Trade of Record Low Volatility by Hedging

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EURUSD - Trade of Record Low Volatility by Hedging
Wednesday, 06 June 2007 19:53:51 GMT
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Previous Articles

* Jun 06 - EURUSD - Trade of Record Low Volatility by Hedging
* Jun 06 - EUR/USD - Ready to Rally Through 1.3680
* Jun 05 - Euro and ECB Rate Outlook Hinge on Trichet's Commentary
* Jun 05 - Chinese Stock Markets Collapse: Watch out for Moves in the Dow, Carry and Chinese Yuan
* Jun 04 - Dollar - Going Nowhere Fast?
* Jun 01 - USD/CHF - The Pair to Short-Term Range Trade
* Jun 01 - EUR/GBP - Hedging Strategy of the Week
* Jun 01 - We Answered Your Questions!
* May 31 - Trade Friday's NFP Report With The EURUSD
* May 31 - USDCAD - Sentiment Index Calls for More CAD Strength. Is Parity Possible?
* May 30 - Chinese Stock Markets Collapse, Dow Moves Limited: Chances for a Yuan Free Float Increases
* May 30 - Has USD/CAD Reached A Bottom?
* May 29 - Euro Strength Will Hinge On Whether The ECB Signals More Hikes Next Week
* May 29 - DailyFX Dynamic Carry Trade Basket: Gains in NZD, AUD and GBP positions offset by losses in CHF and HKD
* May 28 - Dollar Grinds Higher- Does it Have More Left?
* May 25 - AUD/NZD - The Pair to Short-Term Range Trade
* May 24 - EURUSD Retail Traders Have Been Short Euros For the Past Seven Months
* May 23 - AUD/USD - Continuing Lower Towards .8130
* May 23 - EUR/USD - Hedging Strategy For 100 pips in Potential Profit
* May 22 - China Invests In Blackstone Group - Is It Only The Beginning?

Written by Antonio Sousa, Currency Analyst

§ Currency Pair: EUR/USD

§ Entry Zone: Go both long and short at the market if the price is at any level within the 1.3450-1.3550 range

§ Protective Stop: Long stop below 1.3390 and short stop above 1.3610

§ Profit Target: Long Target at 1.3550 and Short Target at 1.3450

§ Profit Potential: 100 pips (excluding transaction costs and slippage)



The most effective way to capitalize on currencies pairs that are trapped in tight ranges is through the use of hedging. The hedging feature is currently available on all accounts using FXCM’s No Dealing Desk service. For more information on FXCM hedging strategies please visit http://www.fxcm.com/hedging.jsp

hedging_June6



The EUR/USD is our primary target for hedging in the week ahead, with clear range-bound trade and concrete support and resistance levels. To hedge, go both long and short at the market if price stays within the above Hedging Zone. Take profits at R1 for longs and at S1 for shorts, covering losses above R2 or below S2.

More Low Risk Hedging Opportunities - Currencies that are Ranging

Currency


% ATR Rank


Stop for Long


Hedging Zone


Stop for Short


Profit Range

EURCHF


|||||| 0.34%


1.6320


1.6413


1.6533


1.6613


120 pips

EURGBP


||||||||| 0.44%


0.6668


0.6750


0.6870


0.6961


120 pips

GBPCHF


|||||||||||| 0.49%


2.4050


2.4175


2.4309


2.4437


134 pips

EURUSD


|||||||||||| 0.50%


1.3390


1.3450


1.3550


1.3610


100 pips

GBPUSD


||||||||||||| 0.55%


1.9589


1.9822


1.9997


2.0135


175 pips





















Medium Risk Hedging Opportunities - Currencies that are Volatile

Currency


% ATR Rank


Stop for Long


Hedging Zone


Stop for Short


Profit Range

EURAUD


|||||||||||| 0.65%


1.5595


1.6000


1.6200


1.6476


200 pips

USDCAD


||||||||||||| 0.66%


1.0450


1.0550


1.0640


1.0740


90 pips

AUDUSD


||||||||||||| 0.70%


0.8068


0.8168


0.8357


0.8457


189 pips

CHFJPY


||||||||||||| 0.71%


97.82


98.82


99.78


100.78


96 pips

USDCHF


||||||||||||| 0.72%


1.2075


1.2150


1.2238


1.2354


88 pips





















High Risk Hedging Opportunities - Currencies that are Trending

Currency


% ATR Rank


Stop for Long


Hedging Zone


Stop for Short


Profit Range

EURJPY


|||||||||||||| 0.75%


159.61


162.40


164.00


165.00


160 pips

USDJPY


||||||||||||||| 0.77%


119.53


120.53


122.13


123.13


160 pips

GBPJPY


||||||||||||||||| 0.88%


238.50


240.00


241.50


243.00


150 pips

AUDJPY


|||||||||||||||||| 0.91%


99.00


100.00


102.50


103.50


250 pips

NZDUSD


||||||||||||||||||| 0.97%


0.7150


0.7403


0.7550


0.7650


147 pips

NZDJPY


||||||||||||||||||||| 1.22%


87.00


89.01


91.00


93.00


199 pips



Rules for the Hedging Radar

1) Entry Zone -> Go both long and short at the market if the currency is at any level within the Hedging Zone.

2) Profit Taking ->Target for the long order is the top of the entry zone, for the short order is the bottom of the entry zone.

3) Stop Levels are Key Support and Resistance Points -> Place the actual stops a few pips above the higher level and a few pips below the lower level. The break of these levels signals that the ranges have been broken and the hedging strategy should no longer be implemented.

4) The lower the Average True Range, the Less Risky the Currency is for Hedging.

**How is the % ATR Rank Calculated?



The average true range is the 90 days moving average of the currency’s true range. The true range is the greatest of: the difference between the current high and the current low; the difference between the current high and the previous close or the difference between the current low and the previous close.



The %ATR is the relative value of the ATR when weighted against the price. For example, if the ATR for the EURGBP is 26 pips then the %ATR is 0.4 percent since 0.0026/0.6602 = 0.4% where 0.6602 is the quoted price of the EURGBP.







For more information on FXCM hedging strategies please visit http://www.fxcm.com/hedging.jsp




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