Trust us, there are a lot of strategies out there for Forex trading. Do all Forex strategies that work, work all the time? Unfortunately no. However, there are 7 Forex strategies that not only teach the fundamentals of Forex trading but are also among the most popular because of how easily they can be used to great success.
These 7 best Forex trading strategies are so simple, even a dummy can follow along. Remember, you can always jump onto your CAPEX Forex demo trading account to test any of the following strategies out, so that they have been perfected ahead of conducting live Forex trades.
Breakout
This is a strategy that will certainly suit Forex traders of any level of experience. You’ll be looking for breakouts – basically attempting to predict when a form may be forming. This is a pretty important skill for new traders to learn. Often markets will range between the support and resistance levels in what traders call consolidation. When a market finally moves beyond this consolation range, it is called a breakout. It could be high or low and the trend doesn’t start until the breakout occurs.
To be successful with the breakout strategy, there are a few indicators that we at CAPEX offer to help. Try using a Moving Average Convergence indicator or a Relative Strength Index – all accessible within the CAPEX trading platform.
Fundamental analysis
A complex strategy that can be simplified with some key indicators. Fundamental analysis forms the backbone of a truly informed overall Forex strategy. This strategy involves conducting a thorough analysis of a country’s economy to determine whether the currency is under or overvalued. With this information, a trader can then predict how the currency’s value is likely to move in accordance to another currency.
A heads up for totally new traders – look for indicators such as retail sales, GDP, CPI, housing data, and industrial production. As you grow with experience, you’ll no doubt use even more economic performance indicators.
Trend trading
This strategy is very popular and pretty commonly implemented by Forex traders around the world. Traders of any experience level will certainly want to test this one out in the CAPEX Forex demo platform because it happens to be one of the easiest strategies to learn. Somewhat similar to the breakout strategy, trend trading involves identifying trends in either direction and choosing entry and exit points accordingly.
These points are based on the currency’s price within the trend and the trend strength indicator – as in how long will the trend last. Thankfully, there are tons of indicators for such a technique and they are available on the CAPEX Forex trading platform. Newbies can use volume measurements, direction indices, moving averages, and relative strength indicators to assist with this simple strategy.
Moving average crossover
For this strategy, traders will employ the simple moving average indicator available on the CAPEX trading platform. The simple moving average (SMA) is considered to be a lagging indicator because it uses older price data than most other strategies. This strategy uses a long SMA against a shorter SMA – for example 25-days vs 200-days.
Using a chart set up for these two time periods, you’ll notice that the short line will cross the long line – this indicates a trend. If the short line moves above the long line, then newer prices are higher than the older prices. In this case, we’d have a signal to buy as a bullish trend is suggested. Conversely if the short line crosses below the long line, we’ll have a signal to sell.
Range trading
Another very popular and oh-so-simple of the Forex trading strategies for beginners. Traders will be looking for very stable and predictable economies for this trading strategy. That’s because it’s based on the concept that a currency’s value will very often hold within a steady range that is highly predictable for some amount of time.
You don’t want any surprises during this strategy. Range traders try to repeatedly buy and sell at predictable high and low levels of resistance and support to earn a profit. There are plenty of trading tools available for these kinds of trades at CAPEX. Look out for moving averages, relative strength indexes, and stochastics.
Carry trade
To use this strategy, traders will need a basic understanding of interest rate differentials and thankfully there is a simple equation to calculate daily interest.
Daily Interest = Long Currency – Short Currency/ 365 x notional value
Don’t worry! You won’t need to complete the math yourself to implement this trade. Carry trading involves turning a profit through the interest rate differentials between the countries of a currency pairing. For example, many carry traders invest in AUD/JPY owing to significantly higher spreads than other currency pairs.
Basically, you’ll be looking to execute a trade by borrowing funds from a low interest rate currency and purchasing funds of a high interest rate currency – holding this position overnight and traders can earn the interbank interest rate of the buying currencies country. Hence why currency pairs with high spreads are so appealing to implementers of this Forex trading strategy.
Momentum trading
Momentum traders work on the basis that a momentum indicator in a particular direction is a sign that a price trend is strong and will continue for a longer period of time. This strategy works for predicting reversals too, since weakening momentum may indicate that a trend may turn around soon.
To conduct momentum trades, new traders will need to take into account both volume and currency prices. You’ll be using the most familiar charts known to new Forex traders – candlesticks and oscillators. Essentially, you will be trying to determine how long a trend will last in order to maximise your earning potential. This is one of those online Forex trading strategies that may be implemented immediately after another such as a breakout strategy.
