Forex Carry Trade Unwind

Entry Logic

• Entry triggers when a high-yielding currency breaks below its 200-day moving average against a low-yielding currency.
• Confirmation requires a new 50-day low.
• Timeframe is the daily chart.
• Location is a breakdown of a long-term uptrend.
• Market condition is a shift from a risk-on to a risk-off environment.

Exit Logic

• Profit target is a major support level on the weekly chart.
• No scaling out.
• Trailing stop is the 50-day moving average.
• Exit on signal failure if the price closes back above the 200-day moving average.
• Exit on an opposite signal if the market sentiment shifts back to risk-on.
• No time expiration.
• Exit on momentum loss if the price fails to make a new low for 20 days.

Stop Loss Structure

• Hard stop is placed above the 100-day moving average.
• No soft stop is used.
• Maximum dollar loss is 3% of account equity.
• Maximum percent loss is 3% of account equity.
• Structural stop is placed above the 200-day moving average.

Risk Management Framework

• Risk per trade is 1.5% of the account.
• Maximum daily loss limit is not applicable for this long-term strategy.
• Maximum weekly loss limit is not applicable.
• Maximum drawdown allowed is 25%.
• Risk-reward ratio requirement is a minimum of 1:3.

Position Sizing Model

• Sizing is based on a fixed fractional model (1.5% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• No scaling out.

Trade Filtering

• Avoid trading in a risk-on environment.
• Requires a clear breakdown of the long-term uptrend.
• Instrument is a high-yielding currency vs. a low-yielding currency (e.g., AUD/JPY).
• This is a long-term position trade.
• Avoid trading during periods of low volatility.

Context Framework

• Trend direction is determined by the 200-day moving average.
• Price must be below the 200-day moving average.
• Price must be below the 50-day moving average.
• Location is a breakdown of a long-term uptrend.
• Higher timeframe (weekly) must be in a downtrend.

Trade Management Rules

• This is a set-and-forget strategy.
• The trailing stop will manage the trade.
• Do not add to the position.
• Be prepared to hold the position for months.

Time Rules

• This is a long-term strategy, so time of day is not relevant.
• The focus is on the daily and weekly charts.
• No session-specific notes.

Setup Classification

• A+ setup: Clear breakdown of the 200-day moving average in a risk-off environment.
• A setup: Breakdown of the 200-day moving average with moderate risk aversion.
• B setup: Choppy price action around the 200-day moving average.
• C setup: Trading in a risk-on environment.

Market Selection Criteria

• Instrument is a high-yielding currency vs. a low-yielding currency.
• Requires a clear interest rate differential.
• Volatility should be high.

Statistical Edge Metrics

• Expected win rate is 50%.
• Average win is 6R.
• Average loss is 1R.
• Profit factor is 3.0.
• Expectancy per trade is +2.5R.

Failure Conditions

• Strategy fails when the market sentiment shifts back to risk-on.
• Avoid trading when central banks intervene to support their currencies.

Psychological Rules

• Be patient and disciplined to hold the position for the long term.
• Do not be swayed by short-term price fluctuations.

Advanced Components

• The interest rate differential is the key advanced component.
• No other filters are used.
• Multi-timeframe alignment with the weekly chart is crucial.

Location

• Strongest in a global risk-off environment.
• Weakest in a risk-on environment.
• The macroeconomic backdrop is the most important factor.