Want to start trading Forex? It is better to begin with basic strategies. They will allow you to learn the process better & understand how the market works.
5 Basic Forex Strategies
The ability to correctly analyse the price chart of a currency pair is one of the key skills for a trader. However, its presence does not automatically make a trader successful.
Of course, the trading results are highly dependent on the skills of technical analysis, however, the very skill of analysing charts excludes the participation of any money and emotions of the trader.
It is problematic to exclude money and emotions from the process of real trading in the foreign exchange market. That is why two traders with the same knowledge and skills will show completely different results.
Every day, there are published many trading tips and forecasts for trading in the foreign exchange market on trading sites. However, none of the most accurate predictions will bring profit to a trader if they do not know how to enter the market on time.
There are many methods for choosing the right time to open a deal, but the most universal and, at the same time, effective are five approaches:
- Forex strategy based on RSI indicator.
- EMA Breakout Indicator.
- Entering the market when the price breaks out a certain technical level.
- Entering the market at the end of the correction in the direction of the trend.
- Opening a trade in a narrow price range precedes a strong price movement.
Let’s see them in more detail.
1. Breakdown of the level
The technical level breakout trading strategy is very simple and is used by many traders. Its essence is as follows: the trader determines static or dynamic levels of support and resistance on the chart and enters the market after the price breaks the levels up (buy) or down (sell).
2. Corrective pullback entry
Trading with the trend is the easiest and most profitable way to trade in the foreign exchange market. Its principle implies that after a strong price movement, the price corrects to the technical trend line (support line for an uptrend and a resistance line for a downtrend), after which it forms the next impulse in the direction of the trend.
This strategy involves opening a position at the end of a corrective pullback. The method is very effective since the money of those traders who did not have time to enter on the previous trend impulses are used as a price engine. Having opened a deal at the right time, all that remains is to allow the price to reach the set goal, bringing the trader a profit.
3. Entry in a narrow price range
Opening a trade when the price is in a narrow price range alarms many traders, although this principle is not fundamentally difficult. From the point of view of logic, it is precisely the location of the price in a narrow price range that is the most optimal time to open a deal.
Volatility is low, allowing you to select suitable levels for positions, and a period of consolidation is usually followed by a sharp downward or upward price leap. This is a useful strategy to learn to trade Forex, especially in South Africa. You can learn more about it in the Forextime blog that will tell you a lot about various Forex trading strategies and news.
4. Forex strategy based on RSI indicator
No trading system can solely rely on the RSI indicator but when used in conjunction with other tools and with proper technical analysis, it can open up new opportunities for Forex trading. Now we are going to set up a strategy based on the RSI indicator.
Entry rule: Buy when RSI crossed below 30, formed a bottom, and then crossed back over 30. Sell when RSI crossed above 70, formed a peak, and then again stepped back over 70. Exit rule: Not formed.
Benefits: The RSI indicator is very good for indicating confirmation on any entry in any simple or complex trading system. Disadvantages: Monitoring is required, there are false signals. The strategy on the RSI indicator is supposed to be used in combination with others.
5. EMA Breakout Indicator
There always comes a time when traders start experimenting with different EMA indicator settings. In doing so, one may often obtain good combinations. Currency pairs: Any. Timeframe: 90 minutes or 3-hour chart, 4-hour chart. Indicator: 50 EMA.
Correct entry: Watch the candlestick to pass the 50 EMA and close above (for a short entry) or below (for a long entry). Enter the second candle after it makes 5 pips more than the previous one. Exit rule: Not formed. Stop-loss order: 15 pips below the 50 EMA.