Trend following earns large returns in currency or FX markets.
Currency markets are driven by politics, interest rates, and economic cycles of major world countries. They typically trend over long periods of time, a pattern on which trend following trading systems exploit with precision.
Anyone who has traveled in a foreign country or purchased imported goods has experienced the effects of constantly changing currency valuation. Changes in the values of currencies relative to one another take place constantly; minute to minute, hour to hour and day to day, 24 hours per day seven days per week.
Trading currencies is in effect buying one currency and selling a comparable quantity of another. The profit or loss on such transactions result from the small changes that occur in the differences in prices between them, as reflected by changes in supply and demand. Consider for example a US resident who travels to France: He buys $1000 worth of Euros upon arrival in Paris. He has effectively sold US Dollars and bought Euros. Assume he used his credit card and spends no cash on the trip. On departure, he sells his Euros for US Dollars and receives $1010. He has made a small profit due to a 1% change in the difference in price between the US Dollar and the Euro. Some insight from TrendStat Capital:
The net worth of most investors is denominated in their home country’s currency, while their net wealth is the purchasing power in that currency in the global marketplace. An objective for investors must be to increase both net worth or net wealth. The currency markets assist in this task.
Q: How successful is currency trading with Trend Following methods?
A: Currencies trend the best of all markets.
Here is another correlation chart of various Trend Followers. It represents programs that concentrate on currency portfolios. They are all looking at the same perception of opportunity making money at the same time.
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