Q) Hi Ed! Hope the skiing is great! I am currently in a trade in the EURGBP. I know that you said not to double-up on positions (like playing EURUSD at the same time) and/or playing a pair that is opposite (like AUDGBP), but we are discovering that that takes out a good number of pairs to play a trade on. I'd love to place a trade on GBPUSD, but that means that we would be long and short at the same time (with my current trade). Am I correct in my thinking? And, if so, how does one know which is the best trade to place? I suppose that depends upon which one sets up first, your risk and how many lots you can buy ...Could you please clarify on this? THANKS!!!!

Ed Ponsi) I hope that all is going well. I'm not against going long and short a currency at the same time, in fact that is ok. I'm worried about traders going long (or short) the same currency in multiple trades. Such instances should be treated as one 'basket' trade, not as a series of individual trades. So if, for example you're shorting GBP in one trade and long GBP in another, that's fine. You're right about setups, what matters is a) which one sets up first, since there is no guarantee that a setup will occur at all, and b) which trade has the best risk-reward potential. That would be my criteria. Always be picky; never place a trade just to be in a trade. By the way, the skiing is great!

Q) Hi Ed, I'm interested in hiring a Forex money manager to trade my account. In doing my research, I discovered that this trader has been received positively in some circles, but I need to know more before I decide if I will use him or not. Can you please give any advice?

Ed Ponsi) Thank you for your email. I'll start by saying that nobody is going to do as good of a job taking care of your money as you will, provided that you have received the proper training. Regarding the money manager, it's great that he is gaining praise. While all of this is fine, there is one thing that will tell you everything you need to know, and that is the trading record. I don't know if the money manager will allow you to see it, but if he is as good as his reputation, and if you are investing a substantial sum of money, it shouldn't be a problem (assuming that he is seeking your business).

Because I've been doing this for a while, I've looked at many trading records and know exactly what to look for. Here's all you need to know: If the returns are good, then you want to see the losses. Good traders take losses, and still manage to make money. The percentage of winning trades vs. losing trades should not be too high. On the other hand, anyone can "cheat" by holding on to losses until they become gains. The problem is, eventually this style of trading will result in a large loss, but the account returns always looks good until that large loss occurs. The giveaway here is that you'll see very few losses, and many winning trades. Anyone who trades in this manner is likely to lose big in the end.

Of course you will also want to know if this trader's company is properly registered (the details of this can vary widely depending on the location of the company). Ask to see monthly, quarterly, and annual returns for the past several years. One red flag to watch for is a trader or entity that does not update their performance figures on a regular basis, but instead updates them when it suits him best. When you see this, it is a sign that he is holding on to bad trades until they recover, and then updating the figures. Q1 ends on March 31 for most of us, so if there is no quarterly update of performance figures as of that date, as opposed to some random date, I'd be suspicious. Just be careful; as I said earlier, nobody is going to take care of your money as well as you will, once you've received the proper training. Good luck!

Q) Hi Ed! How are you doing? Market is so volatile and so scary. My question today is EURUSD is climbing up but at the same time EURJPY is going down. Don't understand why?

Ed Ponsi) Thank you for your question. There is no question that the EUR/USD is performing well. Even after last week's pullback, one can see the uptrend clearly (see figure 1).

Figure 1: EUR/USD weekly chart shows a fierce uptrend. Source: Saxo Bank

While the Euro has done well vs. the USD, it is barely holding its ground vs. the Japanese Yen. In fact, the weekly EUR/JPY chart appears to show a topping formation (see figure 2).

Figure 2: EUR/JPY weekly chart shows the pair drifting lower. Source: Saxo Bank

Why the disparity between these two currency pairs? The Japanese Yen has been extremely strong during times of stock market turmoil, which is a fair way to describe recent activity. Here's why; when traders are in an aggressive, money-making mode, they embrace risk. They are buying stocks and at the same time they are selling the Yen, a favorite currency to short because of Japan's low benchmark interest rate (0.5%). When traders are scared, they are in risk-avoidance mode. This means they must guard against loss by selling stocks and by closing out currency trades. Since the Yen is a popular currency to short, traders often must buy back Yen to cover a short trade when they are in a defensive mode. As long as uncertainty rules the day, the Yen should perform well. When the equity markets recover, the Yen should lose its current luster.

Q) My question is about choosing (for lack of better words) the most lucrative currency. Is it better to go with the high interest NZD at 8.25%, high demand commodity based AUD at 7.25%, or either of the high value EUR at 4% or GBP at 5.25%? They each seem to be stable. In your experience, how should one be chosen for long term investments and do you know if there are any special bank practices that should be factored into this decision such as whether or not they gauge the investment on a different criteria altogether, or may have exchange rate issues? I would greatly appreciate any information or suggestions you may have on this subject.

Ed Ponsi) Thank you for your question. We can't just base our decisions on interest rates, because if trading were that easy, we would just buy New Zealand Dollars (8.25% interest) and sell Japanese Yen (0.5% interest), and there would be nothing left to consider. Instead of thinking only about where interest rates are right now, please consider where they are likely to be six months from now. For example, GBP has been getting hammered despite the U.K.'s benchmark interest rate of 5.25%. This is because nobody believes that U.K. rates are going to remain that high, and the Bank of England is likely to resume cutting soon. Commodity currencies have also pulled back, coinciding with a sharp drop in oil and other goods. If the U.S. goes into a prolonged recession, it is likely to affect commodities prices, and this could hurt Aussie (AUD) and the Kiwi (NZD). I still like Aussie for the long haul, but the plunge in gold prices last week is a caution sign. Lately, the Japanese Yen has been the strongest bull on the block, despite low Japanese rates. This is because the Yen does well when the equities markets perform poorly, as they did earlier in March. These are just some of the factors to be taken into consideration.

Well, thanks for reading. I have a lot more of your questions to answer, so be sure to tune in next week.

Have a question about Forex trading? Send an email to eponsi@tradingacademy.comand we may use your question in an upcoming newsletter. Until next time, best of luck to you in trading.