Free Forex Strategies: Where to Get Started?

Forex trading is a specialist job. It requires a good understanding of the market trends and forex news. However, the timing of entry and exit plays a crucial role in determining your profit levels. With free forex strategies, you can time your investments properly and ensure profitable trading.

Five Most Popular Free Forex Strategies

Here are some free forex strategies that will assist you in improving your chances of trading profitably:

Buying on margins: When buying on margins, the broker allows a higher degree of leverage to the trader. Thus, the trader can invest an amount higher than the actual value of his live trading account. However, the trader faces high risks, as profits are highly dependent on trading entry and exit. Only an experienced trader can make good profits while buying on margins.

Historical levels: It refers to the maximum and minimum range in which the value of a currency pair has fluctuated during a given period in time. Analyzing the level gives a general idea of the possible values of the currency in the near future. Analyzing historical values is a time taking task, but it is the safest strategy for novice traders. There is a very low probability of a currency value deviating from the historical levels without any major news outbreak.

Loss Order: With the stop loss order strategy, a trader determines the value of a currency pair in advance. This helps to minimize the risk of major losses and increases the possibility of trading profitably.

Managed accounts: This strategy is aimed at those individuals who want to invest in the currency market, rather than being interested in physical trading. Managed accounts work similar to the mutual funds arrangement. The individual invests money with a forex trading company. Experienced traders with the company use investors' money for forex trading. The profit generated or loss incurred is shared among the individual investors. Although managed accounts are not very profitable, they save investors' time and efforts required for trading profitably.

Simple Moving Average: Also known as SMA, it is the average exchange value for a specific pair of currency over a period of time. You can make investment decisions by relying on SMA values for any given currency. Investing in currencies that have stable SMA values is a safe way to trade forex.

Emotions And Forex Trading Don't Mix

The key to making money in the currency exchange market is to avoid emotional decisions and to follow a carefully thought out strategy that takes the current market and history into account. Going with your gut is not the way to go in the Forex market. Going with your gut could cost you money. Forex trading is a highly volatile market where emotions tend to run high. Emotions can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you think you're seeing at the moment. The keys to success in Forex are system, analysis and perseverance.

Most experienced traders tell novice traders that they need to develop a system — and stick to it no matter what. Letting your emotions rule your decisions can hurt your trading in a number of ways. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system you'll maximize your profits. A system based on technical analysis of historical market trends is one of the most potent tools that you can utilize if you're just getting started in Forex trading. Many traders, with years of experience, continue to use this system to keep the profits rolling in. Many traders will tell you that when their gut instinct and their system collide, the system is almost always right.

Using a mechanical system takes the emotion out of your trading, eliminating one of the reasons people fail. Your system doesn't sway with emotions. It sticks to a tried and true course. To be effective, your system — whether you develop your own or adopt one created by someone else — should identify the entry and exit point of your trade, mitigating factors, and an exit strategy. In general terms this is as follows:

Under what conditions should I acquire a currency?

For instance, you may have a buy order for when a particular currency drops more than 5 pips because your analysis tells you that that's likely to be as low as it goes.

When should I trade one currency for another and for which one?

There are two reasons to exit — to maximize your profit, or minimize your loss. That means you have a set stop-loss order and a set take-profit order at which point you cash out your trade.

What factors will I allow to change that decision?

While the money market moves in predictable patterns, there are always individual variations of a trend within those patterns. If you've taken those variations into account, it will be far easier to decide when a factor really does make a difference, and when it's just wishful thinking. If you're not careful however this is where emotion could come into play and sour deals for you.

How will I trade out of a currency?

Your exit strategy may be as simple as a stop-loss order when my loss hits 5% or a take-profit order when I make 40% profit'.

Another key is perseverance. Analysis of trends in the market will show you that the market moves in dips and spurts within overall patterns that are predictable. No trend moves smoothly in an up or down line — there are inevitable periods of time when values suddenly spiral up or down based on some outside factor. These are the times when emotion can hurt your portfolio. When a currency that you're holding takes a sudden dip south, it's tempting to succumb to panic trading, cut your losses and run even if your system tells you to hold on. On the other hand, it's easy to catch the rising excitement as a trade starts increasing in value and scramble to buy more of the same. These are exactly the times to rely most heavily on your trading system. It will tell you exactly when to trade for maximum profit.

If you control your emotions and stick to the system you'll maximize your profits andall should be smooth sailing.

How to Take Advantage of Forexnews

The forex market is the most vulnerable investment platform, which is considerably impacted by news from around the world. Consequently, by learning to take advantage of forexnews, investors can avoid several costly trading mistakes and improve their profitability. In fact, the ability to foresee and analyze forexnews is what separates an experienced forex investor from a novice one.

Tips for Using Forexnews

The first thing to consider while forexnews trading is that the news itself holds little importance. What matters more is the trader's analysis of the same. Remember, traders may draw varying inferences from the same news. Since forex news analysis is not objective, the safest thing to do is to take an overview of the news and draw your own inference. To trade like a pro through forexnews, simply review the news and evaluate how it moves currency prices. Keep a look out for potential trend changes, which generally occurs when bullish news fails to push the prices up or bearish news fails to lower the prices.

