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What Forex Techniques Should You Research and Master

ByDave Stopher

Oct 26, 2018

Image source: Deposit Photos

For many, Forex trading seems more like an art than science that only talented and insightful people can master. However, making some extra money with Forex (and even turning such activity into a full-time job) requires more than having gut feelings about the market or a particular flair of foreseeing the changes. Forex trading is about strategy, risk management, using the software at its maximum potential, and having a cold stone heart to avoid emotion-based decisions. Today, we will look into some of the best Forex strategies to know and master if you want to start Forex trading with the right foot.

Beginner Forex Strategies

Many beginners mistakenly believe that the more complicated the strategy, the better the results. Nevertheless, what you should understand first about Forex investing is that success depends a lot on the success of the trading signals and your timing.

As a general rule, do not start working with Forex until you do thorough homework. We recommend you read and learn from the top Forex blogs, experts, and brokers. You will soon realize that you should first use a demo account and understand how the market works. Top Forex blogs and resources will also help you get a better grip on strategies, techniques, tips, tricks, and updated information regarding such transactions.

If you already have a knowledge base, let us discuss some simple Forex strategies for beginners!

1. The Breakout Strategy

The Breakout strategy relies on all price movements occurring outside defined support or resistance area. Before a price breaks this perceived area, it will go through a period of consolidation. During this time, the asset price remains tightly within its boundaries, reaching the support or resistance lines a few times but having a steady position overall.

The breakdown occurs when the market breaks through the resistance level or the support level. During the consolidation phase, traders secure their positions. Many traders feel the temptation of going against the trends, but most follow them and let the market show its hand before they make a move. For the average trader, the experts recommend daily trading inside the bars.

2. The Four-Week Strategy

This strategy was coined by legend trader Richard Donchian, the father of trend following. This strategy relies on the Breakout discussed above, is automated, and supports a straightforward rule:

  • Start at a new four-week calendar;
  • Close short positions and buy long when the price exceeds the highs of the previous four weeks;
  • Close long positions and sell short when the price falls under the lows of the last four weeks.

Donchian advises traders to keep their market position at all times between these four weeks. The drawback of this strategy is that it generates false trading signals when the market is not trending. To avoid it, you can follow the four-week rule by entering on the breakout and exiting faster (1 or 2 weeks of highs or lows).

Created in the seventies, Donchian’s strategy worked then, and it works now as well. Many of the trading robots you may have heard about following some of Donchian’s trading rules and techniques.

3. Forex Swing Trading

If the two methods above are long-term strategies, the Forex Swing Trading is a short-term one, aiming for profit and relying on taking advantage of the overbought/oversold scenarios. For this method to work, you should use simple trend lines within the significant trend.

This strategy also relies on the greed and fear of others, so prices will go too far up and too far down, your job being to take advantage of these extremes to trade into them. First, you should use The FxTR overbought/oversold indicator, identify the lines of support and resistance, and then use the Bollinger band (for vulnerability check).

Learn more about the Stochastic oscillator and use it to make sure your timing is right, and you can make a confirmed move. After such a technique, you can get a profit early and look to make the next. You can learn this strategy in a few days. Even if it does not require extreme discipline, like other more complex procedures do, you should still master the basis – trends, lines, and tools to use.

Forex Strategies for Advanced Traders

In case we were not clear enough, you should work together with a broker and use dedicated Forex trading platforms, software, and instruments that make trending easier and safer. Advanced traders use many strategies that require discipline, perfect emotional control, and profound knowledge. Here are some of the best-known advanced strategies when it comes to Forex:

  • Hedging: while it reduces trading risks, this strategy is a bit complicated, as you initiate both a long and a short position on the same pair in the same time. If the broker allows it, you can make a hedge by using two different pairs, but the risks involved are high, and you have to be a master of control.
  • Scalping: some begin their trading adventure with scalping strategies, but if you do your homework and read the recommended source materials, you will learn that you should use this strategy in conjunction with your overall trading position and not as a standalone technique. Scalping means skimming many small profits regularly. Some trades can take seconds, while others can take hours. For scalping success, however, you have to know the market inside out.

Do you know or use other Forex strategies and techniques? What is your favorite course of action to achieve successful and rewarding Forex trades?