So far then, what have we explored with exotic currencies? First off, we now know what exotic currencies are. We’ve given a few examples of some popular currencies. And last time we explored how to start off trading with exotic currencies. Mainly, how one should treat them differently to regular currencies. Here, then, we will continue on our journey. We shall continue on how one should go about trading in such a volatile market.
Finding risk in currencies
As we said, there’s plenty of volatility in these currencies. How do you recognise this and find pairs that are worth your time?
First off, look at the country behind a currency. This will be the ultimate indicator of a currencies’ worth. With this, you should also look at macroeconomic effects, what external influences could affect the currency?
Be wary of how low the liquidity of this currency may be. Look at bank contracts, the main area for forex trades, to help you out with this.
If there is negative political news, expect even more volatility. Whether you trade earlier is up to you, but there should be no surprise that such events occur.
Strategies to consider
A very usual type of trading for these types of currencies. Technical analysis is more important for this pair, so do keep that in mind. The news will be of less help to you. You need to look at quantitative and chart data to help you out here.
One has to firstly find what the current trend is with a currency, going up, or down. However, one should also plan ahead. Keep track of where you believe the trend will go and act accordingly. This means keeping an eye out for chart patterns, indicators of changes to come.
Next time, we shall look at after more worthwhile strategies.