2021 is quite an unusual year, even after the game-changing 2020. Mankind strikes back with vaccines, but will there be a counterstrike by viruses? The world economy is obviously being (Beijing?) reshaped in an unpredictable way. New technologies are introduced, and no one knows which do leave a trace. As a result, world currencies and other CFD trading commodities go unstable. It seems like a Forex paradise, but one needs a great strategy to achieve success.
Forex Strategies: Does It Take a Sun Tzu?
When someone from the outside hears about Forex strategies, it often sounds like some hermetic art, a mystical science that doesn’t let strangers in. In fact, strategies, as they go, are quite logical and require mostly common knowledge a bit adjusted to Forex realities. So, look at these brief reviews below and tell yourself whether there is something only an unearthly wizard can grok.
Following the Trends
It’s the simplest, the most intuitive, and the most efficient way when practiced right. The idea behind it is simple: the current trends are to last for at least some time. If, say, the euro gets stronger than the American dollar, then it makes sense to buy more EUR for USD, given that euro will cost even more tomorrow. This approach better works with a long-term vision, so if you have enough patience, you may benefit from this consistency.
The problem is that no trend lasts forever. Even within its relatively stable phases, it can fluctuate, so the problem is to tell these minor fluctuations from real turning points. Small losses are inevitable, so it’s (at the same time) a good stress test. It’s also a great skill not to opt into the opposite trend when it just shows. A good trader would rather exit the current position when it starts turning, but not rush it, instead of waiting until the new trend establishes.
As for indicators to use with this approach, they usually have the word “average” in their names. For example, “simple moving averages”, “exponential moving averages”, “average directional index”, and so on. School math lessons are enough to understand the tools (though it takes more than school math to succeed, otherwise Forex would have run out of losers soon). Some of them, though, are based on calculus – like price momentum, which is, in fact, the second derivative of price with respect to time. So knowing calculus will boost your trend sense, but not knowing it will not disarm you.
Breakout Trading: When Times Rock and Roll
Trends are good when they show constant dynamics for long periods. But what if not? What if we have been cursed to live in a time of changes? Then you better be ready for breakouts. It’s based on concepts of support level (the price of a certain asset that it doesn’t fall below for a period) and resistance level (the price that this asset does not grow above for the period). Both concepts are worth a deeper look, but now just accept them.
In this strategy, you should react when the price goes below the support level or above the resistance level. The breakouts can be bullish (above the resistance) or bearish (below the support), but in any situation, they offer a space to move to.
Breakouts can lead to big profits if they in fact signify a new trend. Then you just have to be among the first to ride it. To tell a trend change from a short-living fluctuation, though, you have to be informed about political, social, natural, technological, or other influences that caused these effects on the economy.
When Three Is More Than Two
One of the most useful tools on Forex is arbitrage. In theory, any exchange offers some spread within any given currency pair, so if you sell a certain amount and buy it back immediately (or vice versa) on the same platform, you certainly lose some money. It’s not the same, though, if you buy and sell at any given moment at two different platforms, given they may have various spreads. Because various traders react to the world’s event differently and with different speeds, this sort of difference appears often enough to give Forex arbitrage its name.
The biggest seeming paradox of Forex arbitrage is that you can add an extra currency and thus gain profits! For example, if you take a bit of cash (USD, EUR, GBP) and go to a currency exchange to exchange dollars for euros, and at the same time euros for pounds and pounds for dollars, you surely lose a certain amount on each transaction you make. But on Forex, it works differently.
So, in theory, you make a hedging equation: EURUSD + (USDGBP+GBPEUR) = 0. The trick is that sometimes this equation is incorrect due to rate fluctuation. The art is to choose the moment when the parts don’t equal, sell one and buy another. This strategy makes sense in times of political instability that is highly probable in 2021.
The Ichimoku indicator was developed in the 1930s by a Japanese journalist and analytic Goichi Hosoda as a method to more accurately predict price changes, according to the latest moves. Well, Japanese candlesticks are not the only thing we owe to Japan, and Ichimoku is the further development of the candlestick method. Meant to provide a picture readable at a glance, Ichimoku is five lines on the price graph and an area between the two of them (Senkou A and Senkou B).
It deserves more detailed research if you are fascinated by its visual potential. In theory, a glance at an Ichimoku chart should be enough to see where the price of a certain asset (a currency, in our situation) tends to go. Its lines, derived from the trends seen on the graph, are meant to provide buy or sell signals. All you have to do is learn to read them, and despite being Japanese, it’s way easier for a Westerner than kanji. And this ease is why it’s even more actual in 2021: to swiftly read is to swiftly react.
Changes Mean Chances
As you see, as 2021 remains unpredictable, it makes sense to choose strategies that make use of higher volatility and sudden changes. It may take a lot of your time because you have to watch the news, read interviews and analytics, examine people’s expectations, and merely researching signals inside Forex. But when used right, it will pay.
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