Easy Way To Trade Forex – We all know that getting started with forex trading can be difficult, but finding the right forex strategies to trade is key for novice traders entering the forex market.
Forex market is the largest and most liquid financial market in the world. Its average daily trading volume of $6.6 trillion, more than double that of the New York Stock Exchange, makes it an attractive arena for traders.
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Currency trading can be a rewarding endeavor for those willing to take risks. However, there are many pitfalls that beginners should avoid if they want to be successful in the long run.
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Read on to discover forex trading strategies that work and learn some of the things you need to do as a novice trader to be successful in the forex market. But first, understand what exactly a forex trading strategy is and how to choose the right one for you.
A trading strategy can be defined as a set of rules that help a trader decide when to enter a trade, how to manage it, and when to close it. A trading strategy can be very simple or very complex – it varies from trader to trader.
Traders using technical analysis may find it easier to define entry/exit rules, while traders using fundamental analysis may find it a little more difficult as it involves more discretion. Regardless, every trader should have a strategy, as this is the best way to achieve consistency and help you accurately measure your performance.
Few traders find the right forex strategy right away. The majority will spend a significant amount of time trying out various strategies with a demo trading account and/or backtesting. This allows you to run your tests in a safe and risk-free environment.
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Even if a trader gets to the point where he finds a strategy that has promising results and feels right, it is unlikely that he will stick with the same strategy for long. Financial markets are constantly evolving and traders must evolve with them.
If you are a beginner, it may be preferable to stick to simple strategies. Most beginners make the mistake of including too many technical indicators in their strategies, which leads to information overload and conflicting signals. You can always fine-tune your strategy and use the experience you have learned from backtesting and demo trading.
Price action trading is a strategy that focuses on making decisions based on the price movements of a particular instrument rather than combining technical indicators (eg RSI, MACD, Bollinger Bands). You can use a variety of price action strategies, from breakouts to reversals to simple and advanced candlestick patterns.
Technical indicators are not usually part of a price action strategy, but if they are included, they should not play a big role here but should be used as a support tool instead. Some traders like to include simple indicators like moving averages as they can help identify the trend.
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The benefits of price action trading are that your charts stay clean and there is less risk of suffering from information overload. Having multiple indicators on your chart can send conflicting signals that can cause confusion, especially for beginners.
Reading price action can give you a better idea of the market and help you spot patterns more efficiently. Another reason price action trading is particularly popular with day traders is that it is more suitable for traders who want to take advantage of short-term movements. In day trading you need to make quick decisions and having a “clean picture” and focusing only on price action will make the process easier.
Below is an example of a simple breakout trading strategy. 1.1772 was a key support level and our trader was expecting a breakout, so he could short the EUR/USD pair to take advantage of the next leg drop. We can see that the general trend is in their favor (downtrend). A breakout occurred and the currency pair fell more than 70 pips and finally found support at 1.1700.
Some traders will prefer to enter as soon as the price drops below the key support level (perhaps even with a trailing order), while other traders will wait to watch the price action and take action later. False breakouts happen often, so it’s important to have proper risk management rules to deal with them.
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Traders using a chain trading strategy will look for consolidated trading instruments on a particular chain. Depending on the time you trade, the range can be anything from 20 pips to a few hundred pips. What the trader is looking for are areas of consistent support and resistance that are holding – i.e. price bouncing from the support area and price rejecting in the resistance area.
Traders using this strategy should look for non-trend trading instruments. To do this, you can look at the instrument’s price action or use indicators such as the moving average and Average Directional Index (ADX). The lower the ADX value, the slower the trend.
A classic chain trading strategy will tell you to sell when the price hits the key resistance area and buy when the price hits the key support area. Some traders focus on two specific levels, while others trade with “bands” or “areas” – for example, if you define 1.17 as the key resistance level, but the price usually stops at 1.1690 or 1.1695, you can highlight the area. (1.1690 – 1.17) ) and start looking for sales opportunities in it. Focusing only on this particular level can mean you miss out on good trading opportunities because the price can often reverse before you reach it.
Below is an example of a currency pair with chain trade (EUR/SEK). ADX has low readings most of the time and we can often see the price bounce off the 10.00/04 support area while having difficulty breaking the resistance area between 10.27 and 10.30.
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Trend trading strategies include options to trade in the direction of the trend. The idea behind this is that the trading instrument will continue to move in the direction it is currently trending (either up or down).
When prices are constantly rising (making higher highs), we are talking about an uptrend. Conversely, falling prices (trading tool makes lower lows) will indicate a downtrend.
Besides looking at price action, traders can use supporting tools to identify the trend. Moving averages are one of the most popular. Traders can look to see if the price is trading above or below a moving average (the 200 DMA is a popular and widely watched value) or they can use MA crossovers.
To use moving average crossovers (which can also be used as entry signals), you will need to set up a fast MA and a slow MA. A popular example is 50 DMA and 200 DMA. A 50-day moving average that crosses the 200-day moving average can indicate the start of an uptrend and vice versa.
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The purpose of position trading is to profit from long-term trend movements while ignoring the short-term noise that occurs day-to-day. Traders using this type of trading style can stay open for weeks, months, and in rare cases for years.
Along with scalping, it is one of the more difficult trading styles. It requires a trader to remain extremely disciplined, able to ignore noise and remain calm even when a position of a few hundred pips moves against it.
For example, imagine you have a bearish view of stocks in early 2018. You shorted the S&P 500 at the beginning of the year with the intention of keeping the position open for the rest of the year. While you will enjoy the price action at the beginning and end of the year, the March to September rise can be a painful experience. Few traders have the discipline to keep their positions running this long.
Day traders don’t usually just trade for seconds, as scalp traders do. However, trading days tend to focus on a particular session or time of day when they try to trade opportunities. Scalpers can use an M1 chart to trade, while day traders tend to use anything from the M15 to the H1 chart.
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Scalpers tend to open more than 10 trades per day (some highly active traders can do more than 100 trades per day), while day traders usually take a bit slower and try to find 2-3 good deals per day.
If you want to close your positions before the trading day is over, but don’t want to experience the high stress that comes with scaling, day trading may be for you.
When scalping, traders try to take advantage of small intraday price movements. Some even have a target of only 5 pips per trade, and trade time can range from seconds to a few minutes. Scalpers must be good with numbers and be able to make quick decisions even under pressure. They also usually spend more time in front of the screen and tend to focus on one or a few specific markets (for example, scaling only EUR/USD or only S&P 500 futures).
The advantage of being a scalper can be that it allows you to focus on the market at a given time and you don’t have to worry about holding your positions overnight or interpreting long-term fundamentals.
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