3 Forex Trading Tips for the Month AheadFebruary 28, 2017
"Endless money forms the sinews of war" - Cicero - Philippics
The month ahead is going to be a very, very busy for all the traders out there. It doesn’t matter what is your preferred market, the upcoming economic and political events will affect a majority of asset classes. Hence, I do believe it is the right time to look at some forex trading tips. When fundamentals take over technical analysis, it’s always good to know how to adapt to the new environment.
March is shaping up to be a month filled with political events that could have a tremendous impact on stocks and currencies. In the United States, there is a good chance we’ll reach the debt ceiling sometime in the middle of the month. Also, let’s not forget about the Federal Reserve’s rate decision on the 15th and Dutch general elections on the same day.
Financial trading has been a lot tougher on recent months due to a lot of uncertainty. Perma-bears are getting louder by the day as they see the stock market collapse right behind the corner. Populists in Europe dream of bright future without the euro and the European Union. Given the atmosphere, it’s normal that the market is also confused and looks for a direction. Trading is getting trickier and as a result, perhaps some forex trading tips can be helpful.
Read Also: Correlations in Forex Market
Keep Your Targets Small
When the trading environment gets, though, one the easiest thing to do is to reassess your money management. For example, during the summer time, it’s rather pointless to attempt to get a lot of pips per trade. The market simply isn’t moving that much and trying to find large swings can be costly and time-consuming. It’s always wise to keep in mind that holding a trade with a negative swap costs you a little bit of money every day.
Hence, going for small gains (in terms of pips) can be a smart move. It’s especially helpful (and lucrative) when the market starts to range. It often happens ahead of big economic/political events and also during summer months and Christmas. Booking small gains here and there can add up to a nice pile of profits in the end of the month.
Forex scalping as such is perhaps one the most popular strategies used by newcomers. Using high leverage and going for very small targets seems appealing. In reality, scalping is rather dangerous because the risk-reward is almost always negative (by far). And in this case, I’d like to make it very clear that I’m not talking about scalping. When I’m talking about small targets, I’m thinking up to 50 pips per trade.
Breakouts Fueled by Noise
Trading breakouts is a popular strategy but once again, it looks a lot easier than it actually is. During times when the market is confused and looking for a direction, false breakouts are common. One of the known forex trading tips when it comes to breakouts is to wait for a re-test. In theory, that is correct and often enough keeps the trader out of trouble.
On the other hand, during volatile times, forex rates can change instantly. What at first seemed to be a perfect breakout, followed by a re-test, can turn into a complete disaster in no time. That is especially likely when the market is waiting for something. Often enough, technically “perfect breakout” is actually fueled by some random news, comments. After that, the market loses the momentum and starts to consolidate, only to turn around when the”real news” hit the wires.
Hence, during the next month, it’s wise to choose your breakout trades very carefully. Rumors regarding potential FED rate hike should get louder as get closer to the 15th. The market may react to those speculations rather aggressively but that doesn’t mean a decision has been made. Same applies to the Dutch general elections. The polls can show what they like, it’s the outcome that matters.
Price Structure Can Tell a Story
Following the price structure and behavior is perhaps one of the best forex trading tips that I can give you. Price action always gives you hints about the market environment and the overall sentiment. If one’s knowledge about reading the price behavior is good enough, it can help to determine potential outcomes of any given situation.
Unfortunately, reading the price action correctly and knowing the different structures are something that takes a long time to learn. Looking into Elliott Wave theory is the right way to go here but don’t expect quick results. On the hand, if you already have the knowledge of putting together different price patterns, then you have an advantage.
Looking at the bigger picture and keeping an eye on potential structure developments can help to plan a trade or even to predict an outcome of an event that under normal circumstance is unpredictable.
Capital Properties FX
Recommended Further Reading
• “High-frequency trading.” Deutsche Bank Research 7 (2011) Chlistalla, Michael, Bernhard Speyer, Sabine Kaiser, and Thomas Mayer.
• "Forex Analysis and Money Management Maciejczyk", K., 2012. (Doctoral dissertation, WORCESTER POLYTECHNIC INSTITUTE).