Simplex

By Ahmad Hassam

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.

Global economy runs on the supply of oil. You can say oil drives the global economy. High oil prices put pressures on the global economy. Inflation rises and fear of a recession starting mounts. Lets discuss a currency trading strategy. It depends on following oil prices in the global markets. Some countries export oil. There are many sources of oil. But most of the countries in the world import oil. So oil prices tend to affect almost all the currencies in the world. Some currency pairs react more strongly. Others currency pairs less so when oil prices change. When oil prices rise, they continue to rise for several months. Fortunately for you, oil prices tend to trend for 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 is the major importer of Canadian oil. The value of CAD increases with increase in oil prices in relationship to US Dollar (USD). Increase in oil prices means that the pair USD/CAD should start trending downward. This is a good 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.

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.

Enter the trade. Set a limit order of 300 pips and a stop loss order of 75 pips. Go short on USD and long on CAD. This setup gives 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 but without ruining your chances of being profitable. 300 pips mean $3000 profit and 75 pips means $750 loss if the trade goes against what you anticipated. Usually such a trade will continue for a month.

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. - 23309

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.