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Forex Trading Strategies

Forex Trading Strategies for Beginners

Strategies: Forex Trading

Generally, people feel that Forex is complicated. Realistically, it is like many other investment options, where little knowledge can be risky. Luckily, with Forex, there are many strategies to adopt that are good enough to realise any investment goal. Commitment can vary from watching the market every day, looking for quick profits at every turn, to a simple long-term investment; there is something for everyone.

Following Daily or Weekly Trend:

A simple Forex trading strategy is to follow the daily or weekly trends. Find a well-supported trend by reviewing the daily and weekly charts and jump in. With this strategy, be conservative when you buy in, and be patient, your moves may look small, but they can span 100’s of pips. To avoid watching the market constantly, place a reasonable stop and profit mark, beginners find this the easiest strategy. 

Carry Trading:

This style of trading is where you buy and hold a currency that pays a high interest rate against a currency with a low-interest rate. A rollover is paid every day for the difference between the 2 currencies. Therefore, even when your trade is not moving, you still earn money daily. With this method, you are paid on the size of your trade, not just on your capital as most Forex trades are leveraged.

Of course, for every upside, there is a downside. The risk you take is typically higher than the reward. The differentials between currencies are normally small. Currency pairs that trade well are heavily affected by any news that relates to the global markets. Therefore, when things are good, you will be paid, but when things turn, they can plummet hard and fast, burning your account if you are overleveraged.

Day Trading:

The Forex market doesn’t sleep, 24 hours a day, 6 days a week. However, there are certain, specific times where the market is most active. The market can be very technical and day trading requires technical analysis, but with a sharp eye and a plan, you can seize it and make a profit. Depending on what you like to trade, you can pick and choose your times. With a sharp eye and a plan, you can make a profit.

Fundamental Trading:

An old-fashioned approach to investment is adopted by some investors. Preferring to invest in something they can understand instead of looking for signals on a chart. Fundamental Forex trading works best for this type of cautious investor.

Fundamental trading requires an understanding of economic reports and how you compare them to other countries. This type of trading is simpler because it looks at things over a longer term. Fundamental trading involves following the news for several countries with strengthening economic trends and playing them against those with weakening economic trends.

Even though Forex trading can feel complex, everyone can learn given patience and persistence. Mistakes will be made, so long as you know why and can avoid it in the future; you can gain expertise over time. Starting small at least in the beginning and not allowing the system to frustrate you is paramount. Avoid the “100 percent accurate Forex trading systems” for when you have gained some experience.

Traders switch to Forex after the bond markets plateau

Foreign exchange is becoming the new playground for investors looking to profit from sharp moves in prices, after central banks’ aggressive response to Covid-19 robbed them of opportunities in bond markets.

Government bond yields have sunk to record lows this year — reflecting rising prices — after central bankers moved swiftly in March to slash interest rates and launch bond-buying programmes to counter the economic effects of corona virus. Investors now face not only the prospect of near-zero or negative returns from the safest debt, but also a collapse in volatility that has frustrated short-term bets.

But while bond markets are moving sideways, currency markets remain jumpy. Even after the most intense phase of the Covid-19 crisis, volatility is well above levels seen 12 months ago, based on broad measures of price moves such as the JPMorgan Global FX Volatility Index.

Sterling has been a prime example, losing 4 per cent of its value last week after Brexit fears came back to the fore. UK gilt yields, meanwhile, were largely stable.

“In this low-yield world, FX will become more important and bond managers will have to go into currencies more to generate returns,” said Jack McIntyre, a portfolio manager at the global fixed income fund of Brandywine Global, a Philadelphia-based asset manager.

Bond markets went into meltdown at the height of fears over the pandemic in March, as even the safest government debt succumbed to a sell-off. Central banks’ drastic actions restored order but also led investors to bet that policymakers would seek to control bond prices for years to come.

The ICE BofA Move index, which tracks the expected volatility of the US Treasury market, has hovered close to record lows since May, after rising to its highest level in more than a decade in March.

Since then, currencies have become the pressure valve for macroeconomic adjustments, investors say, as well as the main market for trading political events.

The dollar index has lost more than 6 per cent since the start of April, declining steadily as confidence returned to the global financial system and investors digested the impact of lower interest rates in the US as well as the hit to the economy from Covid-19. Over that time, the 10-year US Treasury yield has not strayed far from its current level of just under 0.7 per cent.

As a result, the so-called bond vigilantes — investors who would punish free-spending governments by betting against their debt — have turned their firepower on foreign-exchange markets instead.

Dickie Hodges, a bond fund manager at Nomura Asset Management, bet earlier in the summer that huge amounts of bond issuance by the US government, along with the Fed’s increasing tolerance for inflation, would lead to higher yields on US Treasuries.

But as it became clear that the Fed’s heavy bond purchases would keep a lid on yields, he switched strategy, instead using currency options to position for a weaker dollar.

“Rates markets can’t really go anywhere at the moment because then governments wouldn’t be able to fund themselves, and the Fed and other central banks won’t let that happen,” Mr Hodges said. “That’s pushing people down other avenues including FX.”

Some investors also worry that government debt no longer serves its traditional purpose in a long-term investment portfolio as a counterweight to riskier assets, tending to rise when stocks fall and vice versa.

Russell Silberston, investment strategist at Ninety One, said the asset manager was increasingly using bets on a higher Japanese yen or Swiss franc — currencies that typically rise in times of market stress — as an alternative hedge for its exposure to stocks. “FX is much more volatile than bonds, therefore there are more opportunities,” he added.

While central bankers have put a cap on volatility in fixed income, Paul Robson, a currency strategist at NatWest Markets in London, said they would “struggle to do the same in currencies”, partly due to the political sensitivity: the US keeps a watch-list of countries it deems “currency manipulators”.

Traders are bracing for a stormy end to 2020. Options markets are pricing in big swings in exchange rates around the time of the US presidential election in November, and as the Brexit transition nears its end.

Exposure to currency swings is not always going to be welcome in portfolios designed to be low risk, said Brandywine’s Mr McIntyre.

“If a fixed income manager loses money on currencies, the dissatisfaction tends to be much bigger than the reward for making a profit,” he said. “Nobody loves volatility, but if you are looking for currencies as a source of return, you will have to tolerate it.”

Now is the time for savvy investors and traders alike to consider using the skills of institutional and professional FX Traders either directly or via a Managed FX Service to take advantage of the volatility of Forex