In case you’ve forgotten about it. The “insanity trade” is still very much alive. So much so in fact, that I want to (not only bring you up to speed) – but also introduce……..Insanity Trade 2!
Not much different from the original “insanity trade” we’re talking about EUR/NZD this time.
Ok. Wrapping your head around the “reasoning” or the “fundamentals” behind these trades is a stretch for even the most experienced of traders. Pitting the Euro against AUD and now NZD? What the hell? Why? How? What could you possibly be thinking about “fundamentally” to consider such a bizarre trade / pairing? Now?
I’m not going to tell you.
These are the Insanity Trades remember! You need to be insane to take them, and possibly insane to understand them!
I am placing an order long EUR/NZD a full 100 pips above the current price action – my order to buy is at : 1.6260
The current insanity trade is currently sitting EXACTLY BREAK EVEN at 1.43 ( what? you think I sold / freaked on the Fed? Hell no! ) – It’s an insanity trade.
That’s it. Do not try this at home.
Kong….in”song”?
Why the Insanity Trades Actually Make Perfect Sense
The Central Bank Divergence Play Nobody Sees Coming
While every retail trader and their grandmother are staring at USD pairs, completely obsessed with Fed policy and inflation data, the real action is happening in the cross pairs. EUR/NZD represents one of the most extreme central bank policy divergences on the planet right now. The RBNZ has been hiking aggressively, sure, but they’re also operating from a tiny economy that’s completely dependent on commodity exports and tourism recovery. Meanwhile, the ECB is sitting on a powder keg of energy crisis management and structural reforms that could send the Euro screaming higher when everyone least expects it.
The beauty of EUR/NZD is that it strips away all the noise from USD movements and gives you pure exposure to European monetary policy versus New Zealand’s resource-dependent economy. When the ECB finally gets serious about defending the Euro’s purchasing power against energy inflation, the Kiwi doesn’t stand a chance. This isn’t about short-term rate differentials – it’s about structural economic power and which central bank has more ammunition in the long game.
Correlation Breakdown Creates Massive Opportunities
Here’s what the textbooks won’t tell you about cross pairs like EUR/AUD and EUR/NZD: when traditional correlations break down, that’s when the real money gets made. Normally, AUD and NZD move in lockstep because they’re both commodity currencies tied to similar economic cycles. But we’re not in normal times. Australia’s iron ore and coal exports to China are in a completely different universe from New Zealand’s dairy and tourism recovery story.
The insanity trades capitalize on these correlation breakdowns. While everyone’s trading EUR/USD or AUD/USD, they’re missing the fact that EUR/AUD and EUR/NZD can move independently of both the Dollar and each other. When correlations collapse, volatility explodes, and that’s exactly what we want. The market hasn’t priced in the possibility that European industrial demand could surge while Oceanic commodity prices plateau or decline.
Technical Levels That Defy Conventional Logic
Setting buy orders 100 pips above current market price sounds certifiably insane until you understand how thin the order books are on these exotic crosses. EUR/NZD doesn’t have the liquidity cushion of major pairs, which means when it moves, it moves violently. That 1.6260 level isn’t arbitrary – it represents a breakout point where algorithmic stops will trigger cascading buy orders from institutional players who’ve been short this pair based on outdated fundamental assumptions.
The current EUR/AUD position sitting at breakeven around 1.43 is actually proving the thesis. It’s holding steady despite all the market chaos, Fed volatility, and general risk-off sentiment. That’s not luck – that’s structural support from underlying economic forces that most traders are completely ignoring. When these crosses finally break their ranges, they don’t just trend – they explode.
The Psychology of Counter-Trend Thinking
Every successful trader eventually learns that the biggest profits come from trades that feel completely wrong at the time you put them on. EUR/NZD long feels insane because conventional wisdom says you should be shorting the Euro against everything and buying high-yielding currencies like the Kiwi. But conventional wisdom is what gets you mediocre returns and blown accounts.
The insanity trades work precisely because they go against every instinct that retail traders have been conditioned to follow. While everyone’s focused on yield differentials and short-term data releases, these positions are betting on longer-term structural shifts in global capital flows. The Euro isn’t just another currency – it’s the reserve currency of the world’s largest trading bloc. The Kiwi, despite its attractive yield, represents an economy smaller than most individual US states.
When risk appetite eventually returns and institutional money starts looking for alternatives to Dollar-denominated assets, EUR crosses are going to be the beneficiaries. The insanity isn’t in taking these trades – the insanity is in ignoring them while chasing the same overcrowded USD pairs as every other trader in the market.
