Popular Forex trading strategies most often recommend using currency pairs in which the main driving assets are the euro, dollar, pound or yen. Additionally, New Zealand, Australian and Canadian dollars can be used, and the height of professionalism is considered to be oil and metal futures. At the same time, there is an opportunity to earn stably (and with less effort!) On “cheap” currencies.
It should be understood that in this case, “cheap” does not mean “waste”. We are not talking about the denominations of banknotes: the yen feels great with four zeros on the bill. Also, it is impossible to single out a group of “cheap currencies” by the level of purchasing power and the volume of GDP, although these factors have a direct impact on the quotation of the national currency.
For example, the GDP volumes of Denmark and Norway are quite large, but at the same time, their crowns do not attract much attention of traders. Therefore, let’s consider the currencies of countries with stable economies oriented to the export of goods and services to be “cheap”. Trading practice has shown that classical methods of technical analysis work well on such currencies. You will learn how to choose the optimal patterns for the current market situation and open and close a position in time from the free basic strategy course “Sniper X”, which can be downloaded from the link below.
How to trade cheap currencies
As an example, let’s take the Mexican peso, which fully fits the definition of a cheap currency given above, and start with the Forex trading condition:
- Volatility. The annual chart clearly shows cyclicality – you can try to trade medium-term swing trades, within a week the largest volume falls on the end of the trading week. But the greatest interest for intraday deals is the regular spike in activity during the period 14.00 – 16.00 GMT.
- Point value. At first glance, a huge number of pips in such a short period should be a problem for small deposits, but in fact the price of pips is very small. It is enough to open the calculator on the website of your broker and make sure that with a volume of 0.1 lot, the value of a point is in the range of $ 0.04-0.06;
- Swaps and spreads. The spread can reach 20 points and the swap percentage is also rather big, but with such a cheap point and trading without transferring positions, this is not a significant problem.
Even though the peso belongs to the group of cheap currencies, there must be something that attracts investors and traders to deal with such a low-liquid asset. There are two such factors:
Despite historical and current disagreements on immigration and other issues, both countries, in addition to 3.2 thousand km. borders have close economic ties. The volume of annual export / import transactions is stable at $ 600 billion, which supports the liquidity of the Mexican currency. Thus, the USD / MXN pair follows the general trend of the dollar, which greatly simplifies the analysis.
Availability of oil
Mexico ranks ninth in terms of production in the world, and 10% of oil exports account for a third of tax revenues to the budget. The availability of energy resources always attracts investors and traders, who can capitalize on both the rise and fall of oil, simply by trading on the correlation.
There is also a 70% correlation with the British stock index FTSE 100. Since the stock market does not work around the clock, the index chart can be used as a leading indicator or open opposite trades on the peso at its peaks.
Technical analysis and strategies
Since the peso paired with the dollar is not a priority for market makers, it is mainly medium and small players who trade. On the one hand, this is a problem in the form of sharp movements even with a minimal increase in USD / MXN volumes, on the other hand, the absence of large players makes the asset more “technical” and you can avoid using complex strategies. The figure shows a variant of pre-setting pending orders before the daily period of high activity 14: 00-18: 00. After the start of active movement, one of the orders is triggered, the second is canceled. TakeProfit can be omitted to select the entire local trend.