You may have heard the term “momentum trading”, which refers to an investment strategy in which securities and assets are purchased as they embark on an upward trajectory and then sold once they’ve passed their peak.
This means identifying assets that boast considerable volatility and volume in real-time, while it also demands a focused mindset that follows the trends and the most telling market factors.
This is just one way in which you can identify trading opportunities, particularly in markets such as the foreign exchange. But what are the other options in this regard, and how can they help you to trade the right currency pairs for trading?
Initial Identifiers of Trading Opportunities
Arguably, the key to any successful trade is identifying viable opportunities, with one of the simplistic metrics referred to as “outlier moves”.
In simple terms, this refers to a breakout or breakdown that hints at a genuine trading opportunity, as they help you to quickly identify currency pairs that boast a distinct edge and prompt you when to buy or sell.
At this stage, you also need to identify key price areas of interest, as this enables you to identify potential behaviours and the underlying instrument’s trajectory amid fluctuating price points.
In practical terms, this utilises determinism and historic data sets to see how currency pairs have previously reacted to key price levels previously, as this remains a crucial indicator of future performance in the marketplace.
More specifically, you can identify key points of resistance for major currency pairs such as the EUR/USD, allowing you to sell certain assets at the optimal price point in real-time.
What Tools Can You Use to Plan Ahead as a Trader?
The process of planning trades also enables you to plot future moves, based on the findings of your historical price data and the wider macroeconomic factors that impact on currency values on a daily basis.
To this end, online tools such as economic calendars are particularly effective, as they detail key events and data releases that are likely to impact on currency pair prices to one degree or another.
There are different types of economic calendar available too, with trading platforms on Oanda offering a variety of options depending on your chosen assets and wider trading strategy.
Interestingly, you can also customise your own economic calendar in some instances, enabling you to schedule future trades that are capable of maximising profits.
How to Choose the Right Assets for You
Arguably, the most fundamental aspect of identifying trading opportunities is to choose the best assets to invest in the first place.
In the case of forex, this means determining the best and most viable currency pairs, based largely on your risk appetite and the amount of leverage that you’re willing to take on as an investor.
As a beginner, we’d definitely recommend that you start out small and by trading a couple of major pairs, which all feature the US dollar and are renowned for being relatively stable and boasting high levels of liquidity.
Over time, you can look to scale your efforts organically in line with experience and bottom-line profits, utilising data and analysis to identify trends in minor and emerging currency pairs (which is ideal when looking to buy and sell on a regular basis).