I like it, I’m also liking upcoming NZD weakness against the GBP and my fave, the CAD.
Hi Kong,
I apologize for the very lengthy post in advance. I have a million different thoughts going through my head right now, so if this is really disorganized please bear with me. Spending too much time on forums & using media outlets as a research tool has turned my brain into mush. Your site is one of very few that actually provide beneficial information & make for interesting discussions.
In 14 months of trading, I suffered my worst month to date this September and it’s only halfway through. The only strategy that has consistently worked for me throughout this time period is to trade maximum units on a single trade at 10:1 leverage. On most pairs this meant that it took 500 pips to get margin called(50% equity lost), while gaining 1% for every 10 pips. I know it’s not efficient and more often than not your money will be in limbo, but it allowed a huge margin for error and that is why it worked for me. If a trade went against me, I just had to be patient or take a relatively small loss in comparison to what I could have lost if the trade became very lengthy. Up until this month when it finally collapsed and I finally suffered my first margin call using it, it has provided me with double digit monthly returns over a 1yr+ timeframe. Not that long ago I asked if you could write an article specifically on money management and I would appreciate if you could do that in-depth. For example, if you have a $10,000 account, what is the most amount of margin you use at any given time, what is your exact unit sizing etc?
I come from a poker background and have always read that this is a great tool for transitioning into forex because of how much they have in common. I’ve had a lot of success playing poker and quitting it was definitely a huge mistake. In the beginning, I definitely got sh*t on for a while and had to pay my dues before becoming profitable, but the learning curve is so insignificant compared to forex. It took me about 6 months before I became good enough to play for a living, but after 14 months of forex I still don’t know what I’m doing. Playing online poker, I’ve ran up $40 to $2k+ in 2 days and $5 or $10 to $500+ in less than a week at least 5 times. My most recent incredible run was playing live at the casino in which I ran a $200 roll to $30k in 2 months playing almost everyday. In no way did I Intend for that to come across as bragging and I’m not sure exactly how to get my next point across. I know these returns are unrealistic and unsustainable, but as a valid example a $30 hourly is very much sustainable using a $10,000 bankroll to play live at the casino, so why is it that something like a 25% averaged monthly return in forex is considered unsustainable? Look at the numbers:
$10,000 poker bankroll. 200hrs/ month @$30/hr=$6,000 monthly/60% return
$10,000 forex bankroll. 25%/$2500 month=”lol you are delusional”, “unsustainable”, “unrealistic”
That $30/hr figure was actually conservative and in no way unrealistic. Perhaps I really just need to return to my roots and give up this whole trading thing.
I am curious why your returns for this year are only 96% and last year’s was 112%. Before you take that last sentence out of context, obviously these numbers are incredibly impressive and even more so if your drawdown is very low. I am also in no place to say such words, given that I am not a profitable trader, but I say it because I believe you are capable of much higher returns. Do you just keep a highly conservative approach because your primary focus is keeping drawdown extremely low?
Didn’t mean to give you a wall of text. I’ll stop there. Look forward to hearing your response. Thanks.
He he he interesting / small world man….
I’m responsible for the online marketing of a couple of the largest online poker / casino websites on the planet, having spent some 7 years in Costa Rica / Carribean deep in the industry. Back in ’99 a couple of us moved out to St Kitts and more or less “invented” online gaming.
I’ve worked with many, many professional poker players who have also suggested / made mention of the “mathamatical similarities / money managment rules” of trading and poker.
If you choose to sit and “grind” at online poker with the math you’ve outlined sure…..it “can” be done. The small element of your equation thats missing when applying it to forex is:
1. frequency of trade – in poker it’s endless/rapid as every hand presents opportunity, in forex these “hands” play out far less regularily.
2. Bankroll – in poker sure 10k is 10k, but the structure of forex markets have it that 10k “in your account” only allows for “x” amount of risk per trade in order to maintain proper money management. Perhaps with 100k in your account your equation looks better.
I can go on n on…but have to run. Ill get back to you with more.
Hope it goes well kong, I’m in for a bit of insanity, if that’s what it really is??????
Watch it go!
He he……and as for the insanity part……consider this.
These pairs can easily move “several hundred pips” in a single 24H session and literally “1000 pips in a week”. If a “newbie trader” thought “hey – this Kong clown is doin it…I’m in too!” and bought a a single full lot ( 10 mini’s ) with a 10k account – he could essentially be wiped clean in less than a week.
It’s insanity in ever sense of the word.
Kong in song: Free Ride/Edgar Winter Group
too cool man…..
I hope everyone here has a listen!