Strategies That Actually Work
Forex Strategies That Actually Work
When you are making your first steps into the exciting world of currency trading, finding Forex strategies that actually work for you, can seem like a herculean task. The process of buying and selling currencies is something that cannot be done in a haphazard manner, but finding and adopting a set of rules that will increase your chances of success and significantly reduce your risk, is hardly a walk in the park.
The main reason for this is that there is just too much information and too many strategies for the inexperienced trader to wade through before they find a good fit. The internet has thousands of articles from so-called ‘experts’ as well as countless books and videos that have information on everything from simple news-based trading systems, to some of the most complex market indicators. In this article, we look at three of the most popular Forex strategies that actually work and which are used by thousands of traders worldwide.
Among the first trading strategies that every new trader should strive to learn is trade breakouts. So, what is a breakout in the first place? Well, the term is the description of the time the market switches from a period of little activity to a very sharp rise or fall. The easiest way to think of a breakout is to consider it as the very start of a new trend. That is, an asset’s price will trade within a price range and once it breaks past a resistance (up) or support (down) level, this is referred to as a price breakout. It is essential that new traders quickly learn to identify when breakouts occur since this skill is vital in learning when to enter or exit a trade, when the market is ranging or trending. Many traders find the breakout strategy to be an exciting way to trade as it takes advantage of periods of volatility in the Forex market.
Trend Following Strategy
Another one of the Forex strategies that actually work is one that takes advantage of trends, which are periods of extended moves of the market in one direction – either up or down, or even horizontally. The trend is the result of a currency gaining in value when compared to another over an extended period. Capitalizing on these kinds of moves is the bread and butter of the Forex trade since it is often said that ‘the trend is your friend’. Trading on trending markets is a technical strategy which uses mathematical indicators to help traders decide on the best time to trade currencies. There are two major indicators that are commonly used in the execution of the trend following strategy: the Bollinger Bands, which is a representation of the standard deviation in the value of a currency over a period of time, and the Exponential Moving Average, a rolling average of the price of a currency over a specific time interval.
Carry Trading is a skill and strategy which every Forex trader should know if they are to be successful. This strategy is used when a Forex trader looks to earn interest from purchasing currencies with high benchmark interest rates. The interest rates are set by a country’s central bank, including the US Federal Reserve, the Bank of Japan or the Bank of England. Although the 2008 financial crisis caused a decline in the popularity of this strategy as interest rates plummeted, there are still a few currencies from the world’s emerging economies that exhibit impressive interest rates, thus reigniting the Forex market’s interest in the strategy.
If you are to find long-term success as a Forex trader, it is important that you find ways to be as adaptable and dynamic as the Forex market itself. You should not only find trading systems and Forex strategies that actually work, but you also need to quickly take advantage of emerging market conditions.