I have a strategy for Swing Trading in USD INR. Expert Please guide whether this is good or not?
Suppose i have 2 Lakh Rupees for Trading.
Initially I buy 10 Lots of USDINR ( of 3 months away contract) at a price equal to yesterday Low. If today this price does not hit, buy order not executed. Tomorrow again i will out order at a price of today Low.
The day my buy order gets executed, Now i will have 10 Lots in my position. Now i will put a target of 25 paise.
If my target hits, Its Good.
If USD INR goes downward, I will put another buy order of 20 Qty at 25 paise less than previous buy. In this way, my average will come down. Again i wil put sell order at 25paise higher than my average buy price.If my target hits, Its Good.
If it again goes down, i will put put another buy order of 40 Qty at 25-30 paise less than previous buy. ( If it is a strong downtrend buy order can be put 50 paise down) In this way, my average will come down. Again i wil put sell order at 25paise higher than my average buy price.
In 3 or 4 buy, 25 paise movement will definitely come.
Now experts, please share your views. What are risks and rewards?
No one is expert here…See, currency is not a stock like Unilever or Tcs to average down…Stocks depends on business process but currency is different… Any change in Dollar index, Crude price, India’s trade data, Rbi related data, domestic and foreign monetary policies…each of these can hit currency hard…Currency futures are very high leveraged…Any data all of sudden can cause hugee moves and can wipe out entire capital and even margin calls if over leveraged.Its too risky… if you want to trade currency, just know what affects it such and develop rationale and try to use strict stoploss. Good luck
Whatever your plan, one fine day it wont. You need infinite capital for averaging or some defined stop. There is always some risk, no free lunch. These kind of ‘strategies’ are likely to blow up.
With proper risk management, above might only work if USDINR has some clear cut mean reversion in its behaviour. To check you need to backtest it. There is friction through transaction costs including slippages and you need to simulate that too. You can also test different things to see what works instead of clinging to original concept.
Start small and verify edge for decent period and number of trades before committing large capital. Most people blow their capital quickly. Markets are competitive.