The first half of 2021 came with several important surprises for the market, the most important one relating to the US dollar. Although the consensus was for continued weakness, that did not materialize. In fact, the US dollar indexhas risen over the past few weeks, mainly after the last Federal Reserve meeting, when interest rate hike expectations from FOMC members generated a strong change in market consensus and thus exchange rates become more volatile.
Going into the second half of 2021, retail forex traders can benefit from various trading opportunities and because of that, it helps to review the following key trading strategies, to be better placed for capitalizing on market movements.
Even traders that are just getting started with FX should have heard of Fibonacci retracement levels. Long used in the online trading industry, these are critical areas where the price can take a turn in the dominant side of the market, after a pullback. The most notable Fib levels are 23.6%, 38.2%, 61.8%, and how the price will perform around each one will determine whether the market is due for a sharp corrective move, or if the order flow imbalance is still high.
Integrated into any trading platform, Fib levels are convenient and easy to use, yet traders will need to use other indicators to spot accurate entry locations for their trades. When these levels overlap with moving averages or other key support/resistance areas, their efficiency increases.
Moving averages + oscillators
A combination of moving averages and one oscillator is an FX trading strategy commonly used by retail traders. Due to algorithmic trading, many institutions treat MAs as support or resistance levels, which means prices will usually react around the 20 EMA, 50 SMA, or 100 SMA. An oscillator can serve as additional help since it can show whether the market is in overbought or oversold conditions.
The ideal scenario is the have a well-established trend, followed by a corrective move, and the oscillator starting to point in the direction of the dominant market side. Traders also need to consider that when using such a strategy on a small time frame, false trading signals can appear.
Price action trading
Professional traders don’t overcrowd their charts, in order to notice subtle details in the price action. As a result, trading with naked charts is an approach that can be useful, especially after experience had been acquired. Formed highs or lows are treated as support or resistance levels, and the most common approach is to trade different variations of breakouts.
What FX traders need to understand
A cloud of uncertainty continues to weigh on the FX market. Some experts expect the EURUSD to head lower in the second half of 2021, which means the US dollar should be the dominant currency. A rising dollar has implications for the global economy as well, meaning market participants might have to readjust their positioning if growth prospects will deteriorate. However, all three strategies discussed above can serve as useful tools when trading currencies, regardless of FX pairs.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.