Forex trading is all about eliminating the losing trades and achieving more winning ones. The 50 Pips a day trading strategy is a tried and tested strategy. A trader develops for himself a set of rules that help to take advantage of Forex trading.
Choose your quick section of our 50 Pips a day Forex strategy below.
A Quick Overview of our 50 Pips a Day Forex strategy Review:
- ✔️What does Forex trading entail?
- ✔️Which currencies are traded on the Forex market?
- ✔️What moves the price of currencies on the Forex exchange?
- Sell or buy strategies
In this article, we will explore a compelling Forex trading strategy that might allow you to earn 50 pips a day. Read on to learn more.
What does Forex trading entail?
Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world’s currencies trade.
As such, the forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion. All the world’s combined stock markets don’t even come close to this.
Just like stocks, you can trade currency based on what determine its current value to be, or what you think its value will be at some future point.
In other words, if you think a currency will increase in value, you can buy it. If you think it will decrease, you can sell it. With a market this large, finding a buyer when you’re selling and a seller when you’re buying is much easier than in other financial markets.
All forex trades involve two currencies because you’re betting on the value of a currency against another. Think of EUR/USD, the most-traded currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter.
When you see a price quoted on your platform, that price is how much one euro is worth in US dollars. You always see two prices because one is the buy price and one is the sell.
The difference between the two is the spread. When you click buy or sell, you are buying or selling the first currency in the pair.
Which currencies are traded on the Forex market?
The currencies most heavily traded in today’s foreign exchange market roughly mirror the international trading activities of the countries involved.
For example, the most actively traded currencies in the forex market consist of the U.S. Dollar, the European Union’s Euro, the Japanese Yen, the British Pound Sterling, the Swiss Franc, the Australian Dollar, the Canadian Dollar and the New Zealand Dollar.
The current foreign exchange market is clearly dominated by the U.S. Dollar, which currently makes up over 80% of transactions on the world exchange.
The most actively traded currency pair in the forex market consists of the Euro against the U.S. Dollar or EURUSD currency pair. This pair alone accounts for roughly 28% of the global forex market trading activity on an average day.
The second most actively traded currency pair is the U.S. Dollar against the Japanese Yen or USDJPY, and the third most actively traded currency pair is the U.K. Pound Sterling against U.S. Dollars or GBPUSD, also known as Cable.
The symbols assigned to the different currencies consist of three letter codes called ISO 4217 codes that are assigned by the International Organization of Standards.
The first two letters in the code generally consist of the ISO 3166 country code (also sometimes known as the Internet country code), while the last letter is the first letter of the currency.
For example, the U.K. Pound Sterling is GB which is the ISO 3166 country code for Great Britain and P which stands for Pound.
Majors
European Union Euro EUR €
United States Dollar USD $
United Kingdom Pound Sterling GBP £
Japanese Yen JPY ¥
Switzerland Swiss Franc CHF Sfr
Minors
Australia Australian Dollar AUD A$
New Zealand New Zealand Dollar NZD NZ$
Canada Canadian Dollar CAD C$
Many other countries exist in the world, and most of them have their own currencies. Outside of the major and minor currencies is the large group of the so-called “exotic currencies”.
Exotic currencies are made up of the hundreds of currencies not in the major or minor leagues, but which are nevertheless important as well, especially in international commerce and finance.
What moves the price of currencies on the Forex exchange?
The two main factors that influence the movements in one exchange rate are capital flows and trade flows.
These two components constitute what economics call balance of payments. The main purpose of the balance of payments is to quantify the demand and supply for a currency of one country, over a period of time.
A negative balance of payments indicates that the capital leaving the country is greater than the capital entering the country (not much demand).
A positive balance of payments means that the capital entering the economy is greater than the capital leaving the economy (increasing demand of the domestic currency)
Theoretically, a balance of payments equal to zero indicates the right value of one currency.
Capital Flows
Capital flows is the net quantity of currency traded (bought or sold) through capital investments.
