Whether you are an investor wishing to diversify your portfolio or a trader looking to increase your chances of hitting the correct signals for entry and exit, the simple forex strategies listed below have been found effective and easy by both experts and laypersons.
Slow moving averages: a takeoff on the fast moving averages crossover, or EMA (5 EMA, 10 EMA etc), the slow moving averages tool uses indicators in the multiples of 7 plotted over to spot trends. The signal is when the 7 SMA goes through 14 SMA and even through 21 SMA, buy or sell towards 7 SMA. The exit signal is when the 7 SMA touches the 21 SMA again. This system is easily plotted and available on most online sites. It usually gives accurate results in strong market moves. However, it requires timely monitoring according to the time frame selected.
Stochastic peaks and troughs: For any set of currencies, the full stochastic indicators (14,3,3) are plotted on the graph. Set buy when the stochastic crosses below 20, reaches say 10 and climbs back to 20 again. To exit, it is recommended that the stochastic lines should reach the opposite end, that is, 80(buy) and 20(sell).
This method also requires periodic monitoring and it is usually advised that it be used in conjunction with other tools to confirm entry or exit signals. The stochastic tool is not used by itself to spot signals, but to confirm genuine signals in forex strategies.
MACD Indicator: used extensively by forex traders The MACD indicator with standard settings (12, 26,9) can be used for any time frame and any pair of currencies. The general rule is to enter when the lines’ crossover occurs (preferably at the close of the price bar). The exit signal is at the next crossover.
Depending on default settings (varied according to currencies and time frames), this method yields good signals for profitable entries. This method also needs constant inputs and is not advocated in sideways trading market. Like the Stochastic lines, the MACD tool is also used in conjunction with other trend predictors.
Trend line tunnel: A support resistance tunnel is created in this analysis and it can be used to trade in any currency and at any time frame, provided there is a ‘coiling’ in a tight range. In the chart, at the areas of consolidation, the lines (horizontal) of support and resistance are drawn. Once the price breaks through a trend line, and the bar closes outside the tunnel, buy or sell in the direction of breakout. In more aggressive forex strategies (like the price goes through support/ resistance, it crashes down/ shoots up very rapidly), one need not wait for the current price bar to close but make entry nevertheless.
As for exit cues, it is generally believed that once the price crosses one of the lines, it will travel as much as the width of the tunnel.
As a tool, this method is almost 100 per cent effective and profitable in the short run. However, the entry point must be very accurate.
Simple breakout system: It is an easy and ordinary system, which captures early price moves when it starts to establish a trend for the day. It takes advantage of the fact that different markets have time gaps. To understand the mechanism, let us take an example.
The Frankfurt market, say, opens an hour earlier than the London market. We plot the price range in one hour, say from 1 am EST to 2 am EST. We plot the highest high and the lowest low, drawing horizontal lines through these values on the chart. The tunnel thus created is recorded on the chart. Now we move to a smaller time frame, say, five minutes. When the whole five-minute candle closes outside the tunnel is the signal for entry at the opening of the next candle. Experts recommend a 20 pip stop or the other side of the tunnel, whichever is less. This is one of the simpler forex strategies, which yields excellent results.