The Global Impact of the Economic Recession on the Currency Market

It is no longer news that many big economies globally are going down and still contracting by the day, experts say this is the worst since the 1929 financial crisis. But with this in mind some people want to know the impact of the recession on the currency market. The simple answer is that it has greatly increased the volatility and provided more opportunities to make more money.

Effects on trading range volume: Before now, the daily range for most currencies, particularly the EURUSD , GBPUSD and USDJPY has never exceeded 120 pips each, it used to be an average of 100 pips. But all that has changed today because of the increased volatility. The EURUSD now does an average unofficially confirmed range of over 200pips. There are times lately when it did moved by over 400pips in one day. Individuals looking for safe haven for their investments have turned to the Forex market, moves engineered by fear and greed have led to increase trading range and volatility.

Implication of this is that more opportunities have been provided for more money to be made. Central banks and Governments around the world keep injecting stimulus funds to stimulate their respective economies, and the implication is to make more money available for trading and these money keep exchanging from one hand to the other, this is what Forex trading is all about: exchange of currencies with the availability of more money and increased volatility comes the provision of greater trading opportunities.

The Down Side Effect to these is that more naive traders will lose more money. Before now, it has been said that 90% of traders lose money, but the case has even worsened to the point of about 1% really keep the money. Indeed this is a great challenge for many traders. But the truth is that, the opportunities are still more than the risks for the smart traders. If more money is exchanging hands today, all you need do as a trader is to find how you can grab your share.

The three markets that have become more evident: Three peculiar market types have been in existence before now, but have become more evident. Traders need to understand these Forex scenarios to be able to take advantage of them. Irrespective of the currency pair you are trading you will always encounter the following while trading. They are, trending market, counter trend market and the breakout market. To trade profitably on a trending market which occurs about 30% of the time, you might need a trading system that shows accurate entry levels on retracements and rebound. Fibonacci retracement is a great tool that could help you manage any system of this nature.

Trading in a counter trend market will require the use of a trading system that will assist the trader to trade from one range of the market to the other. Support and Resistance lines becomes useful here. A good understanding and proper application of Pivot points analysis is crucial to profitably trade this market.
This type of range market also requires a trend indicator that will alert you when there is no trend so you can prepare taking trades, also needed is an Oscillator indicator that will assist you in determining when to enter trades. Oscillators help to determine overbought and oversold moments.

When trading, target should be 20pips per trade. You could as well take 5 – 10 trades in a day. If done consistently for 20 trading days in a month, you can make between 100 to 200 pips daily, this will translate to between $ 1000 to $ 2000 daily. However on a mini account this will translate to $ 100 to 200$ daily. Trading and making between 100 and 500pips daily with great discipline is laudable but very achievable with a good sophisticated trading systems at your disposal.

For the breakout moments all you need is to prepare when the market is in a quite mood for a long time. Often the breakout happens in favor of the main trend of the day, and at other times, it goes the other way. The use of trend line breakout could be of a great advantage when dealing with this market technically. News break out is another category of this type of trending market. Straddling should be employed as strategy as well.

Timing is everything: It is one thing to know that opportunities exist, but it’s a different ball game altogether to determine the proper timing for taking advantage of these opportunities. There are currencies that can be traded in a counter-trend market when the banks are closed at specific timing. You may want to try trading the USDJPY pair by 1. 00GMT targeting 10 to 20 pips per trade if you are ready to pay the price. But note that after two to three oscillating movement, a breakout usually occurs. EURUSD breakout occurs most mornings from 6:45GMT. Expect a GBPUSD break out in the mornings at 7:00am GMT.

Trending occurs after the banks have opened and normal activities have resumed. Begin to expect trending for most majors any moment from 3: 00am to 9: 00am for the Asian/Australian and London/European sessions, and 1:30pm to 2:00pm for the New York session. Also 8:00am or 9:00am for GBPUSD AND EURUSD and that just determine the trend for the day barring sharp reversal from fundamental announcements. However it could be a correction that clears up previous market direction in other for new course to be charted for the day.

With all this in mind, I will advise that you choose how you want to participate in trading, based on your experience, time availability, discipline and aversion to risk.