When you get started trading in the Forex world, you are bombarded by a variety of trading strategy options. Your job is to determine the best Forex trading strategy for your particular needs. Some people have a more technical approach to trading, while others are big on trends and forecasts. All of this can get very confusing, which makes it difficult to focus on a strategy that will actually work for you.
If you are just getting going for Forex trading, then the best Forex trading strategy to use is moving averages. A moving average strategy is not only easy to use, but it can also be a gateway to understanding all of the other strategies that are available as well. Once you master the idea of the moving averages strategy, it becomes easier to utilize the tools and other approaches available to you.
A good reason to use the moving averages strategy is that it has a little something for everyone. There are techniques for the chart watchers and there are methods that the people who love to use trends and projections can use as well. To understand how a moving averages strategy works, we need to understand the components of this strategy and see why it is the best Forex trading strategy for you to utilize.
Before we get into the components of a moving average, we need to quickly explain what a moving average is. A moving average is an average price calculated using a set time range.
For example, you may set the range of your moving average at two hours. That means that as soon as the oldest reading reaches two hours, it is dropped for a reading that falls within the range. The averages that are used are calculated using data generated in the past two hours and older data is discarded.
An envelope in a moving average is a fluctuation range that is used to indicate when a currency may be moving backward or forward in value. For example, you may set your moving average envelope at 10 percent and your chart will show the instances where the moving average rises above and falls below the envelope.
Forex traders use the envelope to determine when a trend will head upwards or downwards. When used properly, the envelope can be a very powerful forecasting tool.
A price crossover is a point in the moving average when the price of the currency falls below the average and indicates that the currency has reached its highest value. This is usually the point where the currency's chart will show what is called a candle. A candle is a sharp drop in price that causes a straight line on the chart.
On the flip side, if the crossover appears above the moving average, then that indicates an upward value trend. Forex traders like to use these crossovers as points where they will either go short or long on a particular currency.
Most Forex traders maintain moving averages for differing amounts of time. It can be very beneficial to compare the short-term performance of a currency against its long-term results to help establish trends. When the short-term and long-term moving averages cross, then you get a crossover that indicates that it is time to move on that currency.
When the short-term average starts to under-perform the long-term average, then most Forex traders will sell. But when the short-term average starts to give very positive results, then that is when profits can be made.
For any trader, the best Forex trading strategy is to utilize the many facets of moving averages. But another popular trading strategy that we should discuss is Bollinger Bands.
In the 1980's, John Bollinger was a Forex trader who developed a method for calculating when a currency has fallen below its average value and is on a downward trend. The Bollinger Bands measure the top, middle and bottom of a currency's performance. When the currency's price falls below the bottom Bollinger Band, then that is an indication to sell.
Forex traders who want quick answers based on real information enjoy using the Bollinger Bands because there is no real thinking involved. When the indicators tell you to sell, that is when you go short. If the indicators are staying in their range, then you are still making money. The Bollinger Bands help to remove a lot of the guess work for traders who are trying to monitor several trades at the same time.
Moving averages helps new and experienced traders to establish thresholds for their pricing and make moves they feel comfortable with. You should take some time to get used to the moving averages strategy and see if it works for you.
The best Forex trading strategy for you could be a combination of the moving averages and the Bollinger Bands. Many successful traders find that combining several strategies gives them the information they need to make successful trades. But you should only take on as many strategies as you can keep track of. Once you start overwhelming your trading method with a lot of strategies, then you lose focus.
A Forex trading strategy is supposed to be the tool you use to make more profit. Take the time to find the perfect strategy for your investing needs and help yourself to create a successful Forex account.