Three Basic Forex Trading Strategies

Aug 8 • Forex Trading Strategies • 2426 Views • 1 Comment on Three Basic Forex Trading Strategies

In a market that involves trading foreign currencies, a trader should be aware that dealing with a risky environment would be a daily experience. That’s why as early as possible, a trader should take into consideration adopting forex trading strategies that best suit the trader’s preference and style. Each strategy has a prescribed period for entering the trade. Timing is an important element because this can separate the losers from the winners. Also, your chosen strategies should be clear as regards to your exit plan.

For one, forex trading strategies should not necessarily be complicated by mathematical equations and advanced economic concepts. Actually, the trading strategies that work best in the world of foreign exchange are the simple ones. Whichever strategy you choose to follow, just remember that it is important to have the discipline and the responsibility to adhere to the trading plan that you have drafted so that you will have greater chances of gaining profit.

The following are some of the basic forex trading strategies that you can consider mixing and matching depending on the market condition and situation:

  • The moving average strategy is a highly technical indicator. But you should not be afraid of the mathematical part. It is actually easy to understand. It merely illustrates the change in prices over a specific period of time. In the process of determining the trend, you get to compare the actual real price action. With this, you can easily analyze the condition and draft strategies that can be followed.
  • Following the trend line is one of the many forex trading strategies that you can choose from. Here, you will need to have a chart presenting the prices of the currencies that you are trading in the foreign exchange market. All you need to do is to determine the consecutive low points. Then, using a ruler, draw a straight line that will represent the trend line. If you want to be more precise, you can use a computer program to generate a more accurate trend line based on the values on the chart. From there, you can determine if the trend goes upward or downward. If the trend is upward, you will readily know that prices will have to bounce off the trend line and result to profits. If the prices are below the line that you have drawn, then it is an indicator that it’s time to exit the trade.
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  • The last forex trading strategy is the Dow Theory. It is a system that recognizes the property referred to as the momentum in a market. In this strategy, you will not need to use any tools, software, or indicators. The theory only proposes that there are a series of higher highs and lower lows that are bound to exist and this trend usually goes on within an indefinite period. In more common terms, a trader should buy if the recent high obtained is much higher than the previous high. The same is true if the current low is way below the previous low.
  • Just take note that no strategy is perfect because a financial market is very risky and dynamic. The best way to succeed is to continuously practice and test different strategies. This way, you can pick among the best forex trading strategies that you have tried before.

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