Anyone contemplating trading foreign exchange rates has to make a basic decision about what kind of trading they want to get involved in. The choices boil down to either being a “day trader” or a long-term “trend trader”. The reason that you have to make a choice is that the mindset involved in day trading is completely different than the mindset of a long-term trader. Day traders, on the whole, are risk-adverse. They prefer to be in the market for very short amounts of time, grabbing a profit and exiting the scene as quickly as possible. As a result, keeping trade execution costs low becomes critical. Long-term traders are more concerned with getting into a good position so they can surf a trend profitably. They are willing to stay in a trade for weeks at a time, if needed. Understandably, they use low (30:1) leverage ratios.
Day traders prefer to use short-term moving averages to help them spot a profitable trade. Long-term investors use bands or channel indicators more.
Learning The Art of Trading Foreign Exchange Rates
For beginners, learning about how to trade forex successfully should be more about reading on the internet than pounding any trade execution keys on a trading platform. This is because forex is the largest capital market in the world (in terms of daily turnover) and many of the participants have balance sheets bigger than the economies of some countries. In addition, the pace of pricing changes can be rather frightening, unless you have a background in trading futures. So, spend some quality time looking at bank websites plus Reuters and Bloomberg, perhaps dipping into a forex-related news commentary website like “fxstreet.com” out of Barcelona. Then, when you’re feeling more comfy, sign up for a “demo account” and start practicing trading.
Making Use Of Tactics When Trading Foreign Exchange Rates
One of the key issues you’ll face is deciding whether or not to get involved in “day trading” (as opposed to “swing” or “trend trading”, which involves longer time frames). Day trading is intense. You have to stay in front of a computer, watching a myriad of charts, waiting for certain trade signals to occur. The focus is “now”; the leverage ratio can be extremely high; and, a trade can be done and gone in less than 5 minutes. In contrast, the focus in swing or trend trader is on the development of a certain trend; leverage ratios are usually much lower; and, it might be days before you exit a trade. Some people can do both successfully; most cannot.
Generating A Return From Trading Foreign Exchange Rates
If you think day trading might be for you, sign up for a demo account and try this strategy for at least a week. Open up a 5-minute chart of the AUD/JPY and put 2 exponential moving averages (“EMAs”) on it. The first EMA should be 8 periods long; the second EMA should be 34 periods long. Colour each EMA a different colour. Bold the 8-period one; that’s your trade signal line. Whenever it crosses over the 34-period line, launch your trade in the direction of the crossover. When it crosses back over again, exit the trade. If you want to “cherry pick” your trades, use an “Awesome Oscillator” to decide if there’s enough momentum to clear trade execution costs.