Strategies for trading forex

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Strategies for trading forex


Strategies for trading forex Strategies for trading forex Strategies for trading forex


Strategies for trading forex Strategies for trading forex


Strategies for trading forex Strategies for trading forex Strategies for trading forex


Strategies for trading forex Strategies for trading forex


Strategies for trading forex

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Market SentimentThe forex market is heavily driven by market sentiment, and it is market sentimentthat influences traders’decisions by triggering certain emotions and thoughts. Findout what defines the current market sentiment, and how you can incorporate marketsentiment analysis into your trading.

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Trend RidingThere is so much more to riding trends than simply closing your eyes and buyingat any point during an uptrend or short-selling at any point during a downtrend.This chapter shows you how you can jump on a trend when the trend is the mostrobust, rather than when it is about to end. This way you can ride a trend with ahigher chance of success.

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Breakout FadingMany false breakouts occur in forex price charts, and the occurrence of thesefakeouts provides the perfect opportunity for fading breakouts, that is, tradingagainst those breakouts. In this chapter, I explain why most breakouts fail, and howyou can identify high-probability fading opportunities.

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Breakout TradingWhen currency prices break out of certain price levels, a large sustained move inthe direction of the breakout may occur, giving rise to a situation whereby bigprofits could potentially be captured in the least amount of time. The main problemwith trading breakouts is that many of these breakout attempts fail. In this chapterI walk you through several guidelines of how you can better identify potentialbreakout opportunities for this strategy

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Decreased Volatility BreakoutThis strategy is conceptually similar to the strategy of breakout trading, because inboth cases the trader will be hoping for a successful price breakout. This particularstrategy, however, requires that the forex market registers a period of relative calmand low volatility before the strategy is to be implemented.

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Carry TradeThis is a fundamental trading strategy that is highly favoured by institutionalinvestors. In this chapter, I explain how a carry trade works, and highlight somepoints which you should keep in mind when adopting this strategy in the forexmarket.

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News StraddlingThe forex market is extremely sensitive to economic and geopolitical news fromaround the world, especially those which relate to the industrialised countries. Theunderlying reason why news is so important to forex trading is that each new pieceof information can potentially change the trader’s perceptions of the current and/orfuture situation relating to the outlook of certain currency pairs. Find out how youcan trade news releases with a higher probability of success.

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Fundamental strategies

What is fundamental analysis?

Fundamental strategies focus on market forces that drive changes in supply and demand for currencies. Fundamental analysis assumes that if a market incorrectly prices a currency, it will correct over time to achieve an equilibrium.
A stronger economy leads to higher demand for a particular currency, while a weaker economy leads to a weaker currency. The measures used to examine economic inputs and outputs include:

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  • Borrowing and credit policies: Policies that determine how much debt a person takes on affect the demand for money.
  • Employment: As more people work the need for money to pay them grows. They, in turn, spend that money, which grows the economy.
  • Economic output: Analysts look at the total economic output, whether GDP or GNP, to understand how well an economy performs.
  • Governmental policies: Changes in tax rates and policies will influence investments and savings.
  • Business cycle: Fundamental analysis assumes businesses operate in cycles of expansion and contraction. Understanding where an overall economy exists in these cycles affects the economy.
  • Technology changes: Changes in technology impact how and where businesses invest.
  • Trade: Commerce between countries drives the primary need for exchange between two currencies.
  • Demographics: Countries with growing populations have higher economic output than those with shrinking populations.

Information analysis

Forex traders analyze fundamental information like organs of a human body. Each serves an important function, but cannot exist by itself. These include:

• Government entities: Publications, decisions, as well as speeches by government entities, give information about that country. This includes the central bank, Bureau of Labor Statics and other government agencies.
• Sponsored surveys: Economic surveys like consumer sentiments and business investments come from organizations like universities and businesses. These reports cover more specific information than government reports.
• Proprietary research: Investors with deep pockets hire agencies to conduct in-depth research.
• Historical trends: Traders may assume that cycles and events of the past will either repeat or continue into the future
• Events and changes: Disruptions to the natural flow of business often lead to changes in currency prices. Global events such as war and revolutions shift demand from riskier currencies to safer ones.

Technical strategies

What is technical analysis?

Technical analysis uses price action to forecast future movements. The relationship between price and movement creates the foundation for technical analysis. Forex analysis relies on charts and indicators.

• Charts: Graphs of price action provide a key component to technical analysis. By looking at how price moved over time, technical analysts attempt to predict where the price will go.
• Indicators: Analysts use a variety of mathematical formulas and then graph their outputs to look for trends as well as changes. Indicators either attempt to predict when reaches an extreme or identify trends in the data.

Information analysis

Technical analysis confines itself to a few components:

• Price movement: How price moves between different values tells a lot about the supply and demand for that currency. Rapid movements in currencies could signal more investor interest
• Timeframes: Technical analysts chart and measure price movement in specific blocks of time. These blocks range from a few minutes to months. As the amount of time increases, so do the expectations for the strength and duration of a particular forecast.
• Market interrelationships: The supply and demand in one market impacts other markets. If traders sell euros and buy U.S. dollars, they will also likely be buying U.S. dollars relative to the British pound sterling.

Technical analysts use one or many of the following concepts in their forecasts:

• Divergences/convergences: Markets or indicators moving in the same or different directions indicate a change or continuation of price trends.
• Trends: Many forecasts assume past price actions will continue into the future. Currencies with bullish trends will continue to rise, and those with bearish trends will continue to fall.
• Overbought/oversold: Oscillators along with interpreting momentum indicators to attempt to identify turning points in the market. When price moves quickly or for too long in one direction, analysts pick out when and where price will change directions.