Jaydee
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I don't really trade much currency anymore - when I did, I liked the Eurodollar.
Essentially, I would develop a more long term idea by understanding the economic indicators which affect the currencies. Major ones which influence the market are interest rates, employment, gdp, trade balance and inflation. In the case of the Eurodollar, keeping up with what Bernanke (Fed) and Trichet (ECB) are doing with their monetary policies is quite important.
Short term, you would use your technicals to trade. I don't use much more than typical support and resistance breaks or bounces. I use the ATR to try and get some insight into the volatility - it's not perfect but nothing in trading is. Using the volatility I know my stop before I enter the trade and also know the position size.
Anyway, if I thought the US was going to constantly lower interest rates because they wanted to boost the economy and the ECB was going to keep rates on hold because they were worried about inflationary pressures (deja-vu anyone?), I would be looking for a support break or resistance bounce so I could execute a short dollar position. My stop would be based on a certain amount times the 20 day average true range depending on how long I wanted to run the position.
I would set targets, once again, based on the volatility of the currency pair and shift the stop accordingly.
I have found in trading that entries are the easiest, stops are difficult if you don't account for volatility and exits are the most difficult. Exits are the worst because I don't believe that the market can be predicted and, therefore, trying to get out correctly can be a case of trying to pin the tail onto the donkey.
Essentially, I would develop a more long term idea by understanding the economic indicators which affect the currencies. Major ones which influence the market are interest rates, employment, gdp, trade balance and inflation. In the case of the Eurodollar, keeping up with what Bernanke (Fed) and Trichet (ECB) are doing with their monetary policies is quite important.
Short term, you would use your technicals to trade. I don't use much more than typical support and resistance breaks or bounces. I use the ATR to try and get some insight into the volatility - it's not perfect but nothing in trading is. Using the volatility I know my stop before I enter the trade and also know the position size.
Anyway, if I thought the US was going to constantly lower interest rates because they wanted to boost the economy and the ECB was going to keep rates on hold because they were worried about inflationary pressures (deja-vu anyone?), I would be looking for a support break or resistance bounce so I could execute a short dollar position. My stop would be based on a certain amount times the 20 day average true range depending on how long I wanted to run the position.
I would set targets, once again, based on the volatility of the currency pair and shift the stop accordingly.
I have found in trading that entries are the easiest, stops are difficult if you don't account for volatility and exits are the most difficult. Exits are the worst because I don't believe that the market can be predicted and, therefore, trying to get out correctly can be a case of trying to pin the tail onto the donkey.
