There are many possible strategies that can be used to trade commodities, the stock market, options and yes, even the Forex market. Many of these strategies are very complex and best suited to professional investors. The good news is that there are some solid Forex strategies that are both profitable and easy to learn. After all, complex doesn’t always equal better. One popular Forex strategy that is very easy to learn is trend following.
In trend following, you simply identify a trend and then follow it in a Forex trade. It’s just as simple as its name implies. It is very easy to identify a trend. the easiest way to do this is by locating a currency that is consistently trading between two price points, that is, within a range. A trend can be easily spotted by checking out a currency’s history of trading on a line chart.
Examining the angle of a currency’s moving average is another way you can locate a range bound currency. As an example, if the moving average appears to be sharply inclining on a line chart, it is displaying a rising trend. In contrast, if the currency’s moving average is sharply declining on a line chart, it is displaying a decreasing trend.
Examining the MACD histogram of a currency is another strategy you can utilize to find a currency that is trading within a range. You can set the parameters of your charting software to display the necessary histograms by adding a line above zero and a line below zero. Once this is done, you should be able to determine whether a currency is range bound or not since it will not trade either above or below the new histogram lines.
Once you have located one or more currencies that are trading within a range and appear to be trying to break out of the range, you can then make the “go” or “no go” decision on entering a trade and following the trend. It doesn’t matter which direction the trend is, you can follow it in either direction.
Trend following is one of the easier Forex strategies you can learn. Don’t be too quick to dismiss it because of its simplicity. Even though it’s simple, it’s a bread winner for many trader.