Be a Smarter FOREX Currency Trader: Three Basic Principles

Below I will describe three basic principles that may come in handy for currency traders. They are very easy to implement and potentially take advantage of as you will see.

Principle 1

Some currency traders find that it is useful to always trade a given currency pair at the very same time every day. The reasoning for this is that most of the other traders buying or selling that currency pair may also trade at the same time. Major trading pits may also be working the exact same shift every day. This technique may be especially useful for currency traders who exploit technical analysis. Again, the reasoning for this is that it may be possible to standardize the trading conditions if one trades during the same time frame every day, if only for a very little bit. However, that small bit of standardization may yield several pips worth of profit. Nevertheless, it is readily obvious that the foreign exchange market can be very volatile and random.

Principle 2

Certain currencies trade with a certain volatility at a certain time. Once you've finished practicing your trading skills on a demo account and you decide to test the waters using your own investment capital, you may want to minimize the amount of liquidity and volatility to hedge your risk. Alternatively, you may want to increase the risk involved, and potentially increase your profit potential. (It should be noted that very heavy risk is involved under any circumstances.)

The foreign exchange market follows the sun around the world moving from the United States to Australia and New Zealand to the Far East, to Europe and finally back to the United States. Overall foreign currency trading volume is determined by which markets are open and the overlap in the times that these markets are open. Currency trading volume is relatively high 24 hours a day, but there are considerable peaks in activity when the British, European, and US markets are open simultaneously, which is from 1 pm GMT to 4 pm GMT. Pacific Rim markets, such as Japan and Hong Kong, show a dip in their trading volume while there is extensive volume in the US market at the very same time. Nevertheless, it is still possible to perform technical analysis on Pacific Rim currencies. By trading during a certain time frame, one may be able to either minimize or maximize the level of volatility (and risk) for a given currency pair.

Principle 3

Although the above is a general statement about the activity volume for certain currencies, it may be a good idea to attempt to capture the level of volatility for given currency pairs. You can potentially use Bollinger bands, a tool used by technical analysts, to quantify volatility. Bollinger bands compare volatility and relative price levels over time. Some currency traders cannot trade a day in their life without using Bollinger bands, while others may not find any use for them; it is really up to you to decide whether Bollinger bands are of any use to your specific situation.

I have described three basic principles that may potentially come in handy for currency traders in the foreign exchange market. They are very easy to implement and may reap rewards (or lack thereof) depending on market conditions. Hopefully these principles will help you come up with your own successful strategies for trading currencies in the foreign exchange market.

Joshua M. Kunken is Currency Analyst for ForeignMarketWatch.com. His articles may also be found at ForexTrack.com.

---

The Secret of Reduced Margin Spreads

One of the best kept secrets in trading is that... Read More

Forex Training: Follow Your Gut or Your Broker

Which way will the forex market move? Do you just... Read More

The Major Players in the Foreign Currency Exchange Market - FOREX

Since the US dollar is the centerpiece of the market,... Read More

The Basics of Forex

Foreign exchange market is also known as Forex or FX... Read More

Trading Tips No 1: Learn How to Trade The Moment of Truth

So you have learned how to trade the markets by... Read More

Getting a Forex Trading Education

Many Americans are interested in getting involved in forex trading.... Read More

Why Forex Traders Plan To Fail Before They Even Place Their First Trade & How You Can Know It & ...

Have you heard the wise saying that a trader who... Read More

Where to Get Forex Training

For those of you who are interested in forex trading,... Read More

The Miracle of Forex

My father, who owns a small parts store and garage... Read More

Example of a Profitable Transaction in FOREX

To make a profit, in the FOREX, a trader can... Read More

Forex Scams: How to Spot Them A Mile Away

In recent years, investors have witnessed increased number of investment... Read More

Money Management, Part 2

FEARING LOSSESThere is a huge difference between being risk averse... Read More

10 Steps To Professional Day Trading

Everyone trades a little differently. The trading method outlined below... Read More

5 Questions You Need To Have Answered Before You Back-Test Your Forex System

As 90-95% of new forex traders lose money within the... Read More

FOREX Trading Philosophy

Keen on starting FOREX trading? Why would you not be?... Read More

A Beginner?s Guide to FOREX

FOREX is the abbreviation for the Foreign Exchange market. FOREX... Read More

The Seven Most Traded Currencies in FOREX.

Currencies are traded in dollar amounts called "lots". One lot... Read More

The Meaning of FOREX Price Charts and How to Use Them

There is one very important factor that you should consider... Read More

Discovering Turnaround Candidates

There are many types of investment methodology out there. All... Read More

How To Handle A String Of Losses

Everybody hates to lose and unfortunately no one is blessed... Read More

Trading Timeframes

Long TermLong term traders will work from end of day... Read More

What I Learnt Losing £60,000 My First Year as a Full-time Trader

During my first year as a local (independent trader) on... Read More

Forex Brokers - Helping to Maximize Your Success

A Forex broker is a broker dealing in foreign exchange,... Read More

The Margin Advantages of Trading FOREX.

There is one aspect that is considered as one of... Read More

Why Demo Account Performance Is Often Better Than Real Account Performance

Over the past several years, the popularity of online currency... Read More

Chinas New Currency Regime

The base unit for the renminbi is the yuan, which... Read More

Money Management - The Holy Grail Of Trading

Money management determines how much to risk on each individual... Read More

Stocks Trading - Advantages and Disadvantages

What is Stocks Trading?Companies throughout the world issue new stock... Read More

Online Futures Trading - Advantages and Disadvantages

What Is Online Futures Trading?A futures contract is an agreement... Read More

Crisis of Confidence in the EU

The European Union (EU) constitution was dealt a double blow,... Read More

Ways to Acquire Discipline in Trading

One way to acquire discipline in trading..."Hey Joe! When you... Read More

Intrenet Marketing VS Forex Currency Trading

Have you noticed that when someone's trying to sell you... Read More

Commodity Trading - Advantages and Disadvantages

What Is Commodity Trading?Commodity futures markets allow commercial producers and... Read More