Euro (EUR) traders speculate from the strength associated with the Eurozone economy, in comparison to its major partners. The connection between the Euro and US Dollar (USD) marks the most liquid forex pair in the world, with tight spreads and broad price movement that supports a continuous flow of profitable opportunities.
While there are lots of how to trade the EUR/USD pair, three simple strategies have now been consistently effective. These could be executed by forex traders at all skill levels, with newer participants reducing position size to regulate risk while experienced players increase size to take full advantage of the opportunities.
Equity traders can put on these techniques with CurrencyShares Euro Currency Trust (FXE), which tracks the forex pair in real-time. Leveraged and inverse ETFs can certainly be traded for those who have the skills needed to manage the extra risk. ProShares Ultra Euro (ULE) offers double long side exposure, however it is thinly traded, at just 24,283 shares per day on average. ProShares UltraShort Euro (EUO) offers equal leverage to short sellers and greater liquidity, trading significantly more than 700,000 shares each day on average.
Buy Or Sell The Pullback
The EUR/USD trend thrusts in both directions and carries the purchase price from a single level to another in a confident feedback loop that can generate considerable momentum. However, this rapid movement has a tendency to fizzle out when the supply/demand equation shifts, often trapping latecomers in positions that will be excited for losses when the currency pair reverses and heads when you look at the opposite direction.
The pullback strategy takes advantage of this countertrend movement, identifying significant support or resistance levels that should end the purchase price swing and reinstate the initial trend direction. These levels often come at prior highs or lows as well as key levels defined by Fibonacci retracements, moving averages and also the inception point of this original thrust.
Buy The Breakout/Sell The Breakdown
The pair often grinds forward and backward within confined boundaries for extended periods, setting up well-defined trading ranges that will eventually yield new trends, higher or lower. Patience during these consolidation phases often pays off with low-risk trade entries when support or resistance finally breaks, giving method to a very good rally or selloff.
Good timing is required to take full advantage of this simple strategy. Enter too early while the range could hold and trigger a reversal. Enter too late and risk escalates because the position will execute well above new support or well below new resistance. It’s often a good idea to reduce timing risk by opening a partial position if the pair breaks out or down and adding to it on the first minor retracement.
Enter Narrow Range Patterns
The pair will frequently rise or fall under a significant barrier and then get to sleep, printing narrow range price bars that lower volatility and raise apathy levels. Coincidentally, this quiet interface often marks a strong entry signal for a breakout or breakdown. This plan enters the career in the narrow range pattern, with a taut stop in place in case of a significant reversal
This setup often prints an NR7 bar, which marks the narrowest range price bar of this last seven bars. Originally seen in the U.S. futures markets in the 1950s, this powerful but simple pattern predicts that price bars will expand in a considerable breakout or breakdown. It’s also a low-risk entry because the stop loss can be set very close to the entry price.
New and experienced Euro traders can execute three simple but effective strategies that take benefit of repeating price action.