7 Forex Trading Strategies All Traders Should Know
Did you know that Forex markets had a daily turnover of $6.6 trillion in 2019 and it continues to grow. The industry is booming and can be quite daunting if you’re a beginner. Luckily there are tips, tricks, strategies, and Forex education you can implement to help you get ahead in the Forex game.
So, keep reading to find out more about seven beginner-friendly Forex trading strategies.
1. Breakout Trading
Breakout trading is one of the simpler types of Forex trading and tends to be a good starting point for beginners. This trading strategy is a preferred method for many traders since it allows them to take a position at the start of a volatile period. The volatility matters since it offers more trading opportunities.
What Is a Breakout?
A ‘breakout’ is the term used when the currency pair’s price moves out of a consolidated range. Breakouts can occur when prices increase or decrease outside of the resistance or support areas. This strategy hinges on you opening your FX position very early and placing your stop-loss at the point the market broke out.
Breakouts signal the start of increased market volatility. By waiting for a break in a price level, you can jump on the trend as soon as it begins.
Why Use Breakout Trading?
By using this Forex trading strategy, you can enter the market as soon as the trend appears and ride the trade until volatility dies down. When it comes to this strategy, you can either dive at the moment the support or resistance level is breached, or you can wait a bit to ensure there is truly a down-trend.
2. Range Trading Strategy
This strategy is one of the less elaborate trading strategies out there. When a market consistently moves between two price levels, it creates a price range. Then within that range, you can identify upward or downward trends.
You can either manually trade within this range or set stop losses and limits on orders.
3. Momentum Trading Strategy
Momentum trading focuses on trend strength instead of the actual trend. This strategy is rooted in the concept that if a trend is strong enough, it will continue in the same direction (this can be an upward or downward trend!).
When using this strategy, you’ll open your position once you’ve seen the trend gaining momentum and close it when the trend slows down. Momentum is determined by volume, volatility, and timeframes.
4. Carry Trade
This form of trading looks to profit from the interest rate between countries. While this is a popular strategy, it can be extremely risky since these trades are often highly leveraged.
This strategy works by currencies being bought and then held overnight. The trader then gets paid the interbank interest rate of the country in which the currency was bought.
The trader using this strategy essentially borrows from a low-interest rate currency and then uses the funds to purchase a currency that provides a higher rate. When using this strategy, you’ll want to profit from the difference between the rates.
Common trading pairs include the Australian dollar – the Japanese yen and the New Zealand dollar – the Japanese yen since the interest rate spreads of these currency pairs are extremely high.
5. Trend Trading Strategy
This Forex trading strategy is one of the most widely used strategies in the industry. This strategy implements technical indicators to help identify the direction of market momentum and how long it has been going. Forex markets are generally expected to behave in a certain manner, and these manners can be forecasted by historical trends and movements.
Some popular indicators that can be used to identify trends in trading are moving averages (MAs), relative strength index (RSI), and average directional index (ADX).
6. Fundamental Analysis
When using fundamental analysis, you look at a country’s economic fundamentals to try and determine whether a currency is undervalued or overvalued. You can also use this information to try and determine how the currency’s value is likely to move based on another currency in the future.
These analyses can be extremely complex as it involves various elements of economic data that can indicate future trade and investment trends. It is, however, possible to simplify this by only looking at a few major indicators.
Some of the main factors that you can look at when doing an analysis are:
- a country’s economy and currency
- retail sales
- industrial production
7. MACD Trading Strategy
MACD (moving average convergence divergence) is used to find the end of a trend and the beginning of another one. This is a great strategy to tie in with trend trading.
There are three parts to make up an indicator:
- the MACD line
- the signal line
- the histogram
The MACD line is made by subtracting the 26-period moving average from the 12-period moving average. The signal line 9-period moving average. This then gets displayed as a histogram.
If the MACD line crosses above the signal line, it is seen as a buy signal, and if the line crosses below the signal line, it is a sell signal.
Forex Trading Strategies Made Easy
If you want some major help with these Forex trading strategies, you need to try our Forex training course and Forex signals. We at Premier Forex League are a close family of traders that teach you using our proven Forex strategies and Forex Signals.
Forex trading doesn’t need to be daunting. With the right skills and resources, you’ll flourish in no time. So take the plunge today to learn the system and master the trade.
Please don’t hesitate to contact us with any Forex-related questions or concerns you might have!