Forex Trading Strategies

Trade only when there’s a huge swing during news announcement:
This is perhaps one of the most profitable ways of earning if you can interpret well based on the news announcement. Usually during this period of time, there will be huge swings and most of the time it can mean a jump of few hundred pips. For instance, if there’s a major interest rate change let’s say a cut in US dollar rate, and then what you would do is to sell dollar. I’m sure many Forex traders have made profitable sum during the widely expected interest rate cut by the FED to counter the credit crunch problem. Back then, the FED interest rate stood at 5.25% and with each announcement on interest rate cut, traders have been profiting well by buying the EUR/USD pair. Other than interest rate, other news announcement to watch out are like the US non-farm payroll, unemployment rates, factory output and also be on the lookout for important speeches made by influential figures. For example -Ben Bernanke (FED chief) or Trichet (ECB president) could give indication on which direction the central bank is heading and thus, based on their speech use it to predict the movement of currencies.

Trade using signals from the equity market and commodities:

One thing that a trader should also note is that, Forex has a strong correlation with the equity market. Movement in the equity market can be used as a key indicator to predict currency movement in Forex. For instance, if there’s a huge drop in the equity index, then be prepared to go for Yen or Francs which are naturally currencies traders use for carry trade. On the other hand, when equity markets start to rise, then traders will naturally hedge their risk in carry trade and therefore, expect high yielding currencies like Pound and New Zealand dollar to rise. Commodities also play an important role influencing movement in commodity currencies (or better known as comdolls) like Aussie dollar, which represents gold and the Canadian dollar that represents oil. Therefore, if you expect a huge jump in commodity, then it’s natural that traders will start to hedge their position in the corresponding currency. However, one thing to note is that this is not always true and there can be exceptions especially when the central bank tries to play down currency movement by cutting the interest rate.

Scalping and long term trading:

One of the infamous or rather “unwelcome” method in which you can use as part of your Forex trading strategies is by “scalping”. What scalping actually means is that you take advantage when there’s a lapse of period during the time when the major markets are close. For instance, during that period, movement of currencies are very slow and that’s where your chance to quickly buy/sell and then close your position instantaneously sometimes within seconds. Although it’s a good way to earn from Forex, your broker may not like what you are doing and as such may even ban your account. Therefore, try not to overdo this. As opposed to scalping, another Forex trading strategy, which you can use, is through long-term investment. Currently the Euro is still very much undervalued and based on the strength and size of the economy, expect it to rise even further compared to the US dollar which is depreciating day by day.

Well that's almost all of it. There are even more if you were to ask me and some of them are really highly guarded secrets. But most important thing is that, once you have set firm on which Forex trading strategies to use, try stick to it and adjust based on the market conditions.