Forex trading strategies refer to the specific approaches, techniques, and methods that traders use to try to profit from currency price fluctuations. Forex trading strategies are designed to help traders identify potential trading opportunities and manage risk while seeking to generate profits.
I’ll discuss more strategies right here on this blog but for now, here I’m discussing the two most simple forex trading strategies for beginners to follow. This forex trading strategies has over 85% of success ratio if you follow it the right way.
Trend-following strategy
Trend following is a popular forex trading strategy that involves identifying and trading the prevailing market trend The idea behind this strategy is to buy or sell a currency pair when the price is moving in a certain direction, hoping that the trend will continue and there will be profitable trades.
To implement a trend following strategy, traders typically use technical analysis tools to identify market trends. These tools can include moving averages, trend lines, and other indicators that can help determine market direction. Once a trend is identified, traders usually take positions in the direction of the trend.
There are two main types of trends that traders will look for when implementing a trending strategy: uptrends and downtrends An uptrend is characterized by higher and higher highs and lows, indicating that the price is generally rising. On the other hand, a downtrend is characterized by multiple lower highs and lower lows, indicating that the price is generally declining.
To manage risk, traders using a trend-following strategy typically use stop-loss orders to limit potential losses if the trend reverses. They may also use technical indicators such as the Moving Average of Convergence (MACD) or the Relative Strength Index (RSI) to help identify potential entry and exit points.
While trend following can be a successful forex trading strategy, it is important to note that not all trends are created equal Some trends may be short-lived or lack sufficient momentum to generate profitable trades Also, trend-following strategies may be less effective in volatile or sideways markets where there is no clear trend Therefore, it is important for traders to carefully analyze the market conditions and choose the right strategy for the specific market environment.
If you want to use the indicator then head over to trading view and click on indicators. Search for the moving average twice then on the chart under the currency pair you will see two moving average options. Click on the setting for the first and keep the length to 50, now change the length of the second to 15.
If 15 moving average crosses the 50-moving average from the bottom then the trend will be the uptrend and if it intersects the 50-moving average from the upside then it will be in the downtrend. Only trade the strategy when the market is in up or down trend.
Look at the image in after the heading that will clear everything I’m talking about. Let the market touches the support or resistance level then wait for the pullbacks, now here you can buy or sell keeping risk to reward ratio 1:2.
Breakout strategy
A breakout strategy is a popular forex trading strategy that identifies key support and resistance levels and initiates a trade when the price breaks through these levels The idea behind this strategy is that when the price breaks through a trading range or consolidation phase, it is likely to continue in the direction of the breakout, which leads to profitable trades.
In order to implement a breakout strategy, traders typically use technical analysis tools such as trend lines, horizontal support, and resistance levels, and other indicators to identify key levels where the price may rise. Once these levels are established, traders will wait for the price to break above the level with high momentum and volume, indicating that a breakout is certain.
Traders can use different methods to make trades based on the breakout Some traders may enter a trade as soon as the price breaks through a key level, while others may wait for the breakout to be confirmed before entering the trade Confirmation may involves waiting for the price to close above or below the breakout level, or waiting for the breakout level to be crossed before entering the trade.
To manage risk, traders using a breakout strategy typically use stop-loss orders to limit potential losses if the breakout fails and the price moves. They can also use technical indicators such as average true range (ATR) or moving average to determine the appropriate stop loss level.
While the breakout strategy can be a successful way to trade, it is important to note that not all distributions are created equal False breakouts can occur when the price briefly breaks a key level before returning to the previous trading range Therefore, it is important for traders to carefully analyze the market conditions and choose the right breakout strategy for the specific market environment.
NOTE: Only try the breakout strategy when the market is in consolidation/ moving sideways.
Conclusion
Breakout strategy and trend-following strategy are two popular forex trading techniques that can help traders identify profitable trades based on market conditions A breakout strategy involves identifying key support and resistance levels and placing a trade when price breaks through these levels, while a trend-following strategy involves identifying and following a prevailing trend in the market
Both strategies have their own pros and cons, so traders should carefully analyze market conditions to choose the right strategy for their particular environment Additionally, traders need to manage risk by using stop losses and other risk management tools to limit potential losses if the market turns against them
Ultimately, successful forex trading requires a combination of skill, experience, and discipline, and traders who are able to effectively implement these strategies and manage their risk can increase their chances of success in the forex market.
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