Market Action Confirms Mexican Peso Trade

Although the market's future is always uncertain, the best approach is to take your cues from the market itself. The most immediate confirmation of a trade's potential is having a profit, even a small one, after a relatively short period of time.

Winning trades tend to start out as winning trades. Very seldom does an investment start out with a major decline only to turn around and rally 50% — at least within a reasonable period of time. More often than not, traders tend to get bogged down during extended bear markets, exactly why it's usually better to cut a loss quickly rather than dig in and ride it out.

But because markets move in trends, when a trade ticks even a percent higher that's an encouraging sign that, at least for now, I'm on the right track. As an indicator, that beats a research report or brokerage recommendation any day.

Case in point is the Mexican peso, which has risen modestly since I wrote about it last month. If the peso is eventually going to revisit its 2002 highs, as I believe it will, the trade still has plenty of room to run. (Use the CurrencyShares Mexican Peso ETF (FXM) to get exposure.) At least for the time being, the market is confirming my outlook.