If 1) I buy AUDUSD, with a big position size and no stop loss, monitoring EURAUD for invalidation.
2) I sell EURUSD, same, big position, adjusted by volatility in each pair of this setup.
#A I get paid the rate differential in usd vs eur and in aud vs usd for as long as hold the position open. This is easily a two week hold. So, considering the positions will be big, the carry trade profits on each side will quite nice.
#B I don't need to suffer with stop loss placement in the volatile and illiquid EURAUD, nor deal with wider spreads.
#C The risk management is way more flexible, since if I want, I can close AUDUSD in profit and hold the EURUSD trade for a longer time if my analysis determines that will be the smarter thing to do.
#D I can use a WAY bigger position size, while being somewhat market neutral and flexible, just going by the average daily range figure of each pair, and adjusting the smaller ADR pair by the difference in volatility to compensate and keep both sides balanced.
It's not the same as shorting EURAUD, no.
The entry and exit has to come from the EURAUD chart though...something The Working Trader has covered here rather well.
I'll publish my spin off, with more detailed levels and my own analysis next.
Thanks The Working Trader! Wouldn't have seen this setup if it wasn't for you.