Having good forex strategies is critical to successful trading. This industry has a high liquidity and it has attracted many traders who want to take advantage of an established market. As such, many people have devoted time to design trading strategies to help them.
If you are new to this, you may be overwhelmed by the options available. Besides, some strategies might be too cumbersome for a newbie.
Breakouts in forex strategies.
This strategy focuses on new trends and therefore it uses price breakouts since the market fluctuates between resistance and support bands. Therefore, the breakout will always occur if a market moves beyond its boundaries and records a new low or high. As such, a breakout will serve as a positive signal before trends emerge. However, you need to understand that a breakout will not always precede a shift in trends. As such, your strategy must have a sufficient risk management.
If a breakout persists for a long time, it implies that the trend will be longer. On the other hand, a break out that only lasts for a short time means you are looking at a shorter trend. As such, a good strategy should take advantage of the length of a trend to earn you significant profits. For instance, a long strategy will give a buy signal when a market records a new high for about twenty days while the selling signal will be issued when breakouts hit the twenty day low.
Since it’s possible to receive a false signal from forex strategies, you need to make sure you have a stop loss plan. Here, you will be able to minimize your risks after a certain period. But if you have trouble with the signals, you may want to work with hours as opposed to days. Nevertheless, you should always backtest your strategy to know if it will work or not.
Carry trade.
While this is among the easiest forex strategies to understand, it is also employed by seasoned traders. This method is designed to help you get a profit from the prevailing difference in any two given currencies.
Basically, you buy a base currency bearing higher interest rates than the quoted currency and you will receive the proceeds from the exchange. The amount of money you can earn is determined by the amount you’ve bought. Nevertheless, there is a real risk of choosing the wrong side.
With this strategy, you need to make sure you choose a currency that is less volatile. For instance, traders have used the Japanese Yen since it has recorded low rates for a long time. as long as you are trading at times where the risk appetite is buoyant, you may reap good returns since most people are engaging in the trade. But if the differences in interest rates dip, this strategy might burn your investments.
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