Foreign Exchange Rates Short Term Trading Strategies

Foreign Exchange Rates

When you first start to trade foreign exchange rates, you quickly begin to realise that you’re going to have to make a basic decision about what kind of trader you want to be. Short-term traders are focused exclusively on “now” (as in “today” – not tomorrow, etc.). Longer-term traders are focused on the future, searching for a trend that they can successfully hop into before “the herd” arrives. The mindsets are totally different. It’s almost impossible to do both kinds of trading at the same time. If you’re risk-adverse, the choice is easy: “day trading”. It’s fast, ruthless and all over by lunch or dinner. If you’re more of a macro kind of person, then trend trading is probably more suitable. Almost nothing beats the intellectual satisfaction that you saw a trend developing – and successfully exploited the opportunity – before “everyone else”.
Day trading usually involves 2 moving averages that signal when to get in and out of a trade. “Exponential” moving averages are more pricing sensitive than “smoothed” moving averages.

Why Use Short-Term Instead Of Long-Term Trading Strategies For Foreign Exchange Rates?

Many risk-adverse investors prefer to day trade, rather than get involved in a position that goes through the night and, maybe, a couple more days thereafter. They like the idea of being in the market for a brief time period, even if they’re highly leveraged. They don’t trust their abilities to spot trends and successfully surf them. They may also not have enough time to analyse the markets enough to feel comfortable with any but a 5- or 15-minute trade. The problem with day trading is that it can be intense. You have to sit in front of a computer non-stop, constantly watching various charts and the news. On top of this, you have to use relatively very high leverage ratios.

Trading Foreign Exchange Rates Using Short-Term Strategies

Most day traders use either a pair or a trio of moving averages to signal when to get in and out of a trade. Some people prefer using smoothed moving averages (e. g., the “Williams Alligator”) while others prefer exponential moving averages (e. g., “TRIX” – “Triple Exponential Moving Average”). In general, a smoothed average produces a more mellow trading signal, while an exponential average produces a hummingbird kind of trading signal. So, if you are going to work with either 5- or 15-minute charts, it might be best to use exponential moving averages. However, if you are going to be trading off of 30-minute or 1-hour charts, then a smoothed moving average should be more successful. Some experimenting is necessary.

Getting The Most Out Of Trading Foreign Exchange Rates

For those who believe in trial by fire, try this day trading strategy (on a “demo account”, first). Open up a 15-minute AUD/USD chart and put a pair of exponential moving averages (“EMAs”) on the chart. The first EMA should be 8-periods long; the second EMA should be 34-periods long. Trade all crossovers led by the 8-period EMA in the direction of the crossover, using a 100:1 leverage ratio and a tight variable stop. Signal confirmation can be accomplished by adding all of the following to your chart: an “Awesome Oscillator”, a “Fisher Transform” and a “SMI Ergodic Indicator”. Watch the “Awesome Oscillator” closely. A steep rise (or fall) probably indicates a trade that can clear all execution costs.

 

 

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