Learn To Trade Currencies

Learn To Trade Currencies

The Trader's U E-Letter: Issue # 191

Wednesday, June 14, 2006

Learn To Trade Currencies… And Win 80% of the Time With "The Max Yield Strategy"

by D.R. Barton, Jr., Chairman, Trader's U

We marvel at the way Warren Buffett and George Soros play the currency markets. But you can learn to trade currencies, too. And with very little time and effort.

In our book, Safe Strategies for Financial Freedom, my good friend and co-author Steve Sjuggerud outlined a great strategy for diversifying some of your portfolio outside of the U.S. dollar. It's a strategy that he learned from self-taught currency guru Chris Weber. It's called "The Max Yield Strategy".

The Max Yield Strategy is a great way to put a portion of your money to work while protecting against dollar devaluation. And it's so easy, anyone can do it.

But before we get to the strategy itself, let's see why it works…

Currency Valuation - It's Simpler than We've Been Led to Believe

Understanding currency movements on a day-to-day or week-to-week basis is a complex mix of supply and demand plus trading psychology.

But understanding longer-term currency valuation can be made much simpler.

There are only two issues that affect developed countries currency valuations in the long run:

  • Purchasing Power Parity
  • Interest Rate Differential

We talked about purchasing power parity in the last issue of Trader's U, but the basic idea is that the same item should sell for the same price in each country; if not, then the currency prices of the countries being compared are out of balance. As we explained last week, a McDonald's

Big Mac should cost the same in every country.

Interest rate differential is also easy to understand. Money flows where it is treated best. If the same amount of money receives a higher interest rate in one country than another, money will naturally flow there, as people and institutions grab the higher rate of return.

Sending Your Money Where It Is Treated Best

Chris Weber's Max Yield Strategy is amazingly simple and very effective.

On January 1st of every year, you simply invest your "currency allocation money" (my term for money you'd like to put in a non-dollar denominated investment) into the developed country with the highest interest rate. We'll explain how to do this in the "Tips and Tricks" section below.

You make money in two ways with this strategy:

  • You get the benefit of the higher interest rate; and
  • You gain from the currency appreciation that is expected from the country that is treating money the best at the time.

How has this strategy worked? It was profitable for 26 out of 33 years from 1970 until 2003 (a table with the exact year-by-year returns is found in Safe Strategies for Financial Freedom.)

Who Is This Strategy For?

This strategy is for anyone who would like to make money in the long run. Don't invest money in this strategy if you must make a return this year. It has worked almost 80% of the time in the past, but it does lose money one out of every five years.

Diversifying outside of the dollar is not just for big institutions or the "rich and famous." Every trader and investor should consider putting an appropriate portion of his capital to work in an overseas investment or at least, somewhere else in the world.

Great trading,


Today's Trader's U Tips & Tricks

  • The best place that I know to invest in other currencies and implement the Max Yield Strategy is through certificates of deposit with EverBank. They offer CDs in a variety of currencies… For more information about their WorldCurrency Accounts, visit their website or call the EverBank World Markets Hotline at 800.926.4922, and mention that you're a Trader's U-Investment U reader. (Please note, the publisher of Trader's U has a marketing relationship with EverBank.)
  • Safe Strategies for Financial Freedom, The New York Times best-seller that I co-authored with Van Tharp and Steve Sjuggerud, has some really useful information on currencies, inflation and other macroeconomic issues affecting traders and investors. It has a full description of the Max Yield Strategy mentioned above and a table of the returns from 1970 to 2003.

The Chart of the Week

Comcast Graph

Shares of Comcast (Nasdaq: CMCSA) have been ignoring the market's downtrend… And not only did the stock move against the trend, it has provided huge returns.

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