Dec 09 2019 8
Trading forex can be quite a challenge for beginners. There are so much to learn and scammers are everywhere. My advice for beginners is to choose a reliable forex broker, build a forex strategy, then trade and learn at the same time. This is one of the most basic and safest ways to trade forex profitably. Besides choosing a suitable forex broker, you must have a forex strategy. In this article, I want to show you 7 ways to trade forex that every beginner should know of.
Long term investing
This is considered one of the safest ways to trade forex. There are not many things that can go wrong with this method. When you decide to invest in the long term, you should have the big picture in sight. This way of trading requires big funds, analysis of the markets worldwide, and patience.
To invest for the long term, you need to pick a currency pair, predict the direction of the price based on the current economic condition of the countries, then decide how long you’re going to hold on to that currency before selling it. Patience is the most important quality of traders at this stage. Long term investment like this does not pay off immediately. You have to wait for the right moment. Moreover, you must not be easy to yourself. Always trade like you have to explain your decisions to another person. Every decision must have a hard evidence backing it.
Here are the things you need to trade long-term successfully:
Depends on the currency pair you’re holding on to, you may have to pay for interest rate or earn from it. This is totally up to the country of that currency. You need to follow the news closely to decide which currency you should choose.
Factors that affect the economy
The currency you choose is heavily affected by the economic situations. The current situation is affected by various factors such as employment rate, CPI, politics (election, legislation…), and interest rate… You have to catch up with these factors constantly to adjust your strategy in time.
And don’t just choose a currency based on the news solely. You need some technical analysis to back it up. Do some research and make sure you have all the evidence to convince yourself.
When you decide to invest for the future goal, you can’t use short-time charts. You need to take a step back. Start using the weekly or monthly charts. This will give you a better view on the whole market and you can feel the movement of the price better.
Find the best brokers for long term investment
Trading based on news
Thanks to the age of explosion in media and means of communication, information has never been easy to obtain like this. That makes it so much easier for traders who trade forex based on news releases and hot updates. There is something happening all over the world every second and the market is open 24 hour, so you can always make trades based on the news.
For this way of trading, you should just focus on the main currencies because they are the easiest to find news about them. Here are the most common currency pairs from the biggest financial markets:
- U.S. dollar (USD)
- Euro (EUR)
- British pound (GBP)
- Japanese yen (JPY)
- Swiss franc (CHF)
- Canadian dollar (CAD)
- Australian dollar (AUD)
- New Zealand dollar (NZD)
Based on these currencies, you can trade up to 28 currency pairs. And different from long-term investment above, this method aims at quick changes in the market that are affected by the news.
For this method, you should know the time when most news are announced in those markets. Except when it is urgent or sudden news, most news are released as follows (EST):
- 8:30 to 10:00 in the US
- 18:50 to 23:30 in Japan
- 7:00 to 8:30 in Canada
- 2:00 to 4:30 in the U.K.
- 1:45 to 5:30 in Switzerland
- 17:30 to 19:30 in Australia
- 16:45 to 21:00 in New Zealand
- 2:00 to 6:00 in Europe
What news should you notice?
When saying news, there are several types of news out there, how can you know which one can have a real effect on the market? Well, here are the types of news that you definitely should pay attention to and make decisions quickly when they are released:
- Rise and fall in interest rate
- Unemployment rate
- Trade balance
- Surveys on business, consumers, or manufacture.
The best broker for news trading
Trading based on daily volatility
The forex market is the largest market in the world in terms of trading volume. There are thousands of traders trading in the market every second. So you can see that the prices are affected heavily and the market can be really volatile. Of course, you can make some money thanks to that volatility.
Volatility is hard to point out because it is “volatile”. Nobody can predict it by themselves. However, with the help from indicators, you can sometimes predict the volatility of a currency. You can guess volatility based on the currency pair The most common pairs are often very stable. Volatility happens more to uncommon currency pairs such as USD/RUB, USD/ZAR, or US/TRY.
Yes, volatility can bring risk but if you just know how to trade based on it, you can make profits safely. You cannot control volatility, but you can indeed manage risk. Yet, it can’t be denied that volatility and risk will always go together hand in hand. So, if you want to trade based on daily volatility, you need to have a risk management plan first.
To use this way to trade forex, you need to find the right indicator. Volatility can only be identified by indicators. It is safer and quicker. Or if you want to find it manually, volatility usually happens around the time of a big news release. Therefore, you should keep up with the current market to know when to trade. Don’t forget to use Stop Loss because volatility can greatly increase your losses, especially when you trade with leverage. There are high chances that the price can go in a direction that no one can predict. Finally, you should trade small positions. Because this can help minimize your loss. It’s all for your safety.
The best broker to trade based on volatility
Trading based on daily breakout
This is one of the most suitable ways to trade forex major currency pairs. It is pretty simple but can promise great profits. Everyday, when the market is highly volatile (usually during the American and European session), that’s when we operate. The breakout phase usually occurs from 00:00 to 8:00 in the morning. So, after 8, the highs are the resistance levels and the lows are the support levels. If the price goes over the resistance levels or under the support levels during the day, you should buy or sell respectively at that moment. Of course you don’t have to look at the daily charts the whole day. Just set up some pending orders at 8.
Earning from swaps
If you keep your positions open overnight, the next day, you will be charged or paid an interest fee. That fee is called swap. You have to pay for swap for short positions, while you receive swap for long positions. If the amount you receive is higher than the amount you have to pay, then you just made some profits from swap. A position that is opened and closed on the same day doesn’t have interest fee.
Trading based on swap is never the choice of professional traders. The amount you make is just too little compared to how much the price moves within a day. This way of trading is like a reminder for you to close some positions before the end of a trading day.
Averaging down can be simply understood as you intentionally lower the average price of a forex instrument that you purchase by keep buying it when the price goes down. This way, even when the price increases more slowly than when it falls, you still can make profits fast because the average price of your asset is lower.
You buy a currency at $50. Next day, you see the price drops to 40 dollars. So you buy the same amount as yesterday for $40. Now, your average price is $45. Next day, the price keeps going down to $30. Now, you keep buying at that price for the same amount. Therefore, your average price is now $40. If you need to make profits, you just need to wait for the price to rise over $40, instead of $50 in the beginning if you don’t buy anything on the next two days.
This method is not commonly used in forex trading. The principle of forex trading is to cut the losing position immediately, not prolong it. The price can easily hit the Stop Loss and you lose much more money than you could. Or, you can choose to not set up Stop Loss from the beginning (which is not advised). This way of trading can only be applied when you are very confident that the market will go your way and the downfall is just a little unexpected misdirection.
This way of trading is also not very common in forex trading. The time to apply this method is when the market is about to go in a new direction very sharply. These moments are rarely seen in the forex market. When it does, you should set the Stop Loss very wide and the Take Profit very tight. Trading this method aims at multiple small profits. For example, you can set the Stop Loss at 10,000 points and Take Profit at 50 points. There are 99% that you will take profit before the price hits Stop Loss. This method is safe but hard to apply because the ideal time for it hardly happens.
Now you know the basic ways to trade forex. Quickly develop your own forex trading strategies and start trading now. If you need to find a good forex broker to start trading with, you can check right here.