There are a lot of forex strategies that you can master or assemble for yourself but one of the simplest involves using trend lines to indicate when you need to buy or sell.
These lines are very simple to draw and can point out formations in the movements of the foreign exchange markets. This could help you to predict a downtrend or an upswing so that you can earn profits from buying or selling currencies at the right time.
Trend lines will be most visible on a candlestick chart. First identify whether the market is rising or weakening or broadly stable. You can do this at a glance with a candlestick chart.
If the market is surging up, draw a continuous upward line through the highest highs on the chart. Then draw a parallel line connecting the lowest lows. The area between is the channel through which the prices are currently rising.
If the market is falling, do the opposite by marking the line that passes through the lowest lows, then make a parallel line above the highest highs. This will determine a descending channel.
If the market is stable you will have a horizontal channel. You may then create a forex trading strategy based on these patterns.
The most usual way that traders use these channels for spot forex trading systems is to assume that prices will remain within them in the short term. So any time the price hits the top boundary, that would be a signal to sell, on the theory that the price is likely to move back down within the channel. On the other hand, if it hits the bottom line, that would be a trigger to go long.
The upper line is considered a resistance line, above which prices are unlikely to surge while the trend persists. The bottom line is seen as a support line, below which prices are unlikely to fall.
However you do have to keep in mind that the trend can reverse at any point. Because of this, many traders will only enter the market to sell when the trend goes above the top (resistance) boundary of an upward trend, and not when it moves above the resistance line of a downward trend because this may be a signal that the trend is reversing.
You could also look at what circumstances would signal that a horizontal pattern is likely to precede a breakout. For instance you could backtest a theory that if a horizontal channel follows a series of downtrends, the horizontal channel in itself provides a support area and the next major trend is quite possibly to be upward. Still, always test theories like this ahead of basing any system around them. The best control tool is using forex signals. If you sign up for the service of a reliable forex signal provider, you'll be in the position to test trend turning or breakout systems more properly.
Of course there are no guarantees with any system and foreign exchange trading is never without risk so be sure to make lots of tests before you begin investing real money. You can use a currency trading demo account to run real time tests and be sure that your strategy shows a sufficient profit over the longer term before you start to back your chosen forex trading strategies in a real account.
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