The Right Time to Open a Trading Position
When it comes to taking forex long and short positions, traders have a unique style and approach. This is because the forex market is one of the most liquid and largest markets in the world.
Knowing when to buy and sell in forex depends on many factors. But volume tends to be larger when the market is volatile due to higher associated risks. This article will cover the concept of buying and selling currencies using practical examples. As well as additional resources to enhance a trader's trading experience.
Understanding Buying and Selling in Forex
Buying and selling forex pairs involves forecasting the appreciation/depreciation of one currency's value against another. This can involve fundamental or technical analysis as a basis for trading. Once the base is established, traders will look at other technical and fundamental aspects. Key levels for market entry and exit will follow, keeping the risk management process in mind.
FACTORS AFFECTING CURRENCY PAIRS
Political Events
Government instability, corruption and changes in government can affect the value of a currency. For example, when president Donald Trump was elected president of the US, the dollar exchange rate soared!
Economic Policy
From a fundamental point of view, traders should keep a close eye on reports on unemployment, GDP, monetary policy and fiscal policy which have an effect on currency values. The economic calendar also shows upcoming events that could shake up financial markets.
Technical Analysis
Technical traders tend to prefer key price levels (support & resistance), trends and other indicators to form the basis for a trader's trading.
How to Buy and Sell EUR/USD
Using the EUR/USD currency pair, we will give an example of how and when to open long or short positions in forex. Assume that the trader is going to open a long EUR/USD position. When the EUR to USD exchange rate rises after a short position, the trader can make a profit but is subject to commissions and other fees. In this case, a trader will buy EUR and sell USD at the same time. For example, if you open a long position on EUR/USD at the price of 12091.7 and it rises to the level of 12149.6 when the trade is closed, the profit from the trade is 204 pips.
– Entry level – Morning star pattern on the candlestick indicates a potential entry point, as evidenced by the use of indicators that display oversold signals.
– Exit levels – Use key price levels to set profit-taking levels.
Similarly, fundamental traders can trade the USD/JPY currency pair by following both political and economic news. For example, if fundamental traders expect the Fed to raise interest rates, this will attract more investors to the US. So there will be a lot of demand for the domestic currency, in this case the USD. Traders can then monitor to enter long/buy positions, anticipating the strengthening of the US dollar. But this is a certainty that is not absolute because economic principles/theories do not always translate into real-world conditions. Taking a short/sell or sell position on a forex pair is a bit more complex than taking a long position.
Understanding Risk Management When Buying and Selling Forex
Risk management is very important for the continuity of forex traders trading. It includes not only a positive risk/reward ratio but also understanding potential changes in volatility. The factors that influence forex trading can have a significant impact at any one time. Thus, to prevent adverse effects on traders' trading, it can be done by applying the right risk management techniques. Buying and selling forex can be tricky. Understanding the mechanics of trading, such as how to read currency pairs, is very important before starting to trade, especially reading forex guides for beginners on the basics of forex trading.
Note:
Comments
Post a Comment