Foreign exchange rates reflect the economic and political realities of the countries represented. This means that some currency pairs resemble humming birds searching for more nectar while others resemble the waves off of Waikiki Beach in the summer. As a trader, you value volatility since this is where pricing discrepancies can manifest themselves quite clearly. With the help of a wide variety of technical chart tools, you can cut through “the noise” and see trends relatively easily. Armed with some exponential moving averages, you then can see when you should enter a trade and get out. Which tools, and which moving averages, you decide to use is a matter of personal choice and experience. Using a “demo account” to test out your trading strategies – before going “live” – is an excellent idea.
Trading trends is a popular forex strategy. Usually, it’s done with a daily chart and “Bollinger Bands” or a “Donchian Channel” indicator. Oscillators and stochastics (like a “SMI Ergodic” indicator) can help you decide when to enter/exit a trade.
What Causes Foreign Exchange Rates To Move?
Foreign exchange rates are the mathematical result of one currency compared to another. This is why they are always quoted like “EUR/USD” (the value of the euro as compared to the US dollar). The price of a currency pair is determined by what is happening to the countries involved. In the case of the EUR/USD, this would be the European Union and the United States. So, things like central bank monetary policy changes, manufacturing rate changes and unemployment rate changes can weigh on the price of any currency pair. Larger issues can too (e. g., a neighbouring civil war or a rout in a nearby bond market). This is why, when you’re trading, you must keep abreast of the news.
Are Movements Of Foreign Exchange Rates A Bad Thing For Traders?
In order to make a profit, forex traders need volatility. Volatility moves prices, exposing discrepancies that can be profitable nipped in the bud, so to speak. Therefore, on the whole, traders should welcome movement in currency pair pricing. If, however, volatility starts to spike, things can get out of hand. At that point, many institutional participants may move to the sidelines and liquidity could dry up. Civil wars tend to produce huge price spikes. Since you never know when such a spike could occur, it’s best to use stop losses all the time. This puts a floor under how much you can lose, although in the case of a really nasty spike, you might not get filled where you want.
How Traders Make Profits Successfully From Foreign Exchange Rates
Many expert traders prefer to profit from long-term trends. This keeps trade execution costs down while maximising profit potential. They usually can be found in long positions in any “positive interest rate carry” (such as the USD/JPY in 2013), since such a situation will earn them a little bit extra for every 24 hours that they stay in such a trade. To figure out where the channel is, they’ll use “Bollinger Bands” (or a “Donchian Channel” indicator or a “Keltner Channel” indicator) on a daily chart. Then, they will add any number of oscillators and stochastics (such as a “SMI Ergodic” indicator and/or a “Stochastic RSI”) to help them figure out where to get in and out of a trade.