The best strategy
One of the most important things that Forex traders should understand the behavior of different markets is different and the trading edge therefore needs to be developed in different ways. As a result, the best strategy to succeed in one market is not necessarily the best strategy to succeed in another. However, it would be fair to say that the best strategies tend to be the ones that follow the long-term trend and capitalize on the benefits so offered. Many of them would also seek to benefit from the momentum of sudden and sharp changes in price. Some traders also believe that support and resistance levels are important parts of the best strategies.
The reason for the difference in behavior is the different factors that drive different financial markets. In markets such as stock market indices, the primary force is speculative and speculators in search of a profit tend to drive prices in a range between support and resistance levels. The best strategies in these markets would therefore be strategies that leaned heavily on the use of who support and resistance levels. However, the Forex markets are so large that no group of speculators would have anywhere near the capital that is required to influence the market in any significant fashion through speculation. The more significant factors driving this market tend to be macro-economic and policies fashioned by central banks. As a result, following the trend becomes that much more important and strategies that utilize trend following tend to be the most effective.
When in the day you should trade
The statistics would seem to suggest that the best time to trade is during the trading session in Asia because this is when the best results can be obtained from currency pairs such as those involving the USD and the European currencies. Because many traders can be categorized as range traders, they often do not show much success because they are trading at the wrong time of the day. Traders seemed to have more success in the late U.S. and Asian sessions and the early European sessions which means between the times of 2:00 PM and 6:00 AM New York time. Naturally, these statistics can vary considerably from day-to-day but they can be considered to be accurate over considerable lengths of time. For instance, the Euro tends to be less volatile during certain hours of the daily and this is the best possible time to trade successfully. Not all currencies tend to believe in the same fashion and the Japanese yen, for instance, is more volatile during Asian trading hours because these happened to coincide with the business hours in Japan.
Low risk strategy
One of the most commonly asked questions in Forex trading is about strategies that have relatively low risk. Though strategy is entirely a matter of personal and preferred trading styles and there are many strategies that you can adopt, a generally accepted low risk strategy is known as scalping. This is a strategy of accumulating profit in small increments and maintaining open positions for only short periods of time. As a result, the frequency of transactions because of the rapid opening and closing of positions can be substantial. Because profits are accumulated frequently, the risk factor is minimized. Traders will hold positions for timeframes ranging from a few seconds to a few minutes and react quickly to small changes in the market that can generate profits. The advantage of scalping as a strategy is that you can make money in short periods of time by using simple trading systems such as support and resistance level breakouts. The disadvantage is that the number of profitable transactions must significantly must significantly exceed the number of unprofitable ones and the trader will have to compromise on risk/reward because he will normally establish a higher stop-loss than a take-profit.
It is important to identify which currencies lend themselves best to profitable scalping. Because the trader is dependent on specific types of currency price movements, he needs to zero in on currencies with minimum spreads and transaction costs as well as heavily traded currencies that will provide the maximum liquidity. He will also need to select currency pairs which do not normally register sharp price movements that could provide a surprise. EUR/USD, USD/CHF, GBP/ USD and USD/JPY are the most heavily traded and most suitable for scalping because, despite the heavy volumes, price movements are not particularly sharp. Carry pairs are the currency pairs which are made up of one currency with a high interest rate and another with a low rate but they are not particularly stable and volatile because the prices depend on developments in interest rates. Examples of such currency pairs are the AUD/JPY and NZD/JPY and it is suggested that the straits should be undertaken only by experienced traders using trend following tools. There are also possibilities in currency pairs which include at least one exotic currency such as the Russian ruble but you should remember that these are generally far less liquid than the majors.
The best trading hours for scalping
This depends on the currency pairs that you choose and the particular strategy that you wish to adopt. It also depends on whether you have a preference for markets without direction or for markets which have both liquidity and direction. Successful scalping normally requires a high degree of volatility though there are certain techniques for making money from markets with a lower rate degree of volatility. The Euro, the British pound and the Swiss franc are at their most volatile during trading in London and the best hours are 3:00 AM to 5:00 AM and 8:00 AM to 10:00 AM. New York time. The Australian Dollar, New Zealand’s Dollar and the Japanese Yen show high volatility in trading on Tokyo and Sydney and the best hours are 07:00 PM – 11:00 PM.. Similarly, the Canadian dollar is at its most volatile during trading in New York between the hours of 8:00 AM and 12:30 AM. Naturally, the U.S. dollar is not mentioned because it can be traded in combination with any of the other currencies.