The capital flow can be divided into: physical flows and portfolio investments.
Physical Flows happen when foreign entities sell their local currency and buy foreign currency to make foreign direct investments (for joint ventures, acquisitions, etc.)
When the volume of this kind of investment increases, it reflects the good shape and health of the economy where it is invested.
Portfolio investments are those which are made on global markets, variable and fixed income market investments (Forex, stocks, T-bills, etc.) An example of portfolio investments is when a hedge fund in Japan invests in the US equity markets.
Trade Flows
Trade flows measure the net exports and imports of a given country. These two components (exports and imports) constitute what economists call the current account.
Countries that have a positive current account (exports greater than imports) are more likely to depreciate their currency; this way the consumer abroad will perceive the foreign currency to be cheaper (and can purchase more goods and services).
A good example is Japan.
On the other hand, countries that have a negative current account (imports greater than exports) are more likely to appreciate their currency since they need to sell the local currency and buy foreign currency in order to purchase goods and services.
The United States is an example of a net importer country.
Purchasing Power Parity (PPP)
This theory states that exchange rates are determined by the relative prices of a similar basket of goods in different countries. In other words, the ratio of prices of a basket with similar goods of two countries should be similar to the exchange rate.
If a Personal Computer in Australia costs AU$1,500, and the same PC in United States costs US$1,200. According to the PPP, the exchange rate AUD/USD would be 1.2500 (1,500/1,200).
If the exchange rate was at 1.3000 (or above 1.2500) it states that in the long run it will decrease its value until 1.2500 is reached.
On the other hand, if the exchange rate was at 1.0500 (or below 1.2500) the exchange rate in the long run will increase its value until 1.2500 is reached.
This is just an example, in the real world it is not just one good, but a basket of goods.
The major weakness of this theory is that it assumes that there are no costs related to the trade of goods (tariffs, taxes, etc). Another weakness is that it does not consider other factors that might influence the exchange rate (i.e. interest rates etc)
Modern monetary theories include the capital markets to the PPP theory arguing that capital markets have less costs of trading.
Interest Rate
This theory states that interest rates differentials neutralize the increase or decrease of any currency against another currency. Therefore there are no arbitrage opportunities.
For instance if the interest rate of Australia is 6.25% and the interest rate of United States is 3.5%, then the AUD should depreciate against the USD, so that there are no arbitrage opportunities.
There are also other theories that try to explain the value of a currency pair. But as with every theory, they are based on assumptions that may or may not be present in the real world.
Sell or buy strategies
A forex trading strategy defines a system that a forex trader uses to determine when to buy or sell a currency pair. There are various forex strategies that traders can use including technical analysis or fundamental analysis.
A good forex trading strategy allows for a trader to analyse the market and confidently execute trades with sound risk management techniques.
Price action trading
Price action trading involves the study of historical prices to formulate technical trading strategies. Price action can be used as a stand-alone technique or in conjunction with an indicator.
Fundamentals are seldom used; however, it is not unheard of to incorporate economic events as a substantiating factor.
Range trading strategy
Range trading includes identifying support and resistance points whereby traders will place trades around these key levels. This strategy works well in market without significant volatility and no discernible trend.
Technical analysis is the primary tool used with this strategy.
There is no set length per trade as range bound strategies can work for any time frame. Managing risk is an integral part of this method as breakouts can occur. Consequently, a range trader would like to close any current range bound positions.
Oscillators are most commonly used as timing tools. Relative Strength Index (RSI), Commodity Channel Index (CCI) and stochastics are a few of the more popular oscillators.
Price action is sometimes used in conjunction with oscillators to further validate range bound signals or breakouts.
Trend trading strategy
Trend trading is a simple forex strategy used by many traders of all experience levels. Trend trading attempts to yield positive returns by exploiting a markets directional momentum.
Trend trading generally takes place over the medium to long-term time horizon as trends themselves fluctuate in length. As with price action, multiple time frame analysis can be adopted in trend trading.
