Successful FOREX traders consider expert analysis and discussion of theory extremely important for FOREX trading. While the technical aspect of trading can’t be overlooked, it is equally encouraging for the trader to hear about examples of trading success in FOREX news. As with any other successful trading, FOREX requires the investor to analyze data and determine a feel for the movements of particular currencies. Afterward, the trader needs to implement his, or her, trading plan and monitor the deal for changes. Successful FOREX traders find that following a tried and true method can often lead to big profits in trading FOREX.
In the minds of successful FOREX traders during 2006, it has been apparent that the Canadian dollar was struggling under the weight of a very sluggish economy. Some analysts foresaw success in FOREX trading using a core long position in Australian and Canadian currency. The logic behind this thought was that had been a breach of trend line resistance, positive carry and the expectation of interest rate changes made this a prime a candidate for some successful trading. As news of Bank of Canada’s announcement of a lower than expected GDP began to trickle out, the experts recommended a long position in the US dollar against the Canada dollar. By trading a long position in USDCAD, this provided successful FOREX traders a hedge fund against a short exposure via the AUD.
Having defined the positions in this example, it is wise to identify some technical conditions involved in this example of FOREX trading success:
- After an extended decline, the AUDCAD showed signs of an improvement as indicated by an inverse “Head and Shoulders” pattern. This pattern was confirmed by an increase in the highs from May 2006 to July 2006.
- The initial correction ended in late July without a daily close below the critical 0.83 level. Because of this, upside beyond 0.87 seemed to be quite likely.
- The bottoming of the inverse “Head and Shoulders” pattern included a classic double-bottom, and was long-tailed in both instances, reinforcing its bullish nature.
The Bank of Canada’s decision to stop tightening interest rates had become well-known among investors in currency trading. The announcement indicating a weaker than expected GDP growth suggests that the interest rates would be cut by the BoC sometime in early 2007. As the market includes this information, the value of the CAD will likely suffer. While currencies usually follow similar trends, the CAD was becoming the weak side of a pair that would create the potential for successful FOREX traders to reap big rewards.
Technical analysis of Canada’s export news indicated a downturn in the economy. Furthermore, Australia’s economy was enjoying the fact that Australia’s largest trading partner, Japan, is experiencing a period of economic renaissance and is supported by a tolerant central bank. This, coupled with news indicating impending inflation, will keep the AUD a very strong pairing in this transaction, setting the table for another example of success in FOREX trading.
The bottom line of this transaction has yet to be made, since the conditions affecting the Canadian economy look to continue into early 2007, but it is undeniable that this pairing is going to bring impressive results for successful FOREX traders. The separation created by the weak Canadian economy and the much stronger Australian economy will allow success for experienced traders as well as FOREX currency trading for beginners.
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