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Simple Forex Trading Strategy

April 11, 2010 · 3 comments

in Forex Trading

One of the most vital things (if not the most important) in forex trading is to have a trading plan and system that is consistent and profitable in the long run. However, even this, is not enough, because like everything else in this world if you want to succeed you need some training and practice first. And if you really want to get into forex trading you better be successful, otherwise you could lose a lot of money.

Practise before you use your trading strategy on a live account

Practice in forex is easiest than you might believe since the majority of forex brokers will let you open a free demo account with real time data. Actually, they strongly encourage it, simply because they have the expectation that once you are making virtual money with your forex demo account you will probably go ahead and invest some money with them. This means that they will make some profits from the spreads or the fees that they charge on your account. Hopefully you will earn sufficient amount of money to cover the brokers spreads or fees and then earn some money for you, so everybody benefits. (Do not worry about spread and fees since the competition between brokers is so intense that they are extremely low)

Find or Develop a profitable forex trading strategy

In order to start practicing you should first find or develop a profitable forex trading strategy, which is a little harder. There are many paid or even free systems out there, but some are very complicated for beginners or not consistent in the long run. If you are new in forex trading, what you need is something simple and easy to use so that you can start trading with your demo account today. Remember that you should first try the strategy in your demo account before you start trading with real money.

Here is a Simple Forex Trading Strategy

How about we take a look at a simple forex trading strategy using what is known as support and resistance. You can use this system when the market is fluctuating up and down within certain boundaries. Therefore, if you look over a long period you can identify that the currency pair rate is moving between an upper position and a lower position.

If you look on the charts that you will be able to access in your demo account you will understand that most of the time the market does not follow a trend but it is fluctuating between some specific levels. So if you look at the candlestick chart over a large period you will probably identify a time when the price was moving up and down between certain points.

The next thing you should do is to draw a line along the top points. This line is known as the resistance line and it will be horizontal. When the price hits this line it moves down again to keep within the boundaries. Therefore, when it hits the line you could sell the currency pair.

In the same way if you draw a horizontal line along the bottom points this is known as the support line. When the price hits this line it moves up again, so you could buy at that point.

If you ever try this in your demo account on live prices, you will see that occasionally the price does not bounce back into the zone and on those cases, you will lose. Usually the reason of this is that a trend was starting to form. For that reason you should use stop loss and stop profit in a ratio that stop lose should be 2-3 times less than stop profit level. Additionally you could use trend indicators in your charting software to check if a breakout is expected. Out of this, you can take it a step further and develop your own system based on support and resistance on one hand and trend indicators on the other.

Again, you should first test the system over a long time (several months) to be sure that the system is profitable before you start trading in forex with real money. Forex trading is always risky but by testing your system for a long time without risking your own money, you will be more confident and ready to succeed in forex.

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{ 2 comments… read them below or add one }

Alexander Collins December 5, 2011 at 5:16 pm

IMO, the simplest Forex trading strategy should work during London session. It’s the best time to trade.
Alexander Collins recently posted..How to Trade with the Fibonacci ToolsMy Profile

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Louie@LogUrTrades February 8, 2012 at 2:51 am

I say the best way for one to learn to trade Forex is to start with a mini or micro account. With these types of accounts one can get started in the live markets without risking your livelihood.

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