V.10:3 (129-131): Trading Currency Mutual Funds by Joe Duarte

V.10:3 (129-131): Trading Currency Mutual Funds by Joe Duarte
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Trading Currency Mutual Funds by Joe Duarte

Want to broaden your investment horizon? Using subjects covered in his previous S TOCKS & COMMODITIES articles in November 1991 and January 1992, Joe Duarte explains how by combining a simple index/moving average with an oscillator, trading foreign currencies and foreign currency mutual funds can help you protect your mutual fund portfolio profits with a simple oscillator called the 10 minus 4 formula.

I introduced the concept of mutual funds as stock index proxies in the November 1991 and January 1992 issues of STOCKS & COMMODITIES. By tracking several mutual funds and evaluating their individual responses to buy or sell signals given by slightly modified technical indicators of trends, momentum, and market sentiment, I showed how a mutual fund investor could participate in significant advances in the stock market and stay out or reduce exposure during significant declines. With that background, let's see how a mutual fund trader or investor can broaden his/her investment horizon and enhance and protect overall mutual fund portfolio profits without the direct use of futures and options.

Because most open-ended mutual funds offer stocks or bonds as underlying assets, traders and investors can invest in low-yielding money market instruments or Treasury bills during bear markets in stocks and bonds. While short-term liquid securities can provide safety and protect capital during times of market uncertainty and volatility, other investment vehicles may also provide the mutual fund investor or trader an opportunity to profit from the market's uncertainty and volatility. These objectives can be fulfilled by allocating capital into currency funds based on technical analysis of simple trend indicators.


A simple method of analyzing trends is to combine an index and a moving average. To track the relationship of the U.S. dollar to the major world currencies, I chart the U.S. Dollar Index as reported in Barron's Vital Signs section; to smooth out the intermediate trend of weeks to months, I calculate the 10-week moving average. A downtrend in the U.S. dollar should occur at the same time as an uptrend in at least some of the world's other currencies. When the index breaks above or below the 10-week moving average, it signals a possible trend change in the dollar, the world's currencies and often in other financial markets.

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