The foreign exchange market is a decentralized or OTC market for the trading currencies. Some people might think that forex trading is a sure-shot way to get rich quickly. However, anyone who knows even a little about forex trading knows that it is not so. In fact, in the majority of cases, the opposite is true.
A large number of people have suffered losses due to poor forex trading performance. But that doesn’t mean it is not something you cannot venture into. If you exercise caution and trade with great caution, you might make some profits.
Trading in currencies needs a lot of diligence on the part of the trader. Although some people might like to speculate, it is better not to proceed blindly.
Whatever currency you deal in, it is important to understand them well before you take any big steps. Here are some strategies for those who wish to trade the EURO.
Who are Euro traders?
Euro traders are those who speculate on the strength of the Eurozone economy, in comparison to its major partners. In Forex trade, the relationship between the Euro and US Dollar (USD) is considered as the most liquid forex pair in the world.
The tight spreads and broad price movement of these currencies make a constant stream of profitable opportunities possible for those engaging in forex trading.
Although there are several ways to trade the EUR/USD pair, three simple strategies are considered more consistent and effective. The good news is that these strategies can be used by forex traders of all skill levels.
A new trader can participate in Euro trading by reducing position size to minimise risk using these strategies. On the other hand, experienced traders can increase the size to make the best out of the trading opportunities.
Points to remember
With Britain’s exit from the EU and the general economic instability in the PIIGS countries, the euro is a popular choice of currency traders aiming for profit from increased volatility
There are numerous ways to trade the euro - versus the U.S. dollar and other euro currency pairs
Strategies for trading the Euro
Here are the three basic strategies for trading the euro:
Buy or Sell the Pullback
It is no secret that the EUR/USD movement pushes in both directions and takes the price from one level to another in a favourable response loop to generate significant momentum. But these rapid movements tend to fizzle out according to the shifts in the supply/demand equation. This would mean the latecomers will be trapped in positions that might be heading for losses if the currency pair overturns and moves in the opposite direction.
However, the pullback strategy used this countertrend movement to your advantage by identifying significant support or resistance levels that would end the price swing and restore the original trend direction. You should remember that these levels come at prior highs or lows and key levels defined by Fibonacci retracements, the inception point of the original thrust, and moving averages.
Buy the Breakout or Sell the Breakdown
It is usual for a pair of currencies to grind back and forth within confined boundaries for extended periods. This helps the traders to set up well-defined trading ranges that will yield new trends, higher or lower, in time. If you handle this consolidation phase with patience and low-risk forex trade performance, you’ll have a strong rally or selloff when the support or resistance finally breaks.
The key to the successful implementation of this strategy is good timing. It is crucial to get your timing right because if you enter too early, the range could hold and trigger a reversal. On the other hand, if you enter too late, the risk might escalate if the position executes well above new support or well below new resistance. In such cases, it is better to minimise timing risk by opening a partial position as the pair breaks out/down and adding to it by the first minor retracement.
Go into Narrow Range Patterns
The currency pair will frequently rise or fall into a significant barrier and then go inactive, producing narrow range price bars. They tend to lower the volatility and raise the apathy levels. However, this quiet interface often inadvertently indicates a powerful entry signal for a breakout or breakdown, as the case may be. This strategy comes into play within the narrow range pattern, with a tight stop in place in the event of a major reversal.
This setup often produces an NR7 bar, which is the narrowest range price bar of the last seven bars. Initially observed in the U.S. futures markets during the 1950s, this simple yet powerful pattern predicts if price bars will expand in a sizable breakout or breakdown. It is also a low-risk entry because you can set the stop loss remarkably close to the entry price.
Conclusion
If you have a forex trade account, regardless of whether you are a new or experienced Euro trader, use these three simple strategies to take advantage of repeating price action.
Furthermore, any equity trader can apply these strategies with Currency Shares Euro Currency Trust (FXE) that tracks a forex pair in real-time. You can also trade in leveraged and inverse ETFs if you have the skills required for managing the additional risk involved.
Additional tips for newcomers
If you are new to forex trading or have just started your forex trading account, you can learn the ropes of forex trade with the help of a demo account.
The demo forex accounts do not require you to fund your account. You can familiarise yourself with the trading practices and platforms and tight spreads at almost no cost. The risk involved is minimal as you will get an opportunity to hone your trading skills and forex trading performance without committing large sums of money.
It is also possible to open a live account and start trading real money within a few minutes. However, you should bear in mind that a large proportion of retail investor accounts lose money when trading CFDs. So, you should think through and decide if you can afford to take the risk of losing your money.