There are many different strategies that can be used to trade Forex. These are mostly based on different prediction systems that have been established, tested and refined over many years. The reliability and accuracy of those systems are however most often not the same, and it can be very difficult to determine which strategy will be most suitable and will work for you.
If you are trying to find a better strategy, but are having trouble finding one that is good enough, the basic techniques discussed in this article might help you get started. We have selected two strategies that we know work well on Olymp Trade Forex and these have repeatedly been proven to be effective.
Using SMA Market Analysis
The SMA market analysis trading strategy can be used to trade various instruments, including stocks, currencies, and cryptocurrencies. When used together with candlestick patterns, graphics and indicators, the results are enhanced.
In this example, the SMA indicator is used as a conditional benchmark for the market’s balance. When the asset’s price moves much higher than the SMA line, the quotes are expected to return to the SMA soon.
The image below shows a typical scenario for this strategy. The asset’s price has risen much higher than the SMA, and a short trade was opened.
This is however only one of the ways in which this strategy can be used. We will describe other mechanics below, but before we do, let’s configure our workspace:
- Switch to a candlestick chart using a timeframe between 1 minute and 4 hours.
- Set the SMA indicator period to 200.
- Search for a signal.
We have already discussed the first type of the signal earlier in this article —searching for an asset that is oversold or overbought. In the first scenario, the chart will be much lower than the SMA indicator line, while it will be higher than the SMA line in the second case. Although the entry point can unfortunately not be specified using the SMA, sooner or later the asset’s price will return to the balance, even if you only use a rough estimate. Many traders add the Stochastic or RSI Oscillator indicator to confirm the signal, as these clearly show oversold and overbought zones as shown in the image below.
Another way of getting a more reliable signal is to wait until the SMA line is crossed and then to find the first candle after the breakout. These candles are shown in the image below, and a trade must only be made after the candle has closed.
A stop loss should be set behind the SMA line to close any position that moves into a negative result.
The third method to earn on a SMA is similar to the “Moving Average” strategy used for Fixed Time trading. The signal in this case is the intersection of two SMA lines.
To achieve this, add a 20-SMA to the 200-SMA that is already on the chart as shown in the image below. As the new SMA is more sensitive to the asset’s dynamics, it will act as a signal.
The quality of the signal you get will be higher the longer the timeframe of the chart you analyze is.
If these types of signals are used, it is recommended that the risk is limited to 10% of your investment amount. The image below shows an example of a trade that was made with the first SMA method described here, and the result was the investment doubling within an hour.
When this strategy is used, a Take Profit based on a 1:3 risk/reward ratio should be set i.e. for every $1 of possible loss, the profit target should be a minimum of $3.
Trading News
Professional and novice Forex traders alike often study the economic calendar in great detail and there are traders that open positions right before a report is released. This is however highly risky and there is a much safer way to trade the news:
1. Open the Economic Calendar
In the economic calendar as shown in the image below, the most important economic news for different countries is shown. When many of these reports are released, it will have a strong impact on the movement of specific assets.
2. Look for “Three Bulls Head” News that Is Due To Be Released Soon
Next to each event, you will see a country’s flag in the second column. This country’s currency is most likely to react to that specific event.
The only exception is the report on the US’ oil reserves, which normally has a bigger impact on the oil price, rather than on the USD.
3. Compare the Actual and Forecast Columns Once The News Has Been Released
When looking at these numbers, hovering your mouse cursor over a figure will show whether the reading is “Worse than expected” or “Better than expected.” There are however also cases where results are in line with forecasts. This scenario is not good for trading, as the market hardly ever reacts to them.
If the indicator of an event is better than expected, it’s best to open a long position on the country’s currency. If we for example look at the UK’s Retail Sales report in the image below, the data is “Better than expected”. As the UK’s currency is pound sterling (GBP) we should open a trade expecting that the GBP will go up, i.e. we should long the British pound.
Step 4: Open a trade
To make a profit on the positive news, you either have to buy a pair where the currency you’re interested in comes first, or sell a pair where the currency you want is in the second place.
To do this, we may want to sell the EUR/GBP pair, or buy any of the other currency pairs as indicated in the list shown in the image below.
The reverse will be true when wanting to open a position after the news was “Worse than expected”.
The result of the strategy described above is shown in the image below. The British currency was supported by the news and went up.
It should be noted that the market often does not react to the news quickly. In this example, the chart didn’t start trending until a few hours after the news was released, but the GBP strengthened significantly within a day.
In this article, we have shown you some simple strategies you can use when trading on Olymp Trade Forex. If you haven’t used market analysis techniques before, using the ones described above will get you going quickly.