The forex market is a huge market with plenty of trading opportunities. Oftentimes traders look for simple yet effective trading approaches to trade forex online. There are a lot of forex trading strategies to choose from, but what are some of the simplest trading strategies?
Here’s a list of four simple forex strategies.
1. Breakout Trading
Breakout trading is one of the simple forex trading strategies for beginners and professional traders. It is quite easy to follow. All a trader needs to do is to follow the direction of the trend and monitor highs and lows. When the breakout occurs, a trader may start to look for trading positions. A breakout can be defined as a region making several highs and lows before finally moving in the trend direction.
Many traders think that in search of this breakout region, they might not predict market pullbacks. However, being aware of pullbacks when there is not a breakout can give other trading signals or help avoid false breakouts.
Traders need to remember these points:
- Identify long-term breakouts
- Use momentum oscillators to find out the exact entry and exit points.
- Locate key market moves.
Normally, the breakout strategy is used on more significant levels of support and resistance. However, a trader can use this strategy on any currency pair and time frame that they wish.
Forex scalping is one of the most popular trading strategies, and many traders try to implement it. Scalping involves entering and exiting trading positions multiple times a day. A scalper enters the trade in search of small profits on a frequent basis.
In order to implement scalping, a trader would usually do a few things:
- Plan an entry and exit strategy
- Enter the trade whenever there is an opportunity and exit according to the strategy
- Apply the strategy on shorter timeframes like 1-minute and 5-minute charts.
However, scalping requires expertise and can take years to master.
3. Carry trading
Carry trading is yet another powerful and simple forex trading strategy. It involves buying a high profiting currency and funding it with a low profiting currency. The principle of carry trading is “buy low, sell high.”
Some of the most popular forex pairs involving carry trading are AUD/JPY and NZD/JPY. This is because the interest rates of these currencies are very high.
To apply carry trading, the first step a trader needs to take is to find out which currency provides a high yield and which one offers a low yield. A trader would then consider to apply the principle of buying low and selling high.
Carry trading is often used when there is low volatility, as traders are willing to take more risks. Not just individual traders, large financial institutions conduct carry trading also. They are amongst those that get the most out of carry trading because of lower interest rates. And, when the market has low volatility, big institutions may look to take advantage of this.
4. Swing trading
Swing trading can involve predicting overbought and oversold market conditions. The overbought condition occurs when there is strong buying pressure. Conversely, oversold conditions emerge when there is sharp selling pressure.
These conditions represent abnormality in the markets. This is where swing trading comes into play. Swing traders identify these levels by using trendlines or one of the momentum oscillators like the RSI or Stochastics. Then, they could look for market volatility with a technical indicator like the Volatility Index (VIX), and then enter the trade at the support or resistance levels if they wish to do so.
One of the advantages of swing trading is that it works fine on longer timeframes and shorter timeframes.
Simple Forex Strategy Conclusion
All of the simple forex strategies mentioned above can be implemented for all types of traders. It is important to learn as much as possible about all types of trading strategies, both simple forex strategies and complex ones.
Becoming a successful forex trader can take many years of practice. It is not easy to make a living from forex trading in my opinion. It will require immense trading discipline, good money management, and a bullet proof trading plan.
The methods of trading forex that are outlined within this article are just ideas. You should trade forex in a way that suits your own individual style, needs and goals.
If you would like to practice forex trading online, you can open an account with a forex broker and download a trading platform completely free of charge. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.