TheStackableCarryTrade

Introduction:

TheCarryTradeisarelativelypopularstrategyamongForextraders.Theconceptistopair
highyieldinginterestcurrenciesagainstlowinterestcurrenciesinordertoearnthedifference
byholdingthecurrencyovernight(mostBrokersdeposittheinterestatNYSessionclosearound
5pmET).

Forinstance,holdingalongAUD/USD(withastandardlot)canearnyouabout6USDeachday
thatyouholdthetrade.ThatmeansifyoutakeanAUD/USDlongtradewitha100piptargeton
afulllotandthepairtakesaweektogetthere,youwillearnanextra30+dollarssimplyfor
holdingtheAUDduringthatperiod.

Peopleoftenlookatthisasfreemoneyoreasymoneybutthefactofthematteris,holding
tradesopenhassignificantrisk,soit'sfarfromeasymoney.Thatsaid,itisanaspectoftrading
Forexthancangiveyouanedgeandisworthtakingadvantageof.

That'swhyIvedevelopedTheStackableCarryTradeanditsoneofmyabsolutefavoriteways
toextractmoneyfromthecurrencymarketIFyourepatientenoughtoutilizeitcorrectly.

Thegoalofthisstrategyistofindgreattradingopportunitiescombinedwithinterestearning
opportunities.Thisstrategycombinestwoofmyfavoritetricksandgivesanytraderasimple
waytotakeadvantageofthecarrytradeprinciple.

ThisdocumentwilloutlinethesimpleFourStepprocesstoexecutingtheStackableCarryTrade.

BeforeIbeginwithstep1,letmetouchonthebasicsoftheStackableCarryTrade:

Ofcourse,anytypeofcarrytradereferstotakingadvantageofinterestrateswithinthemarket,
andthestackablecarrytradeisnodifferent.Oneofthekeyelementstothistypeoftradingwill
befindinghighinterestratepairsthatpayyousimplyforholdingontothetrademakingyour
winningtradeslargerandyourlossessmaller.


Thestackableaspectreferstostackingpositionsandsimplymeansthattheplanentailsusing
morethanonepositionifneeded.Akeycomponenttothisstrategyisthewillingnesstoputmore
thanonepositiononthetradeandtheskillstoknowwheretoplaceadditionalpositions.

Anothercomponenttothisapproachisthatitislongertermbynature.Theconceptofthecarry
tradeistoearninteresteachdaythatyouholdtheposition,soitmakessensethatthestrategy
wouldhaveatendencytoholdpositionsforasignificantperiodoftimeanywherefromseveral
daystoseveralweeksandsometimesevenseveralmonths.

Thisisanimportantconceptbecauseifyoudoholdapositionforasubstantialperiodoftime,it
meansthatthecurrencypairhasnotmovedinonedirectionlongenoughtohityourtakeprofitor
yourstoploss.Inotherwords,thecurrencypairhasn'thadmuchnetmovementandislikely
somewherenearyourinitialentry.It'snotuncommonforthemarkettogoweeksandsometimes
months,yetendupfloatingrightbacktothesameprice.Inacarrytrade,youcanmake
hundredsandeventhousandsofdollarswhilethemarketdoesn'tmovemuchatall,sothis
tendencyforthemarkettofloatduringslowtimesisahugeadvantage.

Step1:

FindaDaily/WeeklyTrendonanInterestearningPair

Thisstrategyisbuiltonutilizingthetrend.Thepowerofthetrendincombinationwiththepower
ofinterestistheonetwopunchthatwilldeliverconsistentandreliableprofitswiththeStackable
CarryTrade.

Now,trendsaregreatontheirown

But,remember,wemustfindgoodtrendsonhighinterestbearingcurrencypairs.Itsthis
combinationthatmakesupthefoundationoftheStackableCarryTrade.

Welldiscusshowtodefinethetrendinjustafewmoments,butbeforewedothat,letsmake
sureyouknowwhichcurrencypairsareacceptabletousethisstrategyon.

Herearethe12pairstoscanforstrongtrends:

Pair

Direction

AUD/CHF

LONG

NZD/CHF

LONG

AUD/USD

LONG

NZD/USD

LONG

AUD/JPY

LONG

NZD/JPY

LONG

AUD/CAD

LONG

NZD/CAD

LONG

EUR/NZD

SHORT

GBP/NZD

SHORT

EUR/AUD

SHORT

GBP/AUD

SHORT


Therearemanywaystodefineatrend,butIprefercommonsenseandusingyoureyes.

