Forex Trading - Diversify for Lower Risk and Greater Reward

Author: Sacha Tarkovsky

Most forex traders like to trade the majors only but in my view you can get some great opportunities in some of the minor currencies. You can diversify and get more profit opportunities

Lets look at two that can add some diversification and have some great trends you can take advantage of.

Two good currencies to trade alongside the majors are the Canadian and Australian Dollar.

While not as liquid as the majors, they offer some great trading opportunities for traders with a longer-term outlook.

Lets look at opportunities in these currencies.

We will use the free chart service futuresource.com and look at the IMM futures contract, although same logic of course applies to the cash.

The Australian Dollar

If you look at the chart you will see that this currency has been trading in a range since December.

The same system we have used to range trade the majors works here as well.

You can simply use stochastic crossovers to trade against support and resistance until a major break appears.

At present the Australian dollar looks set to test the top of the range, if it breaks through the mid point of the Bollinger band.

The Canadian Dollar

The Canada is trending down against the dollar and has had a rally - this should end shortly.

The key to look for is a cross in stochastic momentum with bearish divergence to indicate the downtrend will resume.

Like the Yen the Canada is bearish and rallies are selling opportunities.

These currencies add some diversification to any forex trading portfolio and the Canadian Dollar in particular offers a great strong trend to the downside where you can sell rallies.

Don’t fall in love with one currency simply trade the ones that have the best opportunities and risk to reward.

At the present we would in terms of trend following have the Canadian dollar with the yen as the strongest trend to trade.

In the Canadian dollar a great short opportunity is presenting itself as it corrects oversold status.

Wait for the price momentum to turn south with the stochastic showing bearish divergence and when this occurs a test of the lows should occur.

As with any currency wait for the stochastic to give you the signal - don’t anticipate wait for confirmation.