EUR/USD - Why, When and How to Trade EURUSD
Out of the major currency pairs the most popular is the EUR/USD. This video could be extremely helpful for people who are about to start trading forex.
Do you know what the most widely traded vehicle on the planet is?
If a European country wants to make an investment in US Treasuries, they are likely going to need to make a trade in EURUSD first. Or likewise, if a US company wants to buy Greek bonds, they would need to first buy euros so that they can make the purchase. And to buy euros with their dollars, they need to go long on the euro-dollar.
This massive liquidity can provide quite a few benefits....
Trading costs can be significantly lower; often a few hundredths of a cent between the buy and the sell prices. These price deviations are so small that they have their own name, commonly referred to as 'pips.' Throughout the day, prices move up and prices move down but the difference between the buy and the sell price functions like a commission on the trade.
But all of this extra liquidity doesn't mean that the EUR/USD is any easier to trade than any of those other markets. Many of the same principals apply whether we're trading currencies or whether we're trading stocks or futures. Price movements can be unpredictable, and trading in any of these markets brings up a potential to lose money.
As such, its often best to focus our trading activities in a manner that could be conducive to our long-term success....
So, on the euro-dollar - prices move 24 hours a day.... The market never closes. But the period of the day in which Europe is open before the United States, between 3:00AM-8:00AM can often be best for trading in this market. Once The United States opens, banks begin quoting prices across the Atlantic, and volatile price movements can increase, making it more difficult for retail traders to speculate EUR/USD.
Don't feel like waking up at 4:00 AM? That's ok - most other traders feel the same way. In the forex market, we have a litany of tools that can allow you to trade in these markets without you needing to press the trigger for each and every buy and sell decision. We'll talk a little more about that in a moment...
Volatility is something that needs to be expected in EUR/USD. With a representation of the world's 2 largest economies, EURUSD can often bring wild and extended price movements.
This leads many traders to focus on trading what are called 'breakouts' in EUR/USD. A Breakout takes place when price makes a new intermediate-term high or low. This strategy employs an element of Newtonian logic in expecting things in motion to tend to stay in motion; and using the presumption that prices making new highs or lows will continue on to make further high or lows.
And if price doesn't go on to make higher highs or lower lows, a tight stop can be used so that the trader can exit the trade at a minimum of a loss. But, if prices can continue running, the potential reward could be huge relative to the amount of risk taken on.
At DailyFX, we teach traders how to look for breakouts - what may cause them, when they might happen, and maybe more importantly than that - which levels to look for. We also provide trading signals on a variety of strategies, breakouts included, to assist you in trading these market conditions.
We even have automated strategies that you can apply to your account so that these types of trade entries can be made for you, even while you rest soundly in your bed.
Join us at DailyFX for more information on trading breakouts, the EUR/USD, and automated trading strategies.
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