IfthechartlookslikethisonaDailyTimeFrame,itisadowntrend:

Then,youjustscootonovertotheweeklytomakesurethatthisdowntrendisn'tjustapullback
butisreallymovingwithmomentum.Agoodmeasurefortheweeklychartistomakesureitis
belowthe20and40SMAforadowntrendandabovethe20and40SMAforanuptrend.


Here,weareclearlywellbelowtheaveragesandmovingwithmomentumsoweknowthistrend
isforreal.

Oncewedetectatrendononeofourkeyinterestearningpairs,wecanmoveontostep2inthe
process.

Step2:

IdentifyPullback

Apullbackissimplyasmall,countertrendmove,andtherearetworeasonswewaitfora
pullbackbeforetakingatrendcontinuationtypeofentry:

1. Wesimplywanttogetabetterprice.Buyingatthebottomofadowntrendortopofan
uptrendgivesyoutheworstpriceinrecenthistory,andwedonotwanttooverpayforour
trade.

2. Wedon'twanttoBuyorSellwhenthemarketisdueforapullback.Ifwedon'twaitfora
pullback,it'slikelythatoneiscomingsoon.Thelastthingwewanttodoissellandthen
havethemarketbeginapullbackagainstourposition.

Whatdoesapullbacklooklike?

Pullbackscomeinalldifferentshapesandsizes,buttheideaissimple:theyarecountertrend
movements.

ThedifficultywithBuying/Sellingonapullbackisthatyouhavenocluehowdeepthepullback
willgo.Somepullbacksare50pipsandsomeare500pips.That'swhytheStackableCarry
Tradedoesn'trequireyoutohaveperfecttiming.

Wedon'tneedtoknowexactlywhenthepullbackisgoingtoreversebackintothedirectionof
thetrend,wejustneedittogoatleast30%againstthemostrecentlegofthetrendsoweare
gettingasignificantdiscountontheprice.

ByusingaFibonaccitool,wecaneasilyseewhenthemarketisata30%retraement.Allyou
needtodoisaddittoyourFibsettings:

Now,withthe0.30leveladded,wecaneasilyseewhenacountertrendmovereachesthe30%
level.

IfyouwanttomakethisREALLYsimpletoidentify,youcandeletetheotherFibolevelsand
simplyshowyour30%area.Thatway,youhaveaclearsystemforwhenatradeisenteringthe
StackableCarrySETUPArea(Isaysetup,becauseweareNOTreadytopullthetriggerthisis
onlystep2).

HeresanexampleofhowtodrawaFibonaccilinewitha.30level:

Assoonaspricecrossesthat30level(highlightedinorange)youknowthatweareenteringa
setupzonefortheStackableCarryTrade.


Oncewequalifyforatradebyhittingthe30%retracementzone,wecanmoveontoStep3.

Step3:

IdentifymajorSupportorResistance

Step3ispossiblythemostcriticalelementtotradingtheStackableCarryTradeeffectively.

ThemaingoalhereistofindaSupportorResistancelevelthathasalotofauthorityandislikely
toholdprice.Tofindthis,youcanutilizehistoricpriceaction,Fibonaccilevels,Whole
number/psychologicalnumbers,pivotpoints,etc.

OurrecommendationisthatyouuseacombinationoftheseS/Ridentifierstofindalevelthathas
confluenceamongmultiplelevels/zones:

Above,youcanseethatifthepairweretocontinueupward,itwouldrunintoseverallevelsand
theMAJORlevelisat84.000whichisagreatwholenumber.Inaddition,wehavesomehistoric
priceactionandthe50FibLevel.

ThisSupport/Resistancezonerepresentsthefinalpointatwhichyouwouldaddapositiontothe
trade.Inotherwords,youaretryingtofindanareaofthemarketthatisalowprobabilitythatthe
pricewillgettobeforeheadinginyourdirection.Itisaboveorbelowthiskeyarea(becauseyou
believeitisunlikelypricewillgethere)thatyourstoplosswilleventuallybeplaced.

Findingthisareainthemarketgivesyoutwothings:TimeandSpace.

Time
iscriticalbecauseitallowsyoutoearnthatpositiveinterestthatwearegoingfor.Ifyou
findacriticalareainthemarketthatpriceisnotlikelytogopast,thenyoucanholdthetradefor
days,weeks,andmonthsearninginterestthewholetimeevenifthetradeisnotcooperatingwith
yourdirection.

Inotherwords,evenifthetradejustfloatsaroundbreakevenforalongperiodoftime,orworse,
putsyouintoadrawdown,itisstillworthwhiletoholdontothepositionbecauseitwillbemaking
youmoneyonadailybasis.Andmanytimes,withpatience,itwilleventuallycontinueinthe
directionofthetrendandpayyouoffinbothinterestANDprofitablepips.

