7 simple forex trading strategies every trader must know!

Forex trading has slowly become one of the most popular and widely spread forms of trading and earning income in the world today. Since the early days of stock markets and Wall Street, trading, in general, has seen a steady rise, especially after the various market crashes and depressions that the world has experienced over the years.  

With the advent of the internet and online trading, forex has once again become one of the top full-time jobs and even part-time hobbies for people all over the world. There’s a lot more accessibility to participate in foreign exchange trading online; thus the forex trading market has seen a steep rise in active traders of late. Cryptocurrencies have also played a role in this rise in online trading, but that’s a topic for another day. 

Because forex trading has become “mainstream” in a sense, it’s always helpful to provide foundational information and help to those that may be new to the industry. Hence, this article will focus on seven of the simplest and most basic trading strategies for forex trading that everyone, from newbies to pros, should know.  

Trend Trading

The trend trading strategy is definitely one of the most popular and widely used approaches to trading in the forex market. The strategy consists of using technical indicators to correctly identify the specific direction that market momentum may be going and then using that information to trade long or short accordingly. 

simple forex trading strategies
Trend Trading

The underlying premise of this strategy is that forex markets tend to behave in certain ways, which are expected by a lot of forecasters. Historical trends and movements in the market can also help with future forecasts. However, it’s still imperative to have a robust risk management strategy in place, as the historical trends of a currency pair are not a guarantee of any price movements in the future. 

Some of the most widely popular technical indicators that are used to positively identify trends in forex trading are moving averages, relative strength index (RSI), and average directional index (ADX). 

Range Trading 

The range trading strategy is quite popular among new traders just starting out, as it’s one of the easier strategies to comprehend. When a market consistently fluctuates between two price levels, that market is considered to be in a “range.” A trader could identify particular upward or downward trends within the said range and make decisions accordingly. 

When this strategy is used, traders will go long or short depending on the specific position of the price within that specific range. They’ll generally trade long in an upward trend and short in a downward one. 

Breakout Trading 

The breakout trading strategy in forex is often the top strategy among many traders because it allows them to take a position at the beginning of a particularly volatile period. Forex traders are generally more attracted to heightened volatility because it offers many more trading opportunities. 

Breakout Trading
Breakout Trading 

A “breakout” is when the overall price of a currency pair suddenly shifts out of a consolidated range. This strategy involves opening a forex position very early within the new trend and placing your stop-loss at the point that the market broke out. 

Momentum Trading 

The momentum trading strategy focuses on the strength of a trend and not just on the trend itself. This strategy is based on the idea and belief that if a trend is strong enough, it will continue to go in the same direction, either upward or downward. 

If a trader wants to use this strategy, they’ll open their position when the trend gathers momentum and then close it when the trend begins to slow down. To determine momentum, the volume, volatility, and timeframes all need to be considered. 

The indicators that are most used for this strategy are the momentum indicator, RSI, MAs, and the stochastic oscillator. 

News Trading 

News Trading
News Trading

The news trading strategy is a well-known and well-aged strategy that can still be applied to forex positions today. There are many different kinds of news events that can cause a currency pair’s price to spike or go down.  

Carry Trade 

The job of the carry trade strategy is to help traders make a profit from the interest rate differential between two different currencies in a forex pair. There are two carry trading strategies. These are positive carry trading and negative carry trading. The first is borrowing a currency with a low-interest rate and buying a currency with a high-interest rate. A negative carry trade works in the opposite way. 

MACD Trading 

MACD is an acronym that stands for the moving average convergence divergence and helps to find the end of one particular trend and the beginning of another. This strategy might be useful for a beginner forex trader just starting out, but who also knows the various indicators well. There are three parts that make up this indicator: the MACD line, signal line, and histogram. 

Conclusion 

These seven strategies make up the foundation of any successful forex trader, and getting the hang of them will definitely serve you well going forward! 

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