How to Trade Forex in 2021
What Have We Learned in 2020?
by Bogdan Giulvezan
Bye, Bye 2020! We’re not gonna miss ya (probably). Do I even need to say it? 2020 has been a messed up year… and believe me, I would like to use another word instead of “messed” but let’s keep it clean.
This year, Brexit actually happened – officially. On 31 January, 2020, the European Council lowered the Union Jack, signalling that Britain is no longer a member state. Also, the EU flag was removed from the United Kingdom’s permanent representation in Brussels. Of course that wasn’t the end of it and as you know, trade deal negotiations continued throughout the year, in what sometimes seemed like a kindergarten argument, with one side screaming “Fisheries” and the other side saying “No, u!”
Then the pandemic hit and many didn’t care at first. “I don’t need to wear a mask, I don’t need to stay away from other people. It’s nothing”. Then they all went from one extreme to the other and the Great Toilet Paper Rush started, with people buying it as if it was the answer to all of their problems.
All this and more took a tool on the US Dollar, which slumped throughout the year. Just take a look at the dollar index:
The year started on an upbeat note, with the US Dollar Index reaching a multiple-year high at 102.99 in late-March, but it was all downhill from there. Currently it’s trading at 90.21, below the 100 days Exponential Moving Average and with new lows at every swing. However, let’s put the past behind us and let’s see what we can make of 2021.
Trading in 2021 – “Caution” Is the Word!
After what happened in 2020, it’s safe to say that in 2021, safety of funds should be our main concern. The market can change direction on a dime and we can be taken out of our position with a loss. To avoid that (or at least attempt to), we should focus on the bigger picture, the higher timeframe charts and on “landmarks”.
By landmarks I mean big levels, major turning points, where price is more likely to react. Let’s take a look at a Weekly EUR/USD chart:
If you are trading on a 5-minute chart you will find a lot of S/R levels, but their importance (and strength) is incomparable to that of a level identified on a higher timeframe. On the chart above we can clearly see that 1.2500 is a major turning point, which is the next likely destination of this pair. Other levels of importance are 1.1500 and 1.0350, which both acted as “game changers”, meaning that they were significant turning points.
Levels like this should be your “landmarks” for 2021. I am not saying that price will go straight to them and then reverse, or that you cannot trade anything but the Weekly chart. Instead, mark your landmarks and keep them on the chart for the entire 2021. Trade whatever chart (timeframe) you feel comfortable with, but be aware that the market will react to major S/R levels. This doesn’t apply to EUR/USD alone and major landmarks can be found on all charts, no matter what pair you are looking at.
Given all the stuff that’s happening in the world right now, I don’t think that we will simply cross into 2021 and everything will be smooth sailing just because 2020 is over. The Forex market will continue to be jittery, the crypto space will continue to react to every rumour and speculation, so don’t put all your eggs in one basket and always pay attention to the big picture. More importantly, be safe and cautious!