The currency section of the Exchange is a popular marketplace where many currency traders “feed”. Often, beginners also prefer to work with currency, because this tool is simple, and the principle of its trade is extremely transparent. However, even such relatively simple trading requires an informed approach. Now we will discuss the basic principles and forex trading strategy on the stock exchange using currency pairs as the main tool.
Forex trading strategy on the exchange: where to start
To choose the right strategy for use in the foreign exchange market, you should first learn about the features of the currency as a trading instrument and the nuances of its trading.
The basic principle of currency trading is the same as, in general, on the stock exchange – to buy cheaper and sell more expensive. Since the currency is highly volatile, it is not suitable for hedging risks or long-term investments, but it is ideal for short and medium-term speculation.
Success in currency trading depends largely on the choice of currency pairs for trading. There are so-called major pairs that are most popular for trading and are formed by currencies leading in the global economy. For example, this is a pair of euro/dollar. Such pairs are more predictable quotes, which is good for beginners who are just beginning to master the foreign exchange market.
Of course, there is not much to earn on them, but the risks are much less here, and the analysis is easier to carry out – news on EU countries and the US is always available.
Pairs that lack a dollar are called cross rates. You can also earn money on them, although information for analysis is somewhat more difficult to find. Among the cross courses, there are pairs with different volatility. So, a pair of euro/pound sterling is characterized by a more relaxed behavior without sudden jumps, but a pair of the same pound sterling with the Japanese yen has very high volatility, which makes it difficult and dangerous for an inexperienced trader to trade.
As you can see, a lot depends on the choice of the trading instrument. However, no one forbids choosing to trade several currency pairs. Of course, here you need to know the measure – too large an arsenal of trading tools inevitably disperses attention, because of which the quality of trade and profitability suffer. So a beginner should not choose more than 2-3 currency pairs at first.
Choosing a currency pair, a trader should pay attention to volatility (risks and probability of profit depend), liquidity (profit depends), and predictability of a currency pair (ease of analysis depends). There is no need to hurry with the choice, but having defined it, you need to think over your currency forex trading strategy, which we will discuss below.
Indicators – a simple profit recipe?
Often, beginners choose strategies based on indicators for currency trading. Argued that such strategies – the fastest and easiest way to profit: like, why reinvent the wheel, if everything has long been thought out? And yes, there is some truth in this. Indicators can simplify the trading process, they are used by many professionals, but there are a couple of important nuances.
First, pros do not use indicator strategies in isolation. They skillfully combine them with other methods of market analysis and are often used not as the main forex trading strategy, but only to confirm the conclusions already made during the technical analysis.
Secondly, indicator strategies, although they can be profitable, do not allow the trader to develop. If a trader uses only indicators, he ceases to learn and approach the market consciously. And in order not to stagnate and increase profits, you need to trade your mind, and not rely solely on indicators.
Thirdly, when abused, indicators do not help to trade but produce the opposite effect. Using more than five indicators at once, the trader clutters up his schedule with a large number of unnecessary variables, which does not simplify, but complicates the decision-making process and adds stress.
From this you can make a simple conclusion – indicators can be useful, but only as an auxiliary tool. Among the well-established indicators are Stochastics and moving averages. They are used quite widely by novices and foreign exchange market pros.
Sensorless strategies: what’s a plus?
Non-indicator strategies are, first of all, fundamental, and various types of technical analysis. These include Elliott Wave Analysis, the search for graphic patterns and figures, VSA analysis, bargaining analysis, etc. The peculiarity of such non-indicator strategies is that the trader, having mastered the basics of analysis, thinks with his head, goes deeper into the market, studying how it works and achieves a greater level of awareness in commerce.
This approach develops the trader’s analytical abilities, deepens his understanding of market processes and develops intuition. If to illustrate with a simple example, then to teach a trader to use indicators is how to feed a hungry fish, and to teach him to analyze is to teach the fish itself to catch.
Traders who use various methods of analysis to trade in the foreign exchange market are more successful and have higher profits. They are also better adapted to the market, they are able to show flexibility and adapt to changes, thanks to which they remain in the profession longer.
To master the non-indicator strategies, in particular, the analysis of the VSA and gay analysis, there you can learn to use different indicators and forex trading strategy in a balanced way.