Many beginning traders are convinced that their success in the forex market depends on the complexity of strategies and systems. But the truth is that it is better to utilize a simple forex strategy at the very beginning because it is easier to identify trading signals, and such system contains a smaller number of elements to break that complex system. For this reason, if you start being a forex trader, you need to focus on the simple trading strategies.
To start explaining information on the simple forex trading strategies is necessary to understand what the term “trend” means, as a couple of the popular systems monitor trends. In general, the trend can be called a tendency of the market to move in a certain direction. The trend-following strategies make attempts to provide purchasing and selling signals that shows that new trends are forming. Simple trading strategies use analogous methods to determine when it starts and finishes.
The good thing about the simple trend-following strategies is that they can bring great profits. However, it is also important to be aware of disadvantages of such systems. First of all, it can be quite complicated to stick with them. Apart from this, simple forex trading strategies have a tendency to produce a great number of losing trades. Yes, they may be risky, but there is no risk-off stratagies whatsoever.
Sometimes, newcomers may face such a thing as a breakdown. When the trend is broken down, you tend to return a great part of your profit. However, even if it happens that the trend fails, you shouldn’t give up. It is possible to learn how to use trend-following strategies and find a simple forex strategy that works best for you.
Let's take a look at some simple trading strategies.
The first one tries to determine the time when a trend can be formed. In other words, it is looking for the breakouts of the price. To understand this strategy is important to find out what a “consolidation” is. It is a process that describes changes of a stock price within a well-determined pattern of trading levels. In general, it can be defined as an uncertainty period. They can last for days, weeks, or months, and they can be easily found in price charts.
Apart from this, these charts also contain information on support and resistance levels, which have a direct impact on traders and their purchasing and selling decisions. The breakout and the consolidation have a lot in common. A breakout happens when the market moves outside the limits of its consolidation. In the chart it looks like two horizontal lines. One of them is placed in the upper part of the chart and called a band of support, when the other one is placed in the bottom part of the chart and called a band of resistance.
All market changes are shown in the form of candlesticks. When a candlestick crosses one of the lines, a breakout happens. It is possible to perceive a breakout as a signal of the start of a new trend. Unfortunately, not every breakout results in a new trend. Even this simple forex strategy should take into consideration such thing as risk management. If you forget about this or do not do this intentionally, you diminish your chances of success. To understand a simple forex strategy better, it is good to test it. It will help you to realize whether it fits you or not.
One more simple forex strategy that works well for beginners and experienced traders is moving average crossover. It is created to help determine the end of a trend and its reverse. In the chart it looks like an actual price and two moving averages. The actual price is represented by the candlesticks that move up and down. The first moving average is presented in a form a yellow line. It is always quite close to the actual price. The second moving average is presented in a form a blue line. It is a long line that moves quite smoothly.
To make market operations relying on this simple forex strategy is not difficult. It is just necessary to monitor when the blue line is crossed by the yellow one. In this situation, the trend will change. If the yellow line moves below the blue one, it is a signal that you need to sell. When the yellow line moves above the blue line, it is a signal that you need to buy.
Usually, this strategy isn’t used alone, because it works more effectively when it is combined with the breakout strategy. The average moving crossover strategy is very useful when you want to identify whether the breakout will result in a new trend or not. For instance, you have got a breakout signal to purchase. To check whether you need to do this or not, you should look at the yellow and blue lines. By using the combination of these simple trading strategies, you may get winning results.
One more super effective and simple forex strategy is called «carry trade». Generally, when you use this strategy, you generate your profit from the interest rate differential or yield currency differential. The best method to explain this simple forex strategy is to provide an example.
The carry trade is a situation when a trader borrows a financial tool, like EUR or JPY, and uses it to purchase another currency, like USD or CAD. It means that a trader is highly interested in the currency that he/she purchases, and has low interest in the currency that he/she borrows. Yet, he/she needs to pay back the debt, but the difference between the money he earned and the money he paid back is huge.
To carry out this market operation successfully, a trader should carefully watch the economic and political conditions that influence the currencies. In general, they should be quite negative, but with a positive potential. Investors are ready to risk when there are good perspectives, but they won’t do this if everything looks very bad. In such situations, investors usually do not purchase high-yielding currencies. Moreover, there are high chances that they resign their positions. It is more profitable for them to invest their money in safe currencies with a low rate of interest, like USD.
This simple forex strategy that works well is quite reliable. However, it also includes risks. For this reason, it is vital to pay attention to the economic and political changes in the world that can have an impact on the currencies. The selection process of the currencies should be thorough to diminish the risk rate.
If it is your first experience in the market trading, then these simple forex trading strategies are must-have. They will help to understand the graphs and the way the market works. Usually, traders choose strategies relying on their personal qualities and style. Yet, these strategies are almost universal. Probably every person will feel quite comfortable working with them. If you are looking for a simple forex strategy that works, then one of the presented strategies in this article can fit your needs. Yet, you should test each strategy to see results.
You can find other simple forex trading strategies on the web. There are dozens of them. For example, you can choose «sunrise» forex strategy, «simple Renko arrows», «William Histogram», «percentage price oscillator», «cloud trading strategy», «alligator», and so on. Each of these systems has proved that it works well, though they may have some disadvantages.