Customer Service 1 (888) 261-2693
Please enter Search keyword. Advanced Search
Home About Us Resources Archive Free Reports Market Window

Safe, Big Returns in a Simple Currency Strategy

By Dr. Steve Sjuggerud
Wednesday, May 4, 2011

Here's a simple way to make money in currencies...
 
Buy what's working. And sell what's not.
 
Sounds simple, but it's worked.
 
Many studies have shown this "momentum effect" is true. In one study, Deutsche Bank tested an incredibly simple once-a-month currency-trading system, with excellent results. From 2000 through 2010, this simple strategy would have delivered a 6% annualized total return, versus 0% for the stock market.
 
Longer term, the results are good too... Since 1980, this simple trading system has delivered a compound total return of 8%, versus 11% for the stock market.
 
The simple currency system didn't beat the stock market since 1980... But that's OK. It delivered much less volatile returns than the stock market.
 
Take a look for yourself, stocks are in red below and the currency system is in blue (both are total returns):
 
Currency Systems Has Been Much Less Volatile Than Stocks
  
In 2008, when everything went down – stocks, commodities, and real estate – this currency system was up over 20%. It wasn't just 2008... Stocks fell in six separate years since 1980. And this currency system was up in each of those years. It was a great way to add some diversification.
 
So what's the system? Here it is:
  • Buy whatever three currencies have performed the best over the last 12 months.
  • Sell short the three currencies that have performed the worst over the last 12 months.
  • One month later, size 'em up again, and rebalance as necessary.
Seems too simple to work. But it has.
 
This system tracks the 10 most easily traded currencies: the Australian dollar, Canadian dollar, Swiss franc, British pound, Japanese yen, Norwegian krone, New Zealand dollar, Swedish krona, U.S. dollar, and the euro.
 
Surprisingly to me, no one currency dominates in the trades... 
 
Based on the Deutsche Bank study of this system, from 1989 to 2009, the Swiss franc had the biggest extremes... You were long Swiss francs 41% of the time. And you were short Swiss francs just 22% of the time. Those were the two extremes... In short, no currencies were left "sitting the bench" for long stretches. They're all in the game.
 
There's no "cherry picking" going on in Deutsche Bank's strategy... It simply uses the one-year gain and rebalances monthly, among the 10 most-traded currencies. Nothing fancy there. And it's worked.
 
Deutsche Bank has a fund that uses this strategy, based on its Currency Momentum Index. The Yahoo Finance symbol is DX2M.DE. (While it trades in Europe, it closely tracks the U.S. dollar Deutsche Bank Momentum Index.)
 
For more on this currency momentum fund, visit www.etf.db.com. Click on "Germany"... then, to read it in English, click on the British flag at the top right.
 
While I've talked about this specific study and this specific fund, my point today isn't for you to run out and buy this fund... My real point is to show you investing in currencies can work.
 
This simple Deutsche Bank system is one example that shows it. It delivers decent returns. And best of all it's been uncorrelated to stocks, real estate, or commodities.
 
Good investing,
 
Steve




Further Reading:

Over the years, Steve has showed readers many "out of the box" investment ideas like this one... with great success. Revisit a few of our favorites here…
 

Market Notes


THE DOLLAR IS TRYING TO DIG IN A FOOTHOLD AT 73

In the eyes of many seasoned traders, the biggest story in the world is the U.S. dollar's "stand at 73."
 
As we've been highlighting for a long time, there's little diversification benefit to holding various stock sectors, broad stock indexes, commodities, and gold right now. These assets are all moving in one giant "risk on, risk off" bundle as investors flee the plunging U.S. dollar.
 
While we expect the dollar to continue its giant, glacier-like bear market over the long-term, no trend runs in one direction without a few "countertrend" shakeouts along the way. Since the entire world hates the dollar right now, it's only reasonable to expect it to rally and punish the crowd.
 
The U.S. dollar index measures the dollar's value against a basket of global currencies like the euro, the British pound, and the Canadian dollar. As you can see from today's chart, the dollar has been smashed in the past four months... but is now trying to dig in a small "foothold" at 73 to stage its "soak the crowd" rally. If the dollar fails to hold this level and rally, it's an ominous sign...

The dollar tries to dig in a

In The Daily Crux



Recent Articles
Legal Notices: Stansberry Research LLC (Stansberry Research) is a publishing company and the indicators, strategies, reports, articles and all other features of our products are provided for informational and educational purposes only and should not be construed as personalized investment advice. Our recommendations and analysis are based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.

 

Readers should be aware that trading stocks and all other financial instruments involves risk. Past performance is no guarantee of future results, and we make no representation that any customer will or is likely to achieve similar results.

 

Our testimonials are the words of real subscribers received in real letters, emails, and other feedback who have not been paid for their testimonials. Testimonials are printed under aliases to protect privacy, and edited for length. Their claims have not been independently verified or audited for accuracy. We do not know how much money was risked, what portion of their total portfolio was allocated, or how long they owned the security. We do not claim that the results experienced by such subscribers are typical and you will likely have different results.

 

Any performance results of our recommendations prepared by Stansberry Research are not based on actual trading of securities but are instead based on a hypothetical trading account. Hypothetical performance results have many inherent limitations. Your actual results may vary.

 

Stansberry Research expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. And all Stansberry Research (and affiliated companies), employees, and agents must wait 24 hours after an initial trade recommendation is published on the Internet, or 72 hours after a direct mail publication is sent, before acting on that recommendation.

 

© 2024 Stansberry Research, LLC. | Privacy Policy| Customer Service
Stansberry Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This website may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry Research, LLC. 1125 N Charles St. Suite 500, Baltimore MD 21202.