Being one of the largest financial markets in the world, the Forex market has a huge number of participants. Every trader approaches trading with a different angle, which means that for newcomers, there are tons of resources available on trading strategies. The downside to the sheer volume of information available is that it ends up confusing a new entrant into the Indian FX market. Most techniques used by seasoned traders are quite complex, and hard to master. Beginners are better off starting with something simple and befitting to their limited knowledge, and slowly progressing towards conquering other trading strategies.
If you’re a beginner and are caught in a dilemma as to which technique you must adopt, then this article will introduce you to some of the simplest online trading strategies. Let’s take a look:
#1) Breakout
Markets mostly range between bands of support and resistance. A breakout occurs when the market moves beyond the consolidation, displaying a new high or low trend. Knowing when the breakout occurs can signal the possibility of a new trend, allowing you trade accordingly. A new high announces the possibility of the beginning of an upward trend while a new low dictates the opposite. You need to tune a breakout strategy that reacts to the formation of such trends.
For long-term strategies, adopt a time-based approach wherein you hold the position for a period, before making an exit. You can even adjust the duration to hours instead of using days. Use appropriate stop loss to alleviate losses in your trading account when things don’t go in your favor.
#2) Moving average crossover
This strategy for beginners to Forex trading in India uses a simple moving average (SMA). To implement this, you need to use a 25-day short SMA and a 200-day longer SMA in conjunction. The short SMA follows the actual price quite closely whereas the longer one observes a smooth price movement. In areas where the shorter SMA crosses the other one, a change in trend is depicted. Wherever it moves above it, it implies that new prices are higher than the old ones and sends a buy signal. When it moves below, it suggests that a sell is in order.
Let’s use this strategy in an example: Suppose a breakout occurs prompting you to buy. Cross verify with the SMA chart. If the short one is above the long SMA, place the trade, otherwise, wait it out till it does.
#3) Carry trade:
While this might not be a strictly beginner-only strategy, since most experts in the FX market use it, it’s nevertheless something beginners can master quickly. It involves Forex traders profiting from the difference in yield between two different currencies.
Suppose you buy the USD/INR currency pair and the base currency has a high-interest rate compared to the quote currency. The positive interest rate differential will add profits to your account. The more currency you command, and the higher the leverage you use, the greater the yield. But there’s also elevated risk implanted into it that might cause you to lose money if you end up on the wrong side of the Forex exchange.
It’s better to back test these strategies on a demo trading account in India. WesternFX, a leading Forex broker, offers a free account that you can use to test the field before you get onto the live online trading platform.
