs today, if they did, they have got spun around and “realized” their
losses.  Granted, anything could have happened, the dollar could easily have
continued lower, luckily is has not. 

In summary, my views and rationale for the trades
were tangible and made sense, and they still make sense now.  This is why I
simply do not issue trading recommendations without a healthy dose of discussion
as to my reasons for taking the trade, this seems to resonate with traders who
view such services. So despite a minor set-back last night, the outlook still
seems to be dollar favorable. 

As always, feel free to send me your comments and
questions.

Dave