Fundamental Forex Trading Strategies

Jul 17 • Forex Trading Strategies • 1207 Views • Comments Off on Fundamental Forex Trading Strategies

Fundamental Forex Trading Strategies are anchored on the principles derived from the factors that are considered purely fundamental that are essential in the dynamics of buying and selling currencies. Among the fundamental indicators that are constantly being considered are the statistics in relation to the macroeconomics and prevailing interest rates.

These strategies are considered to be really popular and are known for benefitting long-term traders who prefer to study the fundamental factors rather than dwelling on factors that are considered to be technical. Among the most popular fundamental forex trading strategies are discussed in this section.

Important Trading News Strategy

This strategy has been developed to trade according to what the Forex news and headlines has to say, probably to flee from risks or to operate under minimal risks and constraints. However, the usefulness of this fundamental forex trading strategy is only limited on the following types of press releases: United States Gross Domestic Product, decisions on the interest rates, and non-farm payroll data. Despite the fact that there are different kinds of available news pertaining to all other pairs of currencies, it is important to pay attention to those paired with the USD because these kinds of news prove to yield the best results.

The main features of this strategy are the following:

  • It is never difficult to set up this strategy.
  • All kinds of deals and trades will be anchored to the fundamental background.
  • Many traders attest to the high success rate of this strategy.
  • The volatility level is quite high and shifts can be observed in the event of important news releases.
  • The news events that are considered important are rare.

 

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Trading is quite simple. One has to select an important press release that has a direct impact on Forex currency pairs. The trader has to enter both buying and selling positions on the currency pair half an hour before the anticipated news release. One has to set the stop-loss for long position at one to two hours minimum. The short position stop-loss should be set at one to two hours maximum. The take-profit stance should be set at twice the stop-loss level.

Carry Trade Strategy

The carry trade strategy is considered to be one of the most well-known fundamental forex trading strategies. It is used both by big hedge funds as well as by the common retail traders. The dynamics of this strategy is rather simple and quite easy to understand. One only has to buy a specific currency that has been identified to have a high interest rate. The next step is to sell a currency with a known low interest rate. There are different ways of acquiring profit here: (1) from the constant rise and fall of the currencies; and (2) the difference in the interest rates also referred to as the overnight interest rate.

However, this fundamental forex trading strategies should never be used during times of crisis when fluctuations are beyond control and prediction. But under normal circumstances, this strategy is known to be profitable. The following are the basic features: the profit potential can be beneficial for a long period of time; there are two constant sources of profit; and it can only be used with the growing or developing economies.

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