Following Oil in Currency Trading
If you want to become a good currency trader, then you need to understand that the forex markets evolve and change with time. You will need to make a little tweak here and a little tweak there sometimes in your trading strategies in order to continue making profit. As the currency markets evolve and change, your trading strategies should also evolve and adjust to these changes in the markets.
There will be periods of low returns and even losses when the markets suddenly change and new trends are formed. Your trading strategies will need adjustment with the markets with these changes. When you have made the adjustments to your trading strategies, you will start making profits again as before. You should never make the mistake of getting stuck with only one currency pair and only one trading strategy. Always look at macroeconomic events. Try to understand how different currency pairs react to these events.
Now, lets discuss a trading strategy that depends on following oil prices in the markets. There are many sources of oil. Some currency pairs react more strongly than other when oil prices change. Fortunately for you, oil prices trend for extended periods. When oil prices rise, they continue to rise for several months.
Almost in the same fashion, when oil prices start declining, they tend to continue declining for several months. In 2008, we saw oil prices on the rise for several months before a sudden collapse. Oil prices than stabilized around $55 for many months. Some of the currencies that react strongly to oil price changes are British Pound (GBP) and the Canadian Dollar (CAD). Lets focus on USD/CAD currency pair in our example.
United States imports more oil from Canada that any other country. The value of CAD should increase with increase in oil prices in relationship to USD. With the increase in oil prices, this means that the pair USD/CAD should start trending downward. This is an example of a trend trading strategy.
If you watch CNBC daily, then you should watch for times when the oil prices are rising and the exchange rate USD/CAD is decreasing. Similarly, on CNBC watch for times when oil prices are declining and the exchange rate USD/CAD is increasing.
Use CCI (Commodity Channel Index) to trigger your trade. Watch for the 14 period CCI to cross above 100 and then cross back below 100. This tells you that the buyers have made a temporary upward push on the currency pair USD/CAD but was not able to turn the trend around.
Set a limit order of 300 pips and a stop loss order of 75 pips. This gives you a risk reward ratio of 1:4. This risk reward to reward ratio is very good. It allows you to be wrong a few times without ruining your chances of being profitable. 300 pips mean $3000. Usually such a trade will continue for 4-5 weeks.
You can also look to trade the USD/CAD pair in the opposite direction if the oil prices start to decline. However, prolonged downtrend in the oil prices is usually unlikely. This trading strategy just depends on knowing which way the oil prices are moving right now so that you can take advantage of it. Oil prices have again started to climb and reached above $68. You can take advantage of the rising oil prices by trading USD/CAD pair as described above. - 23223
There will be periods of low returns and even losses when the markets suddenly change and new trends are formed. Your trading strategies will need adjustment with the markets with these changes. When you have made the adjustments to your trading strategies, you will start making profits again as before. You should never make the mistake of getting stuck with only one currency pair and only one trading strategy. Always look at macroeconomic events. Try to understand how different currency pairs react to these events.
Now, lets discuss a trading strategy that depends on following oil prices in the markets. There are many sources of oil. Some currency pairs react more strongly than other when oil prices change. Fortunately for you, oil prices trend for extended periods. When oil prices rise, they continue to rise for several months.
Almost in the same fashion, when oil prices start declining, they tend to continue declining for several months. In 2008, we saw oil prices on the rise for several months before a sudden collapse. Oil prices than stabilized around $55 for many months. Some of the currencies that react strongly to oil price changes are British Pound (GBP) and the Canadian Dollar (CAD). Lets focus on USD/CAD currency pair in our example.
United States imports more oil from Canada that any other country. The value of CAD should increase with increase in oil prices in relationship to USD. With the increase in oil prices, this means that the pair USD/CAD should start trending downward. This is an example of a trend trading strategy.
If you watch CNBC daily, then you should watch for times when the oil prices are rising and the exchange rate USD/CAD is decreasing. Similarly, on CNBC watch for times when oil prices are declining and the exchange rate USD/CAD is increasing.
Use CCI (Commodity Channel Index) to trigger your trade. Watch for the 14 period CCI to cross above 100 and then cross back below 100. This tells you that the buyers have made a temporary upward push on the currency pair USD/CAD but was not able to turn the trend around.
Set a limit order of 300 pips and a stop loss order of 75 pips. This gives you a risk reward ratio of 1:4. This risk reward to reward ratio is very good. It allows you to be wrong a few times without ruining your chances of being profitable. 300 pips mean $3000. Usually such a trade will continue for 4-5 weeks.
You can also look to trade the USD/CAD pair in the opposite direction if the oil prices start to decline. However, prolonged downtrend in the oil prices is usually unlikely. This trading strategy just depends on knowing which way the oil prices are moving right now so that you can take advantage of it. Oil prices have again started to climb and reached above $68. You can take advantage of the rising oil prices by trading USD/CAD pair as described above. - 23223
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Discover A Revolutionary New Forex Robot. Develop your own Forex Trading System.
posted by X - Men @ 3:49 AM
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