284% Gains By Changing My Mind!
In just a few weeks, I’ll be heading to the airport. I’m scheduled to catch a flight across the ‘Big Pond’ to Europe. I haven’t been over recently. I’m excited to reconnect with old friends and make many new ones.
While the trip is supposed to be a vacation, you know I’m going to sneak in a bit of work. I’m looking forward to visiting a number of local businesses.
How can I resist?
As you know, I write the Currency Options Insider and the Currency ETF Report newsletters. Both services focus on trading currencies. One uses options and the other focuses on ETFs.
I know many currency traders love the futures market… I think they bring a little too much risk to the party.
With the proper strategy, currency trading can be incredibly profitable.
I learned my lesson long ago. When trading currencies, you need to keep one eye on the trend and the other on the fundamentals. Too many traders rely on one type of analysis or the other. Having a good feeling for both can be the difference between success and failure.
Another important factor is flexibility.
Being flexible makes a huge difference. Just look at some of my recent trades in the Euro.
At the end of 2009, the Euro could do no wrong. The EuroZone economy was thriving. It was starting to lead the world out of the recession. The European Central Bank had even been reluctant to cut interest rates.
US interest rates fell to under 0.25%… levels never before seen.
But, the EuroZone held tight at 1%. The higher rate projected strength and forecast a robust economy… both good news for the currency. Only later were we to discover the calm in the market was hiding a brewing storm.
For the better part of 2009, the Euro had climbed in value. Then in December, the currency started to break down…
The initial ripples of the Greece crisis were being felt.
By early January 2010, I thought the selloff was overdone. I even rolled out a trade going long the Euro. Within a few days, I realized just how wrong I was.
Markets were moving against me. And the bad news about Greece wasn’t fading.
Instead of sticking to my guns and stubbornly calling for a rally in the Euro, I simply changed my mind. I re-analyzed the situation and came to the conclusion the Euro should keep moving lower. I told my subscribers in no uncertain terms… I actually said:
“I’m changing my tune… starting right now.”
Believe me, it’s tough to admit you’re wrong… but if you’re not willing to challenge your own thoughts, you’re bound to lose money.
It turns out we were just seeing the tip of the iceberg in Europe. The debt problems weren’t localized. We started seeing problems in Portugal, Ireland, Italy, and Spain.
Their credit ratings came into question and the value of government debt started falling.
The Euro was teetering on the edge of a cliff.
In February, I recommended buying puts on the Euro. Then I did it again in April. We caught the plunge spot on. While our first trade gave us a small peak gain, the second trade really soared in value!
Within just a few weeks, the Euro had fallen and our options were up over 284%.
Simply by being flexible and willing to change my mind, we were able to grab a big profit! So what can we learn from all this?
I see two things…
First, if the markets are moving against you, don’t be afraid to question your research or your conclusions. Take what the market gives you. Don’t be so committed to your position you miss a big move in a particular currency.
Being flexible was the key to these winning trades.
If I hadn’t realized my initial position was wrong, we could have never grabbed that big gain.
The other takeaway from this…
Now’s a great time to visit Europe!
I’ve been planning my trip for weeks now. With the value of the Euro at multi-year lows, my American Dollar will stretch even further. If you’ve ever considered traveling Europe, now’s the time. Don’t wait. You might not see currency values like this for a long time!
Category: Currency Trading
