Strategies for Trading Exotic Currency PairsStrategies for Trading Exotic Currency Pairs
Exotic currency pairs offer unique opportunities in forex trading, combining major currencies with those from emerging or smaller economies. While they may be less frequently traded than major or minor pairs, their higher volatility can lead to significant price swings. This article delves into exotic currency pairs and trading strategies for speculating on these volatile price movements.
Understanding Exotic Currency Pairs
In the forex market, pairs are categorised into three types: major, minor, and exotic currency pairs. Exotic forex pairs typically involve one major currency paired with the currency of an emerging or a strong but smaller economy. They are less frequently traded compared to major or minor pairs, leading to higher volatility and potentially larger price swings. An exotic currency example is the pairing of the US Dollar (USD) with the Turkish Lira (TRY).
These pairs often exhibit unique market dynamics. For instance, political events, economic developments, or changes in commodity prices can significantly influence exotic pairs due to their local market sensitivities. This aspect can lead to both opportunities and risks for traders.
Exotic pairs tend to have wider spreads, reflecting their lower liquidity and higher transaction costs. However, for informed traders who understand these markets, exotics can offer exciting diversification opportunities. Traders should also be aware that exotic pairs may require more extensive monitoring due to their potential for rapid and unexpected price changes.
Best Exotic Forex Pairs to Trade
Exotic forex pairs are known for their volatility, offering traders opportunities for potential gains, albeit with higher risk. Among the most volatile exotic currency pairs, some stand out for their trading potential:
USD/HUF (US Dollar/Hungarian Forint)
EUR/NOK (Euro/Norwegian Krone)
USD/SEK (US Dollar/Swedish Krona)
GBP/SGD (British Pound/Singapore Dollar)
USD/MXN (US Dollar/Mexican Peso)
These pairs exhibit dynamic price movements, making them attractive for traders who can navigate their complexity and manage the associated risks effectively.
Below, we’ll discuss three exotic pair trading strategies. To gain the best understanding of how they work, consider following along in FXOpen’s free TickTrader platform.
Strategy 1: Bollinger Band Reversals With Parabolic SAR Confirmation
This strategy combines Bollinger Bands and the Parabolic SAR to identify potential reversal points in exotic currency pairs. Bollinger Bands provide a visual representation of market volatility and price levels, while the Parabolic SAR helps confirm trend reversals.
Entry
Traders look for the price to react from the upper or lower Bollinger Band.
The key is to observe the Parabolic SAR for confirmation of reversal within three candles, including the one touching the band. For instance, if the price touches the upper band, it's considered a potential sell signal if the Parabolic SAR switches and plots a dot above the candle, indicating a downtrend. For a potential buy signal, the price touches the lower band while Parabolic SAR plots a dot below the candle.
Stop Loss
Traders might place stop losses just beyond the Bollinger Band from where the price reacted or the reaction candle itself.
Take Profit
Profits may be taken at the opposing Bollinger Band.
Alternatively, traders may close the trade when the Parabolic SAR indicates a trend reversal in the opposite direction.
This strategy leverages the volatility of exotic pairs, with Bollinger Bands providing dynamic support and resistance levels, while the Parabolic SAR offers timely signals for trend reversals.
Strategy 2: Heikin Ashi Trends With MACD
This strategy integrates Heikin Ashi candles with the Moving Average Convergence Divergence (MACD) to identify trend directions and strength in exotic forex pairs.
Entry
After a colour switch in Heikin Ashi candles, traders typically wait for three consecutive candles of the same colour to form.
The next step involves looking for a MACD signal line crossover, preferably in the direction of the current trend. This crossover post the Heikin Ashi colour change serves as a confirmation for the entry.
Stop Loss
Stop losses may be placed beyond a nearby swing point. This placement provides a buffer against minor price fluctuations while still maintaining a reasonable risk level.
Take Profit
Traders may take profits after observing three candles of the opposite colour.
The theory states that traders exit the trade following a MACD crossover in the opposite direction.
Alternatively, a suitable support or resistance level might also be used as a target for taking profits.
Heikin Ashi candles smooth out price movements, making it easier to identify trends. When combined with MACD, a powerful tool for revealing momentum and confirming changes in the price direction, this strategy becomes effective in dealing with the trends and reversals common in exotic currency pairs.
Strategy 3: Keltner Channel Breakout Using VWAP
In this strategy, traders use Keltner Channel and Volume Weighted Average Price (VWAP) indicators on short-term charts (1 to 5 minutes) to capture swift movements in exotic currency pairs.
Entry
Traders typically focus on the VWAP to determine the market trend: long positions when the price is above the VWAP and short positions when below.
The Keltner Channel, set with a multiplier of either 1 or 2, helps identify breakout opportunities. A multiplier of 2 is often preferred for reducing false signals, though 1 can provide quicker entries.
Entry may be considered when the price breaks out of the Keltner Channel and retests the middle line, aligning with the trend indicated by the VWAP.
Stop Loss
Stop losses might be placed either beyond a nearby swing point or beyond the Keltner Channel or VWAP. This strategy may help in managing risk while allowing some room for price fluctuations.
Take Profit
Profits may be taken at a suitable support or resistance level.
