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Forex iPhone

Pyramid Positions in Forex


Pyramid Positions in Forex

Buying and selling the Forex market is one of the most exciting, fast paced trading decisions you will ever make. Currency prices are well known for swinging wildly in a particular direction by 100 to 200 pips, at a moment's notice, sometimes for no exact reason in particular.
So how do you capitalize on this type of market? How do you ensure that you are following the proper trading ideals - i.e. maximizing profits whilst minimizing losses? We have some solutions which might help to achieve just this.

Building on Winning Trades

There is literally nothing better than buying a particular currency, and then within minutes seeing the pair surge upwards on a wave of optimism. You know that you had the right idea at the right moment, and the decision you took to buy that currency was the right one.
This is where we should mention the "trend". It is a statistical fact that when a currency moves in one direction, it is more likely that at any given point, it will continue to move in that direction rather than reversing. This is why people who try to pick bottoms and tops often fail miserably in their trading.
So - if you are sitting on a winner, what is the logical thing to do? One of the ideas might be to add to your existing position, and hope that the currency continues on the positive course.
Here is an example of how such a trade might pan out:
  • You buy EUR/USD at 1.3200 and it rises to 1.3300 shortly after the trade.
  • Instead of closing the trade for a 100 pip profit, you buy another 2 lots of the currency.
  • Because of the trend, EUR/USD continues to rise to 1.3350.
  • You close your position at this point.
  • Your profit is the 150 pips on initial position + 50 pips on both secondary positions.
Here, you have clearly benefited from the prevailing trend in the market and have capitalized on a position where the intuitive feeling may have been to just take the profit at 100 pips.

Building on Losing Trades

It should be noted that building a pyramid strategy for losing trades is absolutely not the same as the above. Staggering your entries should only be used by people who are experts in the field - and for position traders who want to balance and average out their average cost at a "better" price.
Remember, whilst pyramid trading can be hugely beneficial to profits, it also magnifies any losses if the market was to reverse - so careful monitoring needs to be done at all times to ensure that the position is safe and guarded.

Pyramid Positions in Forex



Trading Forex in a Tight Market


Trading Forex in a Tight Market

Unlike most other markets out there, Forex is a 24/5 operation - meaning that from Monday to Friday, you can trade at any time of the day or night. This is perfect if you are one of those people wanting complete flexibility as to the times you trade. However, it can also be a bit of a nightmare for those who are followers of the news.
Fundamental trading strategies (or news trading) is basically the basis on which people use the news to base their trading decisions. For example, any of the following events might trigger a trade if someone was carefully following the news:
  • Surprise interest rate increase or decrease.
  • Surprise economic data.
  • News that a currency is being artificially tampered with by authorities.
This is just a selection of the possible news stories which could turn a relaxed, off duty Forex trader in to a raging financial mogul in a matter of seconds.

Why the Forex Market Gets Tight

When we talk about a "tight Forex market" we are usually referring to a lack of trading on a particular currency pair, and therefore a very small amount of price movement over a given period.
For example, if we said that the USD/JPY was trading "tightly", it would imply that the daily range of the currency pair was extremely small - perhaps a matter of 30 to 50 pips.
There are other times when we would say that the market is tight also. In some cases, we might refer to the entire market as being "tight". This usually happens on a select few occasions at about the same time each year - with one of these periods of course being: summer.

Summer Trading is Tight Trading

Even though the Forex market is still open each week day during summer, because many finance companies and banks choose to send their employees on holiday during these times - the liquidity of the entire market is often low. In other words, it's not just one single currency pair which is affected, but all the currency pairs.
If you are trading during summer or if the American summer happens to be your winter - you need to adjust your trading strategy to incorporate this decrease in liquidity. Perhaps consider more position trades, rather than swing or scalp trades, to attempt to mitigate the additional risk of the low liquidity during the major holiday breaks.

Trading Forex in a Tight Market