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Opening two Positions
For our USD/JPY example, we are going to Buy the pair, as we think that the recent Yen gains are going to be reversed, and the low point is actually a good place to buy the Dollar at a cheaper rate than at the start of the trading session.
Here is the graph once we place an open position.
USD/JPY - October 24, 2006 - 1:00 PM
In case you were wondering why the position has started at -2 pips, the spread is 3 pips for this pair, so by the time this image was captured the trade had gone in our favor by one pip. Our trade needs to reach 119.23 to be even. Right now the current price is the brown horizontal line at 119.21.
At the same time, we will open another position for the sake of comparison that bets against the Dollar. It would be too simple to take the Sell side of our USD/JPY pair, and therefore the positions would be mirror opposites of each other.
Therefore we will pick another pair, the EUR/USD, and see how the Dollar does when we buy the Euro/ sell the Dollar. Since the Dollar comes first in the USD/JPY pair and second in the EUR/USD pair, it still makes sense that we Buy both pairs, as we are buying the Dollar against the Yen in the first example, and are buying the Euro and therefore selling the Dollar in the second case.
EUR/USD - October 24, 2006 - 1:00 PM
Initially our position starts at -3 pips as that is the difference between the price one can buy the pair and sell the pair when it is opened. This difference is the spread. You can also witness the correlation between the Dollar when faced against two different currencies. At around the same time, the Dollar did poorly respectively (several red candles to end the USD/JPY pair, and blue candles on the EUR/USD).
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