Another strategy may be to exit the trade if the price crosses the other side of the Keltner Channel.
This strategy leverages the Keltner Channel to identify potential breakouts and retests, while the VWAP provides an additional layer of trend confirmation. The combination is particularly effective in short-term trading scenarios, making it a valuable approach for those trading volatile exotic pairs.
The Bottom Line
Trading exotic currency pairs requires careful strategy and an understanding of their unique dynamics. By applying the methods outlined, traders can potentially navigate these volatile markets with greater confidence. To explore these opportunities, consider opening an FXOpen account. We offer access to a range of exotic pairs and the tools necessary to navigate their volatility in our native TickTrader platform.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Exotic
USDMXN BUY - SMALL RISK / HUGE REWARDRisk-to-Reward: +4.43
USDMXN BUY @ 20.43925
Stop Loss: 20.31274
Take Profit: 21.00000
Use Risk To Reward For Risk Free Trade management
***I personally am trading a 100k account so I focus on 10 total Pairs excluding Crypto daily, risking .25% per trade position aiming for anywhere from 1%-3% gain.***
I am an institutional style trader and I go with the order flow of the market noticing price action more than anything and technicals are always last because throughout my 7+ year trading career I learned many styles and lost a lot of money chasing profits instead of understanding the psychology of trading and emotional intelligence it takes to not trade, but to make consistent profits and not risk my own hard earned money. Hope you take the advice and follow my trade ideas for more I cant post everything but my will be posting them on various platforms for before and afters.
***Correlates With USDZAR***
USDZAR BUY | SMALL RISK HUGE REWARD | INSTITUTIONAL**Risk-to-Reward** 1:15
Buy USDZAR @ 16.71524
Stop Loss: 16.66264
Take Profit: 17.50500
Use the Risk-to-Reward Visual Trade Levels For Risk Free Trading
***I personally am trading a 100k account so I focus on 10 total Pairs excluding Crypto daily, risking .25% per trade position aiming for anywhere from 1%-3% gain.***
I am an institutional style trader and I go with the order flow of the market noticing price action more than anything and technicals are always last because throughout my 7+ year trading career I learned many styles and lost a lot of money chasing profits instead of understanding the psychology of trading and emotional intelligence it takes to not trade, but to make consistent profits and not risk my own hard earned money. Hope you take the advice and follow my trade ideas for more I cant post everything but my will be posting them on various platforms for before and afters.
***Correlates With USDZAR***
usdzar Easy Shorts coming upHi Traders
As expected, The fed has hiked the Interest rate which has resulted in the dollar getting weak. My interest then falls upon USD/ZAR as we see price has now come all the way back to broken support which is now resistance.
The biggest eye-catcher is the clean range to the left which has the potential of being filled. Price could smoothly make its way down to 15.50 with ease if it respects the technicals, I will be waiting for the current H4 candle to close below 15.95 Before taking short positions on this exotic pair.
Renaldo Philander
AUD/USD (Aussie/ Dollar) Here on the Aussie Dollar we have a bearish gartley pattern. i would be surprised if this pattern moves today as the 10Y bonds are having a weak day, and the dollar is weak against some of the exotic pairs like USD/MXN. Its hard to say if you're looking at the Rubble as its having a rough day too. I'm not in the "know" on Russian news. So, again I would be surprised if the pattern moves today. What i think we might see is PA trace up to the shaded area and kiss the HOP level and play around a bit. i would like to see the oscillators move into the extreme zones before considering an entry! Stop is the red lines and tp 1 is 382 of the pattern and tp2 is the 618 of the pattern. Sorry everyone for not going inot super deep detail just trying to push out info and get back to studying! the courses are still in the process, again once my profile goes premium ill advertise here.
BUY USD/MXN 1W TIME FRAME (BUY HOLD). Placing a buy position on USD/MXN
Due to rises in COVID cases and new strains of COVID weighing in on Mexican PESO.
The Mexican Peso remains vulnerable to a risk-off move, meaning the US Dollar will be picking up safe haven momentum. If this occurs, I would look for a break above 20.50 to start considering price reversal, with a close above the 21.00 line as a confirmation of short-term bullish bias.
Risk/Reward
Please send comment with feedback.
#BLESSESPIPS
USDZAR buying opportunityPrice confirmed the downtrend line and now gearing up for the break. Waiting for the impulsive break of the current resistance on the 15 min chart ( see below ). Once broken we have target levels open at 15.70 and then 16.
Please support the idea and share your thoughts on USDZAR!
Good Luck and Stay Healthy!
USDSEK - LongPrice is forming a descending channel ; Price possibly is forming a descending channel within the descending channel towards support. Its possible price can breakout and go to 8.70250 if price breaks that resistance its possible price can head to 8.94500 and if price breaks that its possible price can head to 9.14500.
USDMXN LONG SWINGUSDMXN beautifully touched monthly support and rejected with a daily bullish engulfing. I initiated buy on the next daily candle. Daily also shows bullish divergence on obv and we have been in an uptrend since 1999. Great long term setup looking for new highs on monthly. Lets see what happens considering everything going on in the world.
Leave a like and lmk what you guys think. This is only my third post.
Currently 3-0 right now :-)