Today’s guest post comes to us from Mike Trinkle. Mike is a currency trading author, who is sharing with us today a foreign currency exchange strategy that works well for him.
Are you looking for ways to change your investment retirement strategy due to poor performance? Or lower than expected returns? Admittedly, the recession has caused the majority of new and experienced investors to look for new avenues in to which to relocate their funds.
Currency exchange will recondition your overall investment basket and allow you to claim your short-term returns. However, you should also note that the forex market is much more volatile then the stock, bond, and commodity markets.
If you have been looking for short-term profits then the forex market is very easy to access; it’s open 24 hours a day / 5 days a week (markets are closed on the weekend).
Applying your current retirement investment strategy to the forex market may work with a few tweaks and knowledge base expansion. In order to have a successful forex strategy and increase your short-term returns you will need these three components; fundamental analysis, technical analysis, and strong discipline.
To have a lucrative fundamental analysis, you would be required to look for important news that would affect the overall currency market. The forex news consists of important news (macro-economic level) and the not so-much important news (micro and small ineffective economic news). Since, the global recession started in late 2008, there are three required economic news that need to be part of your fundamental analysis; unemployment rate, NFP (Non-farm payroll), and the Federal fund rate.
If you are trading the Euro (which is made of 27 European members) against the U.S Dollar and a positive or negative sentiment macro-economic news is announced; it will surely shake up your EUR/USD currency trade. Let’s take a look at the U.S unemployment rate and the NFP number that was just recently announced as an example to illustrate the reaction of breaking news. The forecast was that the unemployment is going to increase from 9.5% to 9.6% (negative for the U.S dollar) and that the NFP is going to decrease to -63K from -131K (positive to the U.S dollar). Looking back at all major currencies (Euro, GBP, and Yen) you would have noticed that the U.S dollar plummeted on that day … reason? The unemployment rate actual number was neutral/positive because it stayed at the same rate of 9.5% percent but the NFP number increased to an astounding -131K which was more then double then the original forecast.
Technical analysis is needed in currency trading more than in the stock, bond, or commodity markets to be prosperous.
In the forex market, the technical analysis of any currency will consist of two vital components; trend and resistance lines.
Trend is simply the flow of the currency is moving at; for example, currency moving in an downtrend direction (moves from the top-left corner to the bottom right corner) and vice-versa an uptrend direction (moves from the bottom-left corner to the top right corner). Why are trends relevant in the forex market? It’s because the daily trends are long-term lasting and it’s where majority of traders (commercial and professionals) are placing their buy or sell positions.
Resistance lines are previous points where the traders decided to start a new buying position or the buyers decided to sell. Resistance lines are important in the currency exchange market because that’s what the majority are watching as an entry or exit point. If a resistance line is broken on the upside, then you would know that your buy position is strong and if the vice-versa occurs where your buy position breaks a resistance line on the downside; you will need to exit and take the loss.
The majority of the forex traders fail in the forex market because they have little to no discipline while trading. Many trade the forex market as a form of gambling or luck which is the wrong stance to have. You are not required to trade everyday but only during the times where you view the probability to win is greater then to lose. There will be times, where you will lose but being able to control your risk and having the proper money management plan; will give you a greater probability of short-term profits. Forex trading should be part of your retirement strategy and short-term gains will add up very fast but remember in order to be successful you must control your risk.
Here is a great quote from General George S. Patton about risk taking, “Take calculated risks. That is quite different from being rash.”
Thanks for reading!
How about you all? Have you all ever tried currency trading? Was it successful for you? Was it too risky?
Note from blog author: After analyzing the different aspects about foreign currency trading through reading this article, I’ve determined that while it is a worthwhile endeavor for some people, currency trading with currencies such as the US Dollar, Yen, or Bitcoin does not fit well in my investment strategy.
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