Forex is a wide market, which can help you earn unlimited money with limited investment. The key to successful trading in forex is understanding a few strategies to take advantage of the vulnerable market. As an investor, you can either form your own trading strategies or follow easy forex trading strategies.
The forex market is largely liquid, with a wide number of participants, and is also a well-established market. Therefore, it is natural for a number of traders to devise innumerable trading strategies, some of which can be confusing and daunting. However, many of the traders have crafted easy forex strategies for budding traders as well as existing traders who wish to improve their skills and knowledge.
Like every learning process, you must start from the basic and easy forex strategies and go on to add complexities as per your level of understanding. If you are looking forward to becoming a forex trader, you can choose from these following easy forex strategies to begin with.
Four Easy Forex Trading Strategies
The trading strategies following trends are fairly simple to understand. Now, a trend means that a market will continue to move in a specific direction. A trend-following system attempts to make sell and buy signals that align with the making of new trends. There are various methods crafted to identify when a trend ends and starts. A large number of traders have earner massive profits using easy forex strategies.
However, there are some drawbacks to such strategies:
- Large trends can be infrequent.
- Difficult to stick with.
- The conditions that indicate the potential start of a trend are not frequent.
Another issue with the trend-following system is you are required to have deep pockets to use the system properly. This is because having large amount of capital diminishes your chances of experiencing huge losses during an extended drawdown. Therefore, trend following is a useful strategy for budding traders who want to understand forex but is not highly ideal for those who can make little investments.
Markets may range between bands of resistance and support, which is known as consolidation. A breakout occurs when the market crosses the boundaries of its consolidation to new lows and highs. When a new trend takes place, a breakout must happen first. Therefore, breakouts are seen as potential indicators that a new trend has started. But not all breakouts lead to new trends.
In forex, such easy forex strategies must be used with risk management to minimise your losses during the trend collapse. A new high signifies the beginning of an upward trend whereas a new low indicates the starting of a downward trend.
How to determine in which trend are you entering?
The length of the span can help ascertain the lowest low and the highest high. A breakout above the highest high or below the lowest low for an extended period suggests a longer trend. A breakout for a small span suggests a short-term trend. In simpler words, you can modify a breakout strategy to react more slowly or quickly to the formation of a trend. Reacting quicker lets you ride a trend earlier in the curve but can result in following more short-term trends.
Let us look at the long-term breakout strategy. The buying signal is when the cost breaks out beyond the 20-day high, and the sell signal is when the cost breaks out under the 20-day low. This is fairly simple but there is a major drawback – new highs may not turn up into new up-trends and new lows may not transform into new down-trend. So, you will experience a fair share of false signals. To alleviate this issue, you can use stop-loss method, which means you can exit the trade after a specific period after entering it.
- Carry Trade
This strategy is not purely for beginners but is an easy forex strategy to understand and implement. The essence of this is to make profit out of the differences in yield between two currencies. To understand how this works, imagine that you borrow a sum of Japanese Yen. Because the standard Japanese interest rate is very low, the cost of keeping this debt is negligible. Now, you exchange this Yen into Canadian dollars and invest the proceeds into a government bond, which yields you 0.6%. The interest received on this bond should be more than the cost of financing the Yen debt.
However, there is a drawback. If the Yen increases enough against the Canadian dollar, you would end up losing money. The same principles are applicable while trading forex, but you have the advantage of it all being in a single trade. If you buy a currency pair in which the first-named base currency has a high-interest rate as compared to the second-named quote currency, then you will receive funds from the favourable swap-rate.
The amount received is correlated to the amount of currency called for, so leverage is an in case the strategy pays off. But, there is an unavoidable risk that you might end up on the wrong side and lost money. Therefore, it is important to carefully choose the right currencies with low risk.
Currently, the Japanese Yen has been popular as the funding currency due to its persistent low rates. The strategy works appropriately at a time of ballooning risk appetite, as people look for higher-yielding assets. The action of traders applying the strategy can itself back the strategy because the more people will use the strategy, the higher will be the selling pressure on the funding currency.
- Trading Overbought Oversold
It is a short term and easy forex strategy. It simply focuses on taking advantage of oversold/overbought scenarios within the leading trend and you can do this with basic trend lines as well. The traders can take advantages of trend trading as well as day trading.
All prices get driven too far down or up, due to fear and greed, and you simply trade into these extended levels. Once you have located the areas of resistance and support, check volatility with the Bollinger bands to confirm the move. This way, you can take profit early and search for the next one.
- Range Trading
This strategy believes that regardless of the currency’s direction, it will return to its point of origin. So, a trader employing this strategy undertake their trades on the possibility that the prices trade at similar levels several times and that they make take advantage of such fluctuations multiple times as well.
The first step is to locate the resistance and support levels and then utilise them for earning profits. The trader capitalises on conditions where currencies trade within the resistance and support levels for a period of time.
Trading in forex is a cakewalk if the trader chooses the right strategy. The above-mentioned easy forex strategies can help you to discover a customized suitable strategy for you. The strategy you choose will depend on your experience, personal psychology, and risk appetite. Just remember that forex trading does not have any magic formula or approach, and it only requires patience, skills, and experience. It is wiser to start slow and understand the market rather than jumping in and risking it all.