The Australian economy is greatly dependent on its export earnings. About 70 per cent of Australia’s total exports are made up of mineral and energy products, worth about $73 billion in 2009-2010. Australia has a lot to gain from the economic rise of China and other developing nations as they import Australian raw materials such as iron ore and coal, driving demand for them and consequently bolstering the prices.
Forex trading in AU represents one-way that investors can take advantage of this dependence. The following will introduce you to essential forex trading strategies that use simple technical analysis techniques that any investor using online currency trading platforms can perform.
Currency pairs
It would help if you always traded forex currencies in pairs; one currency’s relative strength or weakness against another will determine whether you are buying or selling the pair. The Australian dollar is a favoured currency to trade. It has been rising for several years against major currencies such as the US dollar and the British pound due to high demand from China and other Asian countries.
Pivot points
Pivot points predict forex price movement by identifying potential support and resistance levels. These levels are represented by horizontal lines, which reflect specific points at which there may be increased supply or demand, causing a change in prices that traders can exploit through arbitrage. Fundamental analysis should always be performed alongside technical analysis to identify news announcements affecting price patterns.
Arbitrage
Arbitrage trading is an essential forex trading strategy that can earn consistent profits. The idea is to buy a currency pair in one market and sell it in another market where the price is higher. It allows you to pocket the difference between the two prices. Market makers use this type of trading strategy by buying low in one market and selling high in another; however, retail traders can also take advantage of this by using arbitrage trading robots or free software that identifies these opportunities for them.
Position sizing
Whilst Arbitrage strategies seek to make small returns on many trades, position sizing can lead to more significant profits on fewer trades by identifying pivotal points at which large sums of money are traded. A larger transaction size has a disproportionately more significant effect on the market. It is known as volume weighting and can be quite volatile due to increasing volatility at these points. Fundamental analysis should always be performed alongside technical analysis to identify news announcements affecting price patterns.
Volatility
Demand for a specific currency depends on several factors, not just economic conditions but also market sentiment. A specific currency may be rising in value due to vital fundamental factors such as economic growth rates. At the same time, sentiment in the marketplace may turn negative, causing prices to fall because people are selling off their investments quickly. Identifying high volatility trends will help you avoid risky forex trading strategies, so always analyze your charts carefully before executing a trade.
High/low volatility
High volatility forex trading strategies exploit the increased risk of more significant price movements. They typically involve buying at the start of a trend and selling back to the market later once volatility has subsided. Low volatility strategies work oppositely by shorting (selling) an investment when it is stable and then repurchasing it more cheaply later on as demand for it rises after volatility has died down. This type of trade can only be performed if you have identified high/low points using pivot points or support/resistance lines.
Forex robots
Many free software programs automatically identify these opportunities for you so that all you need to do is place your trades alongside them. If you wish to buy forex trading systems or use forex robots to perform your trades for you, always check out reviews of the first to be 100% confident in their ability to make money for you.
