Follow Oil in Currency Trading
Part of becoming a good investor in forex is learning to understand that the markets evolve and changes with time. As it does, your trading strategies should also evolve and adjust. You will need to make a little tweak here and a little tweak there sometimes in your trading strategies.
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.
Oil drives the global economy. High oil prices put recessionary pressures on the global economy. Lets discuss a currency trading strategy that depends on following oil prices in the global markets. There are many sources of oil. Some countries export oil. Most of the countries in the world import oil. So oil prices tend to affect almost all the currencies. Some currency pairs react more strongly. Others less so when oil prices change. When oil prices rise, they continue to rise for several months. Fortunately for you, oil prices trend for extended periods.
Similarly when oil prices decline, they tend to continue declining for several months. Some of the currencies that react strongly to oil price changes are GBP and CAD. Lets focus on USD/CAD.
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.
Do you watch CNBC daily? You should watch for times when the oil prices are rising and the exchange rate USD/CAD is decreasing. Similarly, on CNBC look for times when oil prices decline and the exchange rate USD/CAD increases.
We will use CCI, Commodity Channel Index, to trigger the trade. Watch the 14 period CCI (Commodity Channel Index) chart. It should cross above 100 and then cross back below 100. This will tell you that the buyers made a temporary upward push on the currency pair USD/CAD but were unable to turn the trend around and it is still downward. This is time to open the trade.
Enter the trade and set a limit order of 300 pips and a stop loss order of 75 pips by going short on USD and long on CAD. This setup will give you a risk to reward ratio of 1:4. This risk to reward is very good and it allows you to be wrong a few times without ruining your chances of being profitable. 300 pips mean $3000 and usually such a trade will continue for 4-5 weeks.
You can also trade the USD/CAD currency pair in the opposite direction if the oil prices start to decline. However, prolonged downtrends in the oil prices are unlikely under rising global oil demand. This trading strategy depends on just knowing which way the oil prices are moving right now. You can take advantage of this oil price movement. Oil prices have again started to climb. It has reached above $68. Take advantage of the rising oil prices by trading USD/CAD pair as described above. - 23218
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.
Oil drives the global economy. High oil prices put recessionary pressures on the global economy. Lets discuss a currency trading strategy that depends on following oil prices in the global markets. There are many sources of oil. Some countries export oil. Most of the countries in the world import oil. So oil prices tend to affect almost all the currencies. Some currency pairs react more strongly. Others less so when oil prices change. When oil prices rise, they continue to rise for several months. Fortunately for you, oil prices trend for extended periods.
Similarly when oil prices decline, they tend to continue declining for several months. Some of the currencies that react strongly to oil price changes are GBP and CAD. Lets focus on USD/CAD.
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.
Do you watch CNBC daily? You should watch for times when the oil prices are rising and the exchange rate USD/CAD is decreasing. Similarly, on CNBC look for times when oil prices decline and the exchange rate USD/CAD increases.
We will use CCI, Commodity Channel Index, to trigger the trade. Watch the 14 period CCI (Commodity Channel Index) chart. It should cross above 100 and then cross back below 100. This will tell you that the buyers made a temporary upward push on the currency pair USD/CAD but were unable to turn the trend around and it is still downward. This is time to open the trade.
Enter the trade and set a limit order of 300 pips and a stop loss order of 75 pips by going short on USD and long on CAD. This setup will give you a risk to reward ratio of 1:4. This risk to reward is very good and it allows you to be wrong a few times without ruining your chances of being profitable. 300 pips mean $3000 and usually such a trade will continue for 4-5 weeks.
You can also trade the USD/CAD currency pair in the opposite direction if the oil prices start to decline. However, prolonged downtrends in the oil prices are unlikely under rising global oil demand. This trading strategy depends on just knowing which way the oil prices are moving right now. You can take advantage of this oil price movement. Oil prices have again started to climb. It has reached above $68. Take advantage of the rising oil prices by trading USD/CAD pair as described above. - 23218
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 @ 3:50 AM
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