When to Buy or Sell in Forex Market?

If you are an aspiring forex trader, then your success will depend upon how well you buy and sell forex pairs. If you have any experience in the financial market, then you already know that timing is everything. Forex trading is no different ― one must buy, sell, and trade forex pairs at the right time to sustain profitability.

In this article, we will tell you how to know when to buy and sell in forex and locate the direction of the trend and find a good entry. With technical analysis and fundamental analysis, the possibility of profitability will be greatly increased.

Which Currencies Can Investors Buy and Sell

Trading can be done in nearly all currencies. There are three types of currency pairs: major,minor and exotic.

Major Currency Pairs

Major currency pairs consist of the most frequently traded currencies globally. Because they have massive liquidity, you're able to trade them virtually always. Furthermore, you’ll find the lowest spreads or brokerage costs when trading these pairs.

Major currency pairs include: EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD and NZD/USD.

Minor Currency Pairs

When a currency pair doesn’t include the US dollar, it's called a minor currency pair or a cross-currency pair, including EUR/GBP, EUR/AUD, GBP/JPY, CHF/JPY, NZD/JPY, GBP/CAD and so on.

Exotic Currency Pairs

An exotic currency pair includes a major currency and the currency of a developing economy. Investors won't find exotic pairs as often as major or minor pairs, which means the spreads can be higher when trading them.

Exotic currency pairs include EUR/TRY, USD/HKD, GBP/JPY, CHF/JPY, NZD/JPY and GBP/CAD.

Whether to Buy or Sell A Currency Pair

Before investors are ready to enter the market, it is bound to conduct a deep analysis of the trend. Investors have to think about some factors to decide whether to buy or sell a currency pair.

Employment Figures

Employment Figure is a leading indicator of the economy and nothing moves the currency market more than the labour reports. High unemployment rate means that a significant portion of the population is living without a stable income. When the unemployment rate remains high for too long, it can start a cascade of economic slowdown.

The U.S. non-farm payroll report, published on the first Friday each month, is a major report that every trader should watch. If you believe the U.S. will add more payrolls than expected, this will be bullish for the U.S. dollar. In this case, you would consider buying the USD pairs where the  USD is the base currency, or selling pairs where USD is the counter currency. Both would be sound trading decisions.

Interest Rate

A currency's interest rate is probably the biggest factor in determining the perceived value of a currency. If a country raises interest rates over an extended period of time, this can cause a broad trend against other currencies. Money just continues to pile into these currencies until there is any indication that the party might end soon.

For example, if you believe the European economy is doing well, and an interest rate hike is around the corner, you would buy currency pairs where EUR is the base currency (like EUR/USD), in the expectation that EUR will rise against the U.S. dollar.

Commodities Prices

Professional forex traders have long known that trading currencies requires looking beyond the world of Forex. Since economic growth and exports are directly related to a country's domestic industry, it is natural for some currencies to be heavily correlated with commodity prices.

When to Buy and Sell in Forex

How can one decide when to buy and sell forex pairs is complex and will vary depending upon your trading strategy. Nonetheless, there are various tried-and-true methods of timing the market properly.

Trend

A trend is a tendency for prices to move in a particular direction over a period. Trends can be long term, short term, upward, downward and even sideways.

Trend traders buy and sell forex pairs in concert with a directional move in exchange rates. To accomplish this task, traders use techinical tools such as Fibonacci retracements, moving averages, and momentum oscillators to decide when to join a prevailing trend. If the indicators are deemed valid, the trader buys to enter a bullish trend and sells to enter a bearish trend.

Reversal

A reversal is a change in the price direction of an asset. A reversal can occur to the upside or downside. To identify a potential market entry point, technical indicators are frequently used to buy, sell and trade reversals. Upon a currency pair becoming "overbought" or "oversold", a reversal trade is then executed.

Range

A range-bound market is one in which price bounces in between a specific high price and a low price. These types of markets are often considered to be boring due to the lack of a prevailing trend.

However, many traders prosper through focusing on range-bound markets. One common way is through implementing reversion-to-the-mean strategies.

When adhering to a reversion-to-the-mean methodology, buying and selling currency pairs is done contrary to an established top or bottom. If successful, selling near a market’s top or buying near the bottom will be profitable as price rejects the extreme and revisits an average level.  

Conclusion

There is no perfect time to buy or sell any asset, or there is no perfect strategy that can bring you to profit easily. Traders can try to find the secret pattern or make any benefit using market inefficiency. Based on scientific researchers, a combination of fundamental and technical analysis brings the biggest profit in the long term.