Entry points are usually designated by an oscillator (RSI, CCI etc) and exit points are calculated based on a positive risk-reward ratio.
Using stop level distances, traders can either equal that distance or exceed it to maintain a positive risk-reward ratio e.g. If the stop level was placed 50 pips away, the take profit level wold be set at 50 pips or more away from the entry point.
Position trading
Position trading is a long-term strategy primarily focused on fundamental factors however, technical methods can be used such as Elliot Wave Theory.
Smaller more minor market fluctuations are not considered in this strategy as they do not affect the broader market picture. This strategy can be employed on all markets from stocks to forex.
As mentioned above, position trades have a long-term outlook (weeks, months or even years) reserved for the more persevering trader. Understanding how economic factors affect markets or thorough technical predispositions, is essential in forecasting trade ideas.
Key levels on longer time frame charts (weekly/monthly) hold valuable information for position traders due to the comprehensive view of the market. Entry and exit points can be judged using technical analysis as per the other strategies.
Day trading strategy
Day trading is a strategy designed to trade financial instruments within the same trading day. That is, all positions are closed before market close. This can be a single trade or multiple trades throughout the day.
Trade times range from very short-term (matter of minutes) or short-term (hours), as long as the trade is opened and closed within the trading day.
Scalping strategy
Scalping in forex is a common term used to describe the process of taking small profits on a frequent basis. This is achieved by opening and closing multiple positions throughout the day.
This can be done manually or via an algorithm which uses predefined guidelines as to when/where to enter and exit positions. The most liquid forex pairs are preferred as spreads are generally tighter, making the short-term nature of the strategy fitting.
Like most technical strategies, identifying the trend is step 1. Many scalpers use indicators such as the moving average to verify the trend. Using these key levels of the trend on longer time frames allows the trader to see the bigger picture.
These levels will create support and resistance bands. Scalping within this band can then be attempted on smaller time frames using oscillators such as the RSI. Stops are placed a few pips away to avoid large movements against the trade.
Swing trading strategy
Swing trading is a speculative strategy whereby traders look to take advantage of rang bound as well as trending markets. By picking ‘tops’ and ‘bottoms’, traders can enter long and short positions accordingly.
Swing trades are considered medium-term as positions are generally held anywhere between a few hours to a few days. Longer-term trends are favoured as traders can capitalise on the trend at multiple points along the trend.
Much like the range bound strategy, oscillators and indicators can be used to select optimal entry/exit positions and times. The only difference being that swing trading applies to both trending and range bound markets.
Conclusion
‘Forex’ is short for foreign exchange, also known as FX or the currency market. It is the world’s largest form of exchange, trading around $4 trillion every day.
This exceptional liquidity ensures reliable pricing even at high volumes and enables the tightest possible dealing spreads. When you trade forex your trading costs are comparatively low, and you can easily go long or short of any currency.
The nature of forex trading is to exchange the value of one currency for another. In other words, you will always buy one currency while selling another at the same time. Because of this, you will always trade a pair of currencies.
As forex is traded on exchanges across the globe, from Tokyo to London to New York, you can take a position 24 hours a day throughout the trading week. Currency values are extremely sensitive to macroeconomic forces, so there are always trading opportunities.
With a buy position, you believe that the value of the base currency will rise compared to the quote currency. If you’re buying the EUR/USD, you believe the price of the euro will strengthen against the dollar.
With a sell position, you believe that the value of the base currency will fall compared to the quote currency. If you’re selling the EUR/USD, you believe the price of the euro will weaken against the dollar.
Research and analysis should be the foundation for your trading endeavours. Without these, you’re operating largely on emotion. This doesn’t typically end well.
When you first start researching, you’ll find a wide wealth of forex resources—which may seem overwhelming at first. But as you research a particular currency, you’ll find valuable resources that stand out from the rest.
You should regularly look at current and historical charts, monitor the news for economic announcements, consult indicators and perform other analysis activities.
Top 4 Brokers
