Forex trading is indeed welcoming of different trading strategies and techniques. From pure price action analysis to the use of multiple indicators, traders have a variety of strategies to choose from. However, many new traders are unable to make consistent profits because they tend to complicate their trading processes by using every technical analysis tool out there. In this article, you will learn seven easy rule-based strategies that work. Let’s begin!
Moving Average Crossover with Trendline.
Moving averages are dynamic support and resistance tools that can determine price levels and potentially act as support or resistance. They’re trend-following indicators that show the market trend and help traders predict or confirm reversals. You can access these indicators on trading platforms or forex brokers like OANDA.
The moving average crossover occurs when two different moving averages intersect. It can be used to predict reversals. This strategy can be applied to all time frames and currency pairs. You simply have to execute trades when the moving averages cross.
You can confirm the trend shift by the break of a trend line as the momentum of the market shifts. The stop loss is usually placed above the moving average or trend line with a satisfactory risk to reward ratio.
Fibonacci Trend Trading
The Fibonacci trend trading strategy is a simple trading strategy that requires the use of the Fibonacci indicator to determine zones where a forex market trend would continue from. If you’re in a BULLISH market, price will make impulsive moves to the upside. After the impulse, there is usually a retracement, and you can use the Fibonacci retracement tool to determine the best zones to buy from.
Similarly, when price is in a downtrend, there would be impulsive down moves, followed by retracements. In this scenario, the Fibonacci retracement tool can be used to determine the best zones to execute a sell trade. Most charting platforms (such as TradingView) provide a lot of levels on the Fib retracement tools. You don’t have to use all of these levels. The 38.2, 50, and 61.8 levels will suffice. You can use a moving average or trendline to confirm that the trend will continue.
Divergence Strategy with Market Structure
The divergence strategy depends on indicators known as oscillators. You can use the relative strength index as the oscillator in this case. Divergence occurs when the forex chart moves in a direction opposite to that of the oscillator.
For instance, if an oscillator creates a higher low while the forex chart creates a lower low, this is a bullish divergence, and higher prices may follow. If an oscillator creates a higher high while the forex chart creates a higher high, this is a bearish divergence.
You can confirm the reversal of the trend by a shift in market structure. This occurs when the market moves in your favour and breaks a short term high (in a bullish divergence) or low (in a bearish divergence).
Support and Resistance with Moving Averages
Support occurs when falling prices stop, change direction, and begin to rise. Support is often viewed as a “floor” that is supporting, or holding up, prices.
Resistance is a price level where rising prices stop, change direction, and begin to fall. Buyers come in at resistance levels and take the prices lower.
When a support level is broken, it becomes a resistance level. But when a resistance level is broken, it becomes a support level. You can add confluence to your support and resistance levels by using moving averages as confirmation.
Breakout Strategy
A breakout occurs when the price of an asset breaks beyond a key support or resistance level. This usually leads to huge price movements. Breakouts also occur when the price breaks out of a consolidation range, and once the market breaks out, that provides a good buy or sell entry.
False breakouts occur when the candle trades above or below a key level to entice traders to take trades in the wrong direction. You can avoid false breakouts by;
- Examining the volume of the breakout candle: Ensure that it’s a large volume candle that closes above (in bullish breakouts) or below (in bearish breakouts) the consolidation range.
- Waiting for a trend continuation: After a breakout, subsequent candles should move in the direction of the newly established trend.
Support and Resistance with Candlestick Patterns
Candlestick patterns are price action signals that show the interactions of buyers and sellers in the forex market. You can learn these patterns easily through online forex resources. Besides knowing what these patterns look like, make sure you understand the meaning behind their formation.
You can create a trading strategy by using powerful candlestick patterns to confirm your support and resistance-based trades. These candlestick patterns include; pin bar, engulfing candles, doji, etc.
Range Trading Strategy
Ranges are formed when a currency pair keeps trading between two price levels. Depending on the timeframe you are trading on, this range could be anything from 20 pips to several hundred pips.
You can buy at the bottom of the range or sell at the top of the range.
There are many trying strategies to choose from, but whichever one you choose, make sure you execute your trades with discipline and proper risk management.