7 simple forex trading strategies ;- Are you new to forex trading and want to learn some basic yet efficient trading strategies? You’ve arrived to the right place.
We’ll go through seven simple forex trading methods for beginners in this fast article. Each one is simple to grasp and great for those who are still honing their talents.
You’ll be able to make basic transactions with confidence if you take the time to grasp these principles. Even better, you’ve put yourself up to experiment with more complicated trading tactics in the future.
1. Breakout trading strategy
Breakout trading is one of the most straight forward forex trading strategies, making it an excellent alternative for newcomers. Let’s define the term “breakout” before we look at how it works.
Simply put, a “breakout” is any price movement that goes outside of a clearly defined support or resistance zone. Breakouts can happen when prices rise over resistance levels, which are referred to as “bullish” breakout patterns. They can also occur when prices fall below support levels, which is referred to as a “bearish” breakout pattern.
Breakout trading is a crucial strategy since breakouts frequently signal the beginning of higher market volatility. By waiting for a price level to break, you can make a profit. we can use volatility to our advantage by joining a new trend as it begins.
The purpose of breakout trades is to enter the market when the price makes a breakout move and then ride the trade until volatility subsides.
When a support or resistance level is breached, some forex experts recommend jumping in. Others advise waiting just long enough to confirm whether the breakout is a legitimate up or down trend.
At the very least, position your stop loss just above or below the breakout candle. This will assist you in tying your bets to earlier levels of support or resistance.
2. Moving average crossover
A moving average (MA) is a simple technical analysis tool that smooths out price data by calculating an average price that is regularly updated. That average can be calculated over a variety of time periods, including 20 minutes, three days, 30 weeks, or any other timeframe a trader desires.
Moving average tactics are widely used and can be customised to any time frame, making them suitable for both long-term and short-term investors.
One of the most common reasons for creating a moving average is to identify trend direction as well as support and resistance levels.
When asset prices cross over their moving averages, technical traders often get a trading signal. When a price bounces off or crosses the MA from above, for example, a trader can sell in order to close below the moving average.
Simple price crossovers
One of the most common moving average trading strategies is price crossings. When a price crosses above or below a moving average, a simple price variable changes, suggesting a probable trend change.
Two moving averages are used.
Other trading strategies employ two moving averages: one that is longer and one that is shorter. It’s a buy signal when the shorter-term MA crosses above the longer-term MA, indicating that the trend is turning upward. A “golden cross” is what this is called.
When the shorter-term MA crosses below the longer-term MA, on the other hand, it’s a sell signal, indicating that the trend is turning downward. A “dead cross” or “death cross” is what this is called.
3. Carry trade
Carry trading is a form of FX trading in which traders try to profit on interest rate differentials across countries. It’s crucial to remember that, while popular, it can also be dangerous.
This approach works because currencies purchased and takes time pay the interbank interest rate to a trader (of the country of which the currency was bought). A carry trader “borrows” money from a currency with a low interest rate in order to buy a currency with a higher rate.
A trader who employs this method hopes to profit from the rate differential, which can be significant depending on the amount of leverage used.
Carry trades are one of the most popular trading strategies in the forex market, but they are risky because they are usually highly leveraged and overcrowded.
Because the interest rate margins on these currency pairs are so wide, popular trading pairs include the Australian dollar/Japanese yen and the New Zealand dollar/Japanese yen.
If you’re into math, you can compute the daily interest from a carry trade as follows: [IR (long currency) – IR (short currency)] = daily interest / notional value multiplied by 365
4. Fundamental analysis
Traders use fundamental research to assess if a currency is undervalued or overvalued by looking at its economic fundamentals. They also use the data to forecast how the currency’s value will change in relation to other currencies in the future.
Fundamental analysis can be difficult to understand since it involves many different facets of a country’s economic data that can be used to forecast future trade and investment trends. It can be made simpler by focusing on a few key signs.
Retail sales, GDP, industrial production, CPI, inflation, purchasing managers index data, housing data, and so on are some of the most important factors that can affect a country’s economy – and its currency.
5. Trend trading strategy
Another popular and also used forex trading approach is trend trading. Beginners will find it simple to grasp and follow.
The method entails establishing if a currency price movement is trending upward or downward and then selecting trade entry and exit positions. The relative strength of the trend, as well as the positioning of the currency’s price inside the trend, are used to calculate these points.
Moving averages, relative strength indicators, volume measurements, directional indices, and stochastics are among the techniques used by trend traders to assess trends.
6. Range trading
Range trading is a basic and popular approach based on the premise that prices tend to stay in a consistent and predictable range over time. It works best in markets with stable and predictable economies, as well as currencies that aren’t regularly subjected to unexpected news.
Range traders rely on being able to buy and sell at expected resistance and support highs and lows, sometimes many times during one or more trading sessions.
The relative strength index, the market channel index, and stochastics are some of the same instruments that trend traders employ to find suitable trade entry and exit levels.
7. Momentum trading
Strong price volatility in one direction are a good sign that a price trend will continue in that direction for some time, as according momentum trading and momentum indicators.
Similarly, weakening movements suggest that a trend has lost traction and is on the verge of reversing.
Price and volume may be considered in momentum techniques, which usually include visual analytical tools such as oscillators and candlestick charts.