Category Archives: Trading

2017 Forex Trading Strategies to Walk Away a Winner

Currency trading represents just as much of an art form as it does a science. Not only will investors need to rely upon facts and figures, but the presence of intuition plays an important role. Success is therefore no accident. It is only through the development of proven strategies that one will be able to walk away a winner. How can beginners hone their skills and what basic approaches should be taken in order to avoid some of the most common pitfalls? These are two very important questions which should be addressed in greater detail.

Putting Past Performance in Perspective

Many novices develop the habit of basing their current decisions off of past historical data. We should mention here that this can be a dangerous strategy, for the world of currency trading is much different than it was ten years ago. This is not to say that fundamentals should be ignored entirely. Past performance can illustrate the typical behaviour of a specific currency pair. This should then be coupled with present market data in order to appreciate the “big picture”. Such a strategy will particularly apply to major currencies such as the dollar, the pound and the euro.

Inserting Geopolitics into the Mix

Politics and the Forex markets have always enjoyed a hand-in-hand relationship and this principle is even more true thanks to an increasingly interconnected global economy. Traders need to keep one eye on the latest news feeds while the other remains focused upon currency charts. One example can be seen in the recent ablation of the Trans-Pacific Partnership (TPP) deal between the United States and Asian countries. Many analysts feel that while the dollar may strengthen from a short-term point of view, the pronounced trade deficit will nonetheless pull this currency back down (1). The Brexit vote and the continued infighting throughout the European Union are other examples of when politics can dramatically impact the value of a specific regional currency.

Understanding Leverages

The prospect of enjoying lucrative profit margins through a relatively small investment is naturally attractive to many Forex traders. While there are indeed times when leveraged trades can produce significant gains within extremely short periods of time, such situations tend to be the exception more than the rule. The danger of leveraged trades is that they are associated with much higher levels of risk.

What may appear to be only a small financial outlay can quickly snowball into a massive loss; often more than the initial investment. Such situations have crippled many traders and even professionals tend to be wary of margin trading. This technique should only be employed after a significant amount of experience has been obtained. This is the best way to embrace a more conservative stance.

Thinking Outside of the Traditional Currency “Box”

For the past two decades, the “big three” currencies have been the dollar, the pound and the euro. While there is no doubt that such benchmark assets represent the lion’s share of Forex trades, we still have to recognise a concept known as global flows. Global flows are essentially the cross-border exchange of goods, services and finances. As of 2012, this figure equated to roughly $26 trillion dollars. Such a staggering statistic is expected to increase to roughly at least $54 trillion dollars by 2025 (2). Emerging economies will play an important role in such growth. Traders are therefore beginning to look at other alternatives such as the Chinese renminbi for future investment possibilities.

Diversification

A final fundamental principle behind Forex investing centres around diversification. It is all too common for a trader to rely upon a single currency pair to accrue profit. Although this might be the most comfortable option, instability is almost always the end result. It is best to hedge one’s risks by employing a number of different holdings simultaneously.

Finally, the correct trading platform will have a profound impact upon success or failure within the digital domain. Providers such as CMC Markets offer cutting-edge investment tools, an intuitive platform and countless underlying assets to choose from. Working smart as opposed to hard is the best way to produce sustainable wealth over time.