The Forex market is one of the most sophisticated domains in the history of the economy. It is a complicated market with the notional value of derivatives alone coming together to over $585 trillion. Over 10 million active retail traders are participating in forex trading.
It is also a very interesting community of enthusiasts who come up with new ways to analyze the market regularly. People develop new strategies based on old ideas. They come up with something mind-boggling like the creator of the Ichimoku cloud who was a simple journalist but came up with a strategy that many use today.
Choosing the right strategy
Newcomers to the industry are often overwhelmed with opportunities and the sheer volume of information that they have to deal with. However, there are technical indicators and special strategies that allow retail traders to follow relatively simple rules and still come out on top in many situations. Depending on your expertise in financial markets and trading, you should choose a strategy that reflects your preferences and requirements.
For example, people who prefer intraday trading and aggressive strategies will be using scalping, DCA, and swing methods. At the same time, those who like long-term market positions better will be inclined to use traditional analytical approaches like applying Fibonacci lines or also looking for trend reversals like swing traders do but on different time frames.
What is a swing strategy?
A swing strategy is a relatively simple trading system that involves using multiple technical indicators to identify good moments to start trading. A typical list of such indicators includes:
- Relative Strength Index or RSI. This indicator is used to identify moments when an asset is oversold or overbought. When the indicator reaches the value of 70, it is a good moment to sell. If it reaches 30 and below, you should buy it.
- MACD. The indicator uses multiple moving averages and identifies good moments when the trend is likely to reverse. There are several rules to follow as the indicator has multiple lines and settings that should be taken into consideration.
- Stochastic. This indicator is a good choice for people who want to know when it is a good moment to expect a trend reversal. The idea is the same as with RSI. However, the default settings for selling and buying are 80 and 20 respectively.
These indicators should be used together to identify good moments to enter the market. Time frame also determines many aspects of the trading system. For example, you could analyze the market on 5-minute graphs and enter short-term positions to use price retracements. On the other hand, you could analyze the 1-hour graph and wait for lasting Bull and Bear runs.
Identifying support and resistance levels
The simple rule for determining anchors for a support level is to switch the candle bar to closing prices and use dips as anchors to draw a straight line and see where the price is likely to stop during the next price retracement. The same is true for resistance levels.
Many experts use Fibonacci lines to identify future support and resistance lines which can be used to set up correct take profit and stop loss thresholds for your market positions. Whether you are interested in short-term trading or want to enter the market with a long-term plan, you should be paying attention to stop losses and take profits to ensure that you do not risk more than you can afford to lose.
Money management is key
For any investing strategy that can be used in the Forex market, one of the key factors is the way you use your capital. Retail traders who use borrowed funds uncontrollably risk losing their money quickly. You need a good strategy, but you should also remember that no strategy can allow you to look into the future. You must be ready for some losses. The general rule is to never invest more than 10% of your capital in a single market order.