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.I have no objection to feeling satisfaction, but there is nowisdom in such an event.You never know nor can you predict where the market will go next,and you should never forget this. ccc_beat_095-096_ch10.qxd 6/8/06 2:39 PM Page 95CHAPTER 10Choosinga Currency Pairto Tradehen making a choice of a currency pair for a trade, no other rea-sons except the practical ones should be taken into considera-Wtion.It always surprises me when I see that some traders choose acurrency pair for making a speculative trade, based on patriotic or geo-graphical reasons.I have noticed that many traders from Australia, for ex-ample, basically trade an AUD against USD or NZD.New Zealanders,Canadians, Frenchmen and traders from many other countries frequentlyprefer to trade their national currencies also.They trade it against theAmerican dollar, or against other national currencies of neighboring coun-tries of the given geographical region.It seems to me, however, that ourbasic purpose of participation in this business is not to certify our patri-otic feelings and pride but to receive the greatest possible profit.From thepoint of view of a speculative trader, the patriotically geographical ap-proach to a choice of currency pairs for speculative operations on FOREXcannot be considered rational and justified.The choice of a currency pairfor the following speculative transaction should be done according to cer-tain parameters, and patriotism and residence are not among them.The basic criteria for a choice of currency pairs should be their liquid-ity, activity, and average amplitude of fluctuations (trading range).Thehigher all these parameters, the more preferable such currency pairs arefrom a speculative trader s point of view.The list of currency pairs mostsuitable to such a definition, first of all, includes the following: USD/CHF,USD/JPY, EUR/USD, EUR/JPY, GBP/EUR, GBP/JPY, and CHF/JPY.Youmay be surprised that I have not included in this group Cable (GBP/USD).The reason is that this currency pair has almost ideal liquidity as well as95 ccc_beat_095-096_ch10.qxd 6/8/06 2:39 PM Page 9696 THE IGROK METHODall other majors, but the average day amplitude of Cable fluctuations islower than would be desirable.Also, the small cost of a GBP/USD pip is,from my point of view, better for an intermediate term positional tradethan for short-term intraday speculations.(I sometimes trade it, but notvery often.)The most important and final criterion when making a choice of a cur-rency for short-term speculative trade should be maximum conformity ofa current technical picture, and how it fits to a trading technique and/or toa trading system that you are going to use.Because in this book we talkparticularly about my trading technique, just the maximum conformity ofthe chart to one of the templates used by me becomes a determining fac-tor for a choice of a particular currency for a particular trade.It is espe-cially important if, in the given moment, the market is in immediateproximity to some key technical level.I accept diversification and, from my point of view, it is possible andnecessary to trade various currency pairs.However, my personal practiceshows that having simultaneous positions on various currency pairs dis-seminates a trader s attention.It s rather difficult to follow all the currencypairs at the same time.Therefore, I simultaneously hold open positions onno more than two or (very seldom) three currency pairs.In some cases(for example, trading USD/CHF and EUR/USD), I frequently use substitu-tion.By substitution I mean analyzing one of them, but (on the basis ofthis analysis) trading the other one.The Swiss franc basically doesn t have its own brightly expressedidentity in the marketplace.On a large scale, it is not more than a proxy inrelation to Euro.At the same time, it has high activity, large amplitude offluctuations, and perfect liquidity.These characteristics allow USD/CHFto be one of the most attractive currency pairs for speculative trade. ccc_beat_097-102_ch11.qxd 6/8/06 2:39 PM Page 97CHAPTER 11MoneyManagementRules andTechniquesoney management is a major component of speculative trade.None of the traders can be successful and none of the trade sys-Mtems can exist without it.The basic predestination of money man-agement is to preserve and to protect a trading account against possibleexcessive losses.Money management s purpose is to control the risk and distributionof investment capital so that one loss or even a series of consecutivelosses should not result in the inability to continue a trade, and would notdestroy a trading account by bringing it to an unmanageable condition.Ina more comprehensive sense, money management also means a techniqueof preserving current profit in an open position and a technique of fixingcurrent profit.Plenty of literature is devoted to money management, in which authorswith a large amount of practical experience in trading mainly share theirthoughts and recommendations about the best approach to manage capital.Their recommendations in general deserve attention but, unfortunately,numerous publications on this subject agree on only one thing: money man-agement is absolutely necessary for a trader, because it is impossible to ex-pect any success without it.However, when it comes to practical advice andrecommendation, we see a large variety of opinions sometimes directlycontradicting one another.Therefore, it is difficult to understand these con-tradictions when reading the works of different authors.It is almost impossible to choose only one correct approach to corre-spond to a trader s individual situation, his trade system, the current marketcondition, and a concrete currency pair.Most important of all, however, is97 ccc_beat_097-102_ch11
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