Strategies for part-time forex traders
Very few people are available to trade forex full time. Traders who have to make their trades at work, lunch or night find that with such a fluid market, trading sporadically throughout a small portion of the day creates missed opportunities to buy or sell. These missed opportunities can spell disaster for the part-timer trader.
The risk of missed opportunities notwithstanding, there are strategies that can work based on a part-time schedule. For example, those who trade at night might be limited to the types of currencies they trade based on volumes during the 24-hour cycle. These night traders should employ a strategy of trading specific currency pairs that are most active overnight. An example would be trading the Australian dollar (AUD) / Japanese yen (JPY) pair or the New Zealand dollar (NZD)/JPY or AUD pair. It is important to analyze the correlation between currencies when choosing a pair, as having time during the day to study the market and implement trades can lead to a successful strategy (For further reading on forex trading, see "How To Place Orders With A Forex Broker.")
The main problem as a part-time trader is – you guessed it – time constraints. Here are some strategies for trading part time when you have an inconsistent schedule.
Know Your Forex Markets
Assuming you work nine to five in the U.S., you could trade before or after work. The best trading strategy in those time blocks is to pick the most active currency pairs (those with the most price action). Knowing what times the major currency markets are open will aid in choosing major pairs.
The markets in Japan and Europe (open 2:00 a.m. – 11:00 a.m.) are in full swing so part-time traders can choose major currency pairs. These include the EUR/JPY pair or the EUR/ CHF pair for major currencies or pairs that involve the Hong Kong dollar (HKD) or Singapore dollar (SGD). The AUD/JPY pair might also work well for part-time traders available during the 5 p.m. to midnight timeframe. While it is crucial to understand the best currency pairs that fit your schedule, before placing any bets the trader needs to conduct further analysis on these pairs and the fundamentals of each currency.
Stop-Loss Orders in Forex Trading
The best strategy for part-time traders may be to let your computer be your "trading partner." The ability to employ a trading program where you can let the information technology work for you could be beneficial, as the forex market is so fluid and difficult to monitor. Another common strategy is to implement stop-loss orders, which means that if the market takes a sudden move against your position, your money is protected.
Price Action in Forex
There is also a strategy for part-time traders who pop in and out of work (10 minutes at a time). These brief but frequent trading periods may lend themselves to implementing a price action trading strategy. Price action trading means analyzing the technicals or charts of the currency pair to inform trades. Traders can analyze up bars (a bar that has a higher high or higher low than the previous bar) and look at down bars (a bar with a lower high or lower low than the previous).
Up bars signal an uptrend while down bars signal a down trend, while other price action indicators may be inside or outside bars. The key to success with this strategy is trading off of a chart timeframe that best meets your schedule. (For further reading on trading strategies, see "Stop Hunting With The Big Forex Players.")
Other Forex Trading Strategies
These strategies may also serve you well as a part-time forex trader:
Take fewer positions and hold for days.
It is critical that you understand the drivers of your currency pairs and have taken the time to really understand your market. Therefore, after studying the market and narrowing down particular chosen currency pairs, selecting a few positions and holding them for a longer period of time is a prudent strategy for part-timers. Another wise strategy is to put in stop-loss orders with all your trades to minimize any losses if the market moves against you.
Look at long-term trends.
There is value in looking at longer-term trends (daily/weekly) instead of looking at hourly or even four-hour charts. This will allow you to trade while looking at your computer only once a day.
Set up trading orders.
Setting limit, stop-loss or other entry/exit orders can ensure you do not miss opportunities to enter or exit positions. Most trading platforms allow for these orders with no additional fees.
Set up automated alerts to your mobile phone or email to keep you informed of currency price movements while you are not actively trading.
The Bottom Line
The forex market is desirable for part-time traders because it runs for 24 hours and is constantly in flux, providing ample opportunities to make profits at any point in the day.
However, the forex market is very volatile. This makes it risky for all traders, particularly the part-time trader, if the proper strategy is not implemented. Strategies such as trading specific currency pairs that are at play during the times of day you can trade, looking at longer timeframes, implementing price action methods and employing technology will contribute to the success of part-time forex traders. Risk tolerance, leverage and time horizon (from hourly to weekly) must also be taken into account for any trader's broader strategy.
In sum, these elements are an important part of any trading strategy, whether the focus is on short- or long-term gains. (It's also important to keep track of your forex trading decisions, which are outlined in "4 Reasons Why You Need A Forex Trading Journal.")
Top 2 Forex Trading Strategies (That Work!) For Investors
With so many forex trading strategies out there it may be difficult for a trader, especially a beginner, to determine which of them truly work. Whether you are a newbie in this field or a seasoned trader you will find this article very helpful as it gives insight to simple, yet powerful strategies that are proven to work and improve you trading skills when it comes to foreign currency trading strategies.