Space
isalsocritical.Itisspacethatallowsyoutostackpositionsinthedirectionofthetrend.

KeepinmindthatwhenIusethetermstackIdonotmeanrashlyorfrivolouslyaddingtoa
positionwithouttakingintoaccounttheriskofdoingso.Instep4,we'lllearnthatplanningthe
positionsoutisessentialtotradingthisstrategyprofitably.

Step4:

ExecutetradeandSetupPendingPositions

Onceyouhaveidentifiedatrend,dialedinonapullbackwithinthattrendandfoundakeylevel
ofSupportorResistancethatisrelativelydistantfromcurrentprice,youarereadytoexecutethe
StackableCarryTrade.

NotonlydoyouneedtoenteraMarketOrderanddeterminetherisk,butyoualsoneedtoknow
howmanypositionsyouwillstackonthetradeandexactlywherethosepositionswillbesothat
youcancalculatethetotalriskoneachindividualpositionandthetradeasawhole.

Forinstance,iftheMajorLevelofS/Ris400pipsaway,yourstoplossshouldbeabout450pips.

Assumingthetotalamountofpositionsis3(recommended)andthefirstpositionisatcurrent
priceandthelastpositionisattheS/Rlevel(again,recommended),you'lljustneedtodetermine
nd
wherethe2
positionwillbeadded.Forthis,werecommendanotherlevelofS/Rorwhole
number.

nd
Forthisexample,let'sassumethatthe2
positionwillbeabout200pipsfromcurrentprice.

Now,youknowhowfareachpositionisfromtheStopLoss(sinceallofthestoplosseswillbe
thesame50pipsbehindthemajorS/Rlevel)andyoucancalculatetherightpositionsizefor
yourrisk.

Forthestackablecarrytrade,werecommendriskingabout20%ofyouraccount.Thereasonfor
alargerriskistoaccommodatealargeenoughpositionsizetomaketheinterestworthwhile
(sincetheamountofinterestisdirectlyrelatedtothetradesize)andbecauseitisalongterm
tradethatisVERYunlikelytocausea20%lossinashortperiodoftime.

Plus,theinterestthatyouearnalongthewaywillhelpmitigatethe20%lossevenifpricedoes
eventuallyhityourstoploss.

Assuminga7,500USDaccount,weknowthatweneedtodividethethreepositionsintoatotal
of$1,500USD.

**Importantnote:
Wewanteachtradetohavethesamepositionsize!Somepeoplesuggestthe
initialpositionshouldbesmallandgetbigger(akaamartingale)butthisissillyYouwantthe
firstpositiontobetheONLYpositioninabestcasescenario,whichmeansitmustbebigenough
toearninterest.Makingitatinypositionissimplyawastedtrade.

OK,soletscalculateour$1,500riskwith3positionsandaninitialstoplossof450pips:

Inthiscase,eachpositionat.2(2MiniLots)givesusatotalof$1,500becausetheTOTALpips
weareriskacrossall3positionsis750and2minilotsis$2perpiponstandardpairs.

Thefirstpositionhasa450pipstoploss,sowemultiply450x2=$900risk
Thesecondpositionhasa250pipstoplosssowemultiply250x2=$500risk
Thefinalpositionhasa50pipstoplosssowecanmultiple50x2=$100risk


Onceyouhavethepositionsplannedout,youcanexecutetheinitialpositionandsetyour
pendingordersfortheothertwopositions.

Onceyouenteryourmarketorderandsetupyour2pendingorders,theStackableCarryTrade
hasofficiallybeenimplemented!

Now,youwillhavetowaitandbeextremelypatientwhilethetradedevelops.Theworstthing
youcandowiththetradeiscutaloserearlythatcouldhavepotentiallyturnedarounddownthe
roadPLUSearnedyouinterestinthemeantime.

YoumayhavenoticedthatIdidntreallymentionatargetinthisreport.Andthetruthis,thatis
becausetheTargetisnotallthatimportant.Typically,Itargetafewpipsabovethelowofthe
daily/weeklytrendbutyoucanalsosimplyholdontothetradeformuch,muchmoreprofitthan
that.

Sometimes,aStackableCarryTradeactuallyturnsintoaHomeRunTrendtradebecauseofthe
powerofagoodtrendjustanotheradvantagetooneofmyfavoritestrategies.

Ihopethisreportwasextremelybeneficial,actionableandhelpfultoyou.Ifyouhaveany
questionsorfeedback,Iamavailableat
JCrawford@learntotradeforprofit.com
feelfreetosend
meanemailanytime.

Goodluckinyourtradingendeavorsandpursuitofprofits!