Any financial trader or investor worth their salt is likely to use strategies as part of their trading decision-making. Without having a strategy in place, it’s almost inevitable that failure will arise eventually. While runs of good luck are possible, it’s equally likely that bad luck will come around as well. That is true of any investment field and any geographical area, but forex traders who are looking to trade the dollar will face their own peculiar set of challenges. This article will look at the different strategies available for US currency traders that can help overcome these problems.
Technical or fundamental analysis?
Before you find a broker and open an account, you’ll need to think carefully about strategy. The first strategic decision that many traders will need to make is usually focused on the type of analysis they choose to use. Picking between technical and fundamental is a question faced by investors across a whole range of asset classes, but there are unique considerations to be made in the context of the US dollar and its rises and falls.
Technical analysis involves looking at price charts and using them to identify patterns and trends. For dollar traders, that is simple enough: given that the dollar sits at the top of the forex hierarchy, there is plenty of price data to use. Fundamental analysts, however, look at the broader picture. Policy decisions, either the interest rate-related ones of the Federal Reserve or the political ones of the government, are taken into account. The overall economic health of the American economy, meanwhile, is also assessed through analysis of initial and continuing joblessness claims data, gross domestic product information, and more.
Understanding “safe havens’
The US dollar is often described as a “safe haven” currency, which means investors often back it to rise against competitors during times of economic volatility. To a newbie trader, devising a strategy based on this may seem all too simple – and this leads some to say, “in times of trouble, head for the dollar”. But a savvier trader is likely to look for the reasons behind the shift and assess what might happen next. A technical analyst might use the opportunity to find a price chart from the past and then analyze what happened previously, while a fundamental analyst is more likely to see it as a chance to forecast what wider decisions might be made off the back of the value change. Trading the US dollar, then, isn’t an easy answer – and there’s no “free pass” away from thinking strategically.
Trading the US dollar has a number of clear advantages from a strategic point of view. Whether it’s the relatively “safe” nature of it during times of volatility or simply the way in which it reflects an underlying economy that’s often fairly healthy, there are clearly benefits. But the benefits should not obscure the reality, which is that trading the US dollar still requires some strategic thinking. Choosing strategically between technical and fundamental analysis (or, indeed, a mixture of the two) is still required, while using the dollar’s “safe haven” status is something that ought only to be taken into account rather than being relied upon completely.