Simple Forex Trading Strategies Fall into Two Categories:
The Fundamental Forex Strategies:
This strategy involves basic analysis of things like geographical and political implications. Based on the fundamental analysis, the following strategies will help you understand the link between the real economy and the currencies.
- Trading the news
This is one of the best forex trading strategies for beginners. Big announcements and news coming from various countries have an enormous impact on the market. It is important to watch out for any announcement that could impact forex trading, especially currency option trading, so that you can determine whether to trade or not.
Arbitrage is a foreign currency trading strategy that involves a forex trader attempting to take advantage of market inefficiencies and make profits from price differences. To benefit from arbitrage, one must find the right conditions and look for a possible loophole in the market.
Unlike other currency trading strategies, carry-trade allows traders to make profits even when markets are stable as it does not rely on market fluctuations. In the carry-trade strategy a trader purchases a high differential ratio currency. This guarantees the buyer a high interest rate. A profit can be made if a trader buys when a currency’s interest rate is expected to go up and sells when the interest rate is projected to fall.
- Trading the market sentiment
Market sentiment is a combination of opinions concerning trading. Reading the market sentiment can be one of the forex trading strategies that work. You can understand market sentiment by looking at the primary trend of a particular currency pair in the charts. In reading the market sentiment, observe the market trend, price action, and international events.
- Turn volatility in your favor
As a forex options trader, these factors can turn market volatility in your favor:
- Widen your take-profit and stop-loss targets. This minimizes losses and extends your profit potential.
- Reduce losses: When the price is trading within a certain range, put the stop slightly above the top price when buying and slightly below the bottom when buying.
- Lower your leverage: With a limited amount of capital, traders can make high profits with leverage. To make maximum profit in a volatile market, ensure the risk is the same as normal times.
- Diversify your portfolio: Have various instruments in different markets. It is important to diversify since even during normal times one cannot predict the outcome of a trade. This uncertainty increases during volatile periods. By spreading your funds into different directions, you minimize your risk and increase your chances of making good profits.
Technical Forex Trading Strategies
While the fundamental forex strategies set the direction of a currency pair, the technical forex strategies make it possible to trade profitably.
- Horizontal levels
Horizontal levels, combined with price change can lead a forex trader to understand the trend and predict where the market will go next. They also help a trader determine the right time to enter a trade. The horizontal level strategy is better used alongside other forex trading strategies.
- Fibonacci indicator
The Fibonacci indicator forex trading strategy is a currency trading strategy that relies on a 'pullback' system of operation. Using a Fibonacci forex trading strategy requires an investor to analyze a trend and determine if there is a pullback of the trend.Through Fibonacci numbers and ratios, an investor can make a decision based on the lines appearing on the graph.Determining the extent the pullback has gone on the Fibonacci graph will help a trader decide whether the price will be bullish or bearish.
Divergence is one of the simple forex trading strategies used by traders and analysts of financial instruments to recognize patterns and predict the next direction prices will take. When used alongside other indicators like RSI, Stochastics, MA, support and resistance levels, the chances of making marginal profits increase. Divergence is one of the best strategies a trader can use to analyze charts.Divergence is calculated between lows and highs of the price as well as the indicators. The best indicators for trading divergence are RSI, Stochastics, MACD, and Volumes.The four categories of divergences include:- Regular Bullish Divergence- Hidden Bullish Divergence- Regular Bearish Divergence- Hidden Bearish Divergence
- ADX (Average Directional Index)
Coupled with other forex trading strategies, the ADX (Average Directional Index) - Forex Trading Strategy helps traders to understand the trend and consequently enter trades likely to yield massive profits.The ADX tool should not be used alone as it only gives an indication as to the strength of and not the direction of a trend.On a scale, the average directional index ranges from 0-100 where 100 indicates a strong trend while 0 indicates a non-existing trend. Values close to 0 indicate a sideways moving trend while above 50 indicate a strong trend.On the ADX scale. Lastly, values under 20 indicate a weak trend.
One of the simple forex trading strategies that financial market traders use is hedging. To hedge means to purchase and sell on the spot or within a short period two separate instruments either in different markets like stocks and options or just a single market such as the Forex market. To great institutions, hedging is a mandatory component used to limit the risks of loss and increase the chances of winning. To understand different possibilities, it is important to use other forex trading strategies alongside hedging.
Forex trading strategies are usually based on technical analysis or on news-based events. A forex trader depends on a variety of signals that trigger the decision to buy or sell. Many of the above currency trading strategies yield profits when combined. It is advisable not to rely on just a single strategy as every approach compliments another.
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