Does it put you off when you see a news report about forex trading – and you see someone squatted by two widescreen monitors cluttered with terrifying charts, bars and sticks? Do you flick through forex trading manuals and scratch your head nervously when you’re met with seemingly hostile phrases like Fibonacci numbers, moving averages and the like?
Calm down, because while your learning curve with forex trading can be a steep one, you actually need to know surprisingly little in order to start making consistent profits. Here are some simple forex strategies you should familiarize yourself with before putting your own money on the line:
Moving Averages – I don’t know of a single forex trader who doesn’t use moving averages (MA’s) to analyze trading opportunities. While the price will be the first thing that you plot on your forex chart, the second will almost certainly be the MA. The moving average simply shows you what the price has been doing for the currency pair in the past – and you can choose how long back in time you go. For example, you can opt for a ten day moving average, or a 50 day moving average, or even plot both of them in the same graph. Moving averages are very useful because in general, prices tend to revert to the moving average at some point in time. Can you see the use of this? If the price has strayed a long way away from the MA, and you know that at some point it should return to the MA – you have some idea of where the price might be heading. While you cannot trade with moving averages alone, it certainly is a useful indicator to have up on your trading screen.
Support And Resistance – One of the best things about trading the forex is that there are certain patterns that happen frequently in the market, and with the help of technical analysis (charts) we can identify these patterns and make money with them. As a forex trader, one of the most basic concepts you will need to familiarize yourself with are support and resistance levels.
Support levels are simply areas on the chart where the price has previously struggled to go below. When you see the price at a support level, it’s an indication that the price may turn around and go the other way. Resistance levels are areas where the price has struggled to punch above previously. Again, when you identify a resistance area, and the price hovers in this area there is a strong possibility that the price may reverse direction and head the other way.
So, can you see how identifying price support and resistance can be absolutely priceless for forex traders to use for their trading? It’s a little like having a crystal ball that tells you what may be about to happen – before it actually does.
But, like everything in forex – there are no certainties. You cannot use support and resistance alone, without other key indicators to help you attain more certainty. But, a collection of indicators, all telling you the price is about to move in a particular direction is a very strong signal for you to get into the trade. It increases your probability of making a profit. And, at the end of the day, forex trading is all about numbers – about probabilities.
Join us for part 2 where we’ll look at more strategies to help strengthen these probabilities even more.