FX TRADING STRATEGY
and performing is remarkably easy to do. What’s more difficult is mastering
trading psychology.
The good news is, I’ve witnessed thousands of people perfect this skill with a little practice.
You see the news is an excellent indicator of how a currency’s price will move. It almost sounds too obvious, but negative economic and political events from particular country will almost always result in its currency’s price falling. On the other hand, good economic and political events will make the currency increase in price. These trends are commonly known as the ‘fundamentals’ amongst traders and investors.
Remember, the kind of events I’m talking about include things like national unemployment data, manufacturing output data, GDP data, public spending initiatives, along with policy announcement from central banks and politicians.
The challenge comes when traders are
required to stand by their
original long-term position. For example, lets take a look at the US dollar. Throughout the whole of
56 FX TRADER MAGAZINE April - June 2014
2013, traders and investors were obsessed with when the Federal Reserve would start to cut its stimulative quantitative easing policy, as data suggested that the US economic recovery was
This negative data has led to market sell-offs of the US dollar, which is a clear indication of traders panicking at seeing the price of the US dollar slip. This is simply the wrong move and a common habit amongst novice traders.
Instead of selling when a currency price moves against the long-term position, traders should be wise enough to buy that currency at good price before the f undament a ls come back into play. This is
gathering pace.
Well that process, known as ‘tapering’, has finally started and has led to many traders to buy the US dollar against currencies which have established weaknesses. This
is a sensible move because
the US economy is very likely to strengthen throughout 2014, while tapering will certainly bolster the currency price.
However, while the fundamentals suggest the US dollar being a pretty safe bet over the long- term, the start of 2014 has seen some fairly disappointing data releases about US job claims and unemployment.
exactly what I did with the US dollar at the start of 2014.
Keep in mind that currency prices are never linear. Just because the US dollar is expected to strengthen this year, it doesn’t mean the currency price will never fall. What’s important is to stick by the ‘big picture’ and trust the fundamentals that you find in the news.
Jarratt Davis
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