Position Trading (Part II)
After performing the fundamental analysis, the trader may be confident that the US Dollar is indicating overall weakness and the Euro is indicating overall strength for the coming six months.
Keeping in view the overall strength of Euro and the weakness of US Dollar, the next step for the position trader would be to open a long position in EUR/USD pair. This simultaneously provides the position trader with long Euro position and a short US Dollar position.
The long term directional bias has been formed by the position trader on the basis of fundamental analysis. Going long on Euro and at the same time short on US Dollar, this combined trading position fulfills the fundamental outlook of the position trader on both the currencies.
So position trading depends on using fundamental analysis in identifying a profitable position in the currency market and then using technical analysis in setting up the actual trade. However, pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis.
So the position trading uses fundamental analysis in pairing strength with weakness. Now this concept fits extremely well with the forex markets as all currencies are traded in pairs unlike the stock market or for that matter other financial markets.
Position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading. Trading forex requires a directional commitment on two currencies for each trade, so position trading is ideal for forex trading.
Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to other financial markets.
What should be your first step to identify a strong/weak pair? Your first step as a position trader should be analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time. You will have to do fundamental research and analysis on all major currency pairs as a position trader.
You will have to study all the major currencies like US Dollar, Euro, British Pound, Swiss Franc and the Japanese Yen. Suppose you identify GBP and USD as the strongest loser currencies by performing fundamental analysis while EUR and CHF as the strongest gainer currencies in the foreseeable future. Possible currency pairs for position trading could be long EUR/USD, long CHF/USD, short GBP/EUR and short GBP/CHF.
After this, you can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise because the price action is never ever linear. It is always up and down with minor trends superimposed on major trends.
Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position. But if done properly it can be one of the most effective methods of extracting long term profits from the forex markets. - 23204
Keeping in view the overall strength of Euro and the weakness of US Dollar, the next step for the position trader would be to open a long position in EUR/USD pair. This simultaneously provides the position trader with long Euro position and a short US Dollar position.
The long term directional bias has been formed by the position trader on the basis of fundamental analysis. Going long on Euro and at the same time short on US Dollar, this combined trading position fulfills the fundamental outlook of the position trader on both the currencies.
So position trading depends on using fundamental analysis in identifying a profitable position in the currency market and then using technical analysis in setting up the actual trade. However, pinpointing the best time for the trade entry as well as setting risk managed control strategies is best accomplished by using technical analysis.
So the position trading uses fundamental analysis in pairing strength with weakness. Now this concept fits extremely well with the forex markets as all currencies are traded in pairs unlike the stock market or for that matter other financial markets.
Position trading with the strength/weakness model is the most logical fundamental method for approaching long term forex trading. Trading forex requires a directional commitment on two currencies for each trade, so position trading is ideal for forex trading.
Buying one currency because it looks like it will become stronger while simultaneously selling another currency because it looks like it will become weaker is a better way to trade as compared to other financial markets.
What should be your first step to identify a strong/weak pair? Your first step as a position trader should be analyze the Central Bank policy statements, economic growth factors of these countries, global economic news etc to identify the currency with the strongest positive future prospects and the currency with the strongest negative future prospects at a given point in time. You will have to do fundamental research and analysis on all major currency pairs as a position trader.
You will have to study all the major currencies like US Dollar, Euro, British Pound, Swiss Franc and the Japanese Yen. Suppose you identify GBP and USD as the strongest loser currencies by performing fundamental analysis while EUR and CHF as the strongest gainer currencies in the foreseeable future. Possible currency pairs for position trading could be long EUR/USD, long CHF/USD, short GBP/EUR and short GBP/CHF.
After this, you can enter the trades with the help of technical analysis and hold them as long as they move in the correct direction disregarding minor corrective swings and market noise because the price action is never ever linear. It is always up and down with minor trends superimposed on major trends.
Position trading maybe the most difficult method of approaching forex trading for the beginners! It requires a great deal of patience and faith in ones own analysis to weather the inevitable swings against the trading position. But if done properly it can be one of the most effective methods of extracting long term profits from the forex markets. - 23204
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!
posted by X - Men @ 6:05 AM
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