The hottest financial market for investors to invest and make quick profits is considered to be the Forex market. With a daily turnover of 3.2 trillion dollars, even first time investors with no financial background are ready to try their luck and make investments. Though trading Forex may seem quite simple for outsiders, however, it is not.
Speculation of currency movement is not easy. It requires traders to stay abreast with the daily Forex news and acquire all the information about factors that influence the currencies in pair they are planning to trade. These include macroeconomic actors, political scenario and monetary policy to name a few.
In addition to this, traders also need to learn different trading strategies to ensure they play the right move at the right time. Since Forex is a volatile arena, traders need to stay focused and revise their game plan and moves according to the currency price movement.
Trading strategies can be classified into two categories:
Basic Forex Strategy
This category covers easy and simple trading moves. As these are easy to learn, they are ideal for beginners and novice traders with no experience. Basic incorporates simple charting and the use of one or two simple technical analysis indicators. Basic moves can be executed easily by Forex investors once they learn to recognize simple trade patterns.
These include strategies for identifying entry and exit points and foreseeing future money movements.
To understand this category in a better way, let’s go through some basic trading moves and indicators:
The Fast Moving Averages Crossover
This strategy uses the fast moving average system. Here the indicators are 10 EMA, 25EMA and 50 EMA. EMA stands for exponential moving average and shows the average value of the underlying asset for a given time.
The entry point in this strategy is when 10EMA passes through 25EMA and continues to pass through 50 EMA. Traders can buy/sell once 10EMA crosses 50EMA.
The exit point on the other hand is when 10EMA passes through 25EMA again. This is when you should close your position to avert risk.
The RSI High and Low
This move is executed using the RSI (Relative Strength Index) indicator. Here the entry rule is to buy currencies when RSI crosses below 30 and forms a bottom and then crosses above 30 and sell when RSI indicator crosses above 70 and forms a peak and then drops down 70. RSI is used to compare the magnitude of gains to losses and determines asset overbought and oversold conditions. Selling position is taken at 70 as it indicates that the asset is getting overvalued and should be pulled back. Whereas level 30 indicates that the asset is getting oversold and likely to become undervalued.
Advance Forex Strategy
The strategies included under this category are complex as they have theoretical and strong logical base.
Let’s take a look at some advance trading moves:
This move is executed with Fibonnacci tool. And indicators are EMA 100- green SMA 150-red, RSI 14 on a daily chart. Here the retracement levels are 0.382, 0.618, 0.250 and 0.750.
To use this tool effectively, you need to find the point closest to the current price trend with a distance over 100 pips from high to low.
The entry rules:
Enter when EMA is on top showing the upward trend and SMA below. As for the RSI, sell when the reading is below 50 and buy when the reading is above 50.
The Exit Rules:
Fibonacci retracement levels are used for exit. When you will apply Fibonacci retracement levels it will form a candle. If a full candle along with shadows closes below 0.250 level, go short and it’s time to close your position.
And if a full candle is closed above 0.750 then go long, close your position and exit.
Near Entry:Full Stochastic + RSI
This advance move offers great winning potential which is exactly why it is becoming increasingly popular among FX investors.
The trading set up is SMA 150, Full Stochastic (6,3,3) along with horizontal lines at 30 and 70, RSI 3 with lines at 20 and 80.
Enter long when the price is above SMA 150, RSI below 20 with a Stochastic lines crossover below 30.
Enter short when the price is below SMA 150, RSI above 80 and Stochastic lines forming crossover above 70.
Practice on Demo Account
To understand these moves better, it’s best to create a demo account with a broker and practice on it. It is a risk free account that enables you to experience real world volatility with virtual money and without putting real money at stake.