Additionally, to trade on forexnews like a pro, watch out for only high-impact news releases. Do not waste your time analyzing trivial forex-related events. High-impact news releases are those that have a high probability of:

• Moving the market: Not all events are capable of moving the market. Note that sometimes forex is sentiment driven. As a result, lesser news reports may not have an impact significant enough to change the predominant forex market trend.
• Predictable reaction: On the basis of historical reactions, high impact news releases will typically move a particular currency pair by certain pips (or points). Therefore, while trading on forexnews, it is crucial to pick the appropriate news releases to trade.

Events that affect the value of key currencies like the US dollar, Euro and Sterling are also considered high-impact news. This is because the status and movement of these currencies, directly and indirectly, impact the value of most currencies on the forex market.

While trading currencies on the basis of forexnews is an excellent strategy, the important thing to bear in mind is that relevant forex news often arrives too late to be taken advantage of fully. Often, by the time high-impact news becomes available to general traders, it has been analyzed by several professional traders and financial institutions, which increases the vulnerability to personal and institutional biases.

Energy Prices, Inflation and Forex

Oil futures surged to a record intraday high of $70.85 on August 30th, the day after Hurricane Katrina made landfall on the Gulf Coast. While prices have moderated in subsequent weeks, it's worth examining how higher commodity prices and the specter of inflation impacts the foreign exchange (FX) market, particularly the U.S. dollar.

Traditional supply and demand factors certainly have contributed to the longer term trend in energy prices. The demand side of the equation has been getting plenty of press this year, with focus on the rapidly growing thirst for oil in both China and India. However, the recent spike in oil can primarily be attributed to hurricane related speculation in the futures market and the limited and centralized (on the Gulf Coast) refining capacity of the U.S.

Economic data released in recent weeks has begun to reflect the effects of hurricanes Katrina and Rita, which ravaged the U.S. Gulf Coast in August and September. These data reinforce what the Fed has been implying all along; that the economy is growing at a brisk pace and that inflation, not recession, should be the concern.

September jobs data showed the first net job losses since May of 2003, but the decline of 35,000 jobs was much smaller than the decline that was anticipated. September CPI showed the largest monthly gain in 25 years. However, when the volatile food and energy components are removed, inflation was a rather mild 0.1%. That was quite a bit less than the market was anticipating and suggests that the higher energy prices are not being passed through to the core number yet.

Similarly, the September PPI headline number exceeded expectation and was the largest monthly gain in 15 years. However, again we remove food and energy and see that wholesale prices were up a relatively restrained 0.3%. This core number did beat expectations though, so one might deduce that higher energy prices are starting to impact prices at the wholesale level and it's just a matter of time before these higher prices are passed along to consumers. Weaker than expected retail sales and a new 13 year low in Consumer Sentiment suggests that higher energy prices are indeed weighing on the American consumer's mind. How that will play out, particularly in the retail sector going into the holiday season is now a major focus on Wall Street.

With the word 'inflation' seemingly on everyone's lips these days, we expect the Fed to continue on its tightening schedule. The Fed raised the target for overnight borrowing in September by 25bp to 3.75%, the 11th such hike since June of 2004. Another rate hike is expected in October and at least one additional 25bp bump is all but assured in November or December.

Rising U.S. interest rates and an expanding U.S. economy have been the driving forces behind overseas flows into U.S treasuries and the stock market respectively. These flows translate into demand for the U.S. dollar, which has kept the greenback generally well bid in September and October. While we would contend that the equities market is vulnerable at this stage, the interest rate differential picture should continue to favor the dollar through year end.

High energy prices and inflation fears are not exclusive to the U.S. Central bankers and finance ministers from the Group of 20 industrial and developing nations are meeting in Beijing this month. A statement released on October 16th said, high oil prices "could increase inflationary pressures, slow down growth and cause instability in the global economy.'' This should benefit the dollar as well because in times of global economic uncertainty, the dollar is still considered a "safe haven" currency. While we may see other countries begin to tighten their monetary policies, U.S. interest rates will remain significantly higher.

The definitive move above USD-JPY 115.00 bodes well for additional dollar gains against the yen into the 118/120 zone. On the other hand, the July lows in EURUSD at 1.1868 must be convincingly negated to trigger further dollar gains against the European currency. Such a move would shift focus to the 2004 lows at 1.1759/78 initially, but potential would be for a drop below 1.1500.

In times of inflationary pressures, the U.S. dollar tends to lose ground against the commodity currencies. Commodity currencies are the currencies of countries that derive the bulk of their export revenues from the sale of commodities. Prime examples of liquid commodity currencies are the Canadian dollar, Australian dollar and New Zealand dollar.

The dollar hit a new 17 year low late in September against the Canadian dollar on the back of sharply higher oil and metals prices. While the dollar recovered from those lows, gains are considered corrective in nature and we look for the longer-term downtrend in USD-CAD to continue. Similarly, AUS-USD and NZD-USD are consolidating below important resistances with scope seen for additional short to medium term gains.

At some point, domestic inflation and the rise in the U.S. dollar will return focus to the U.S. trade deficit and balance of payments. As U.S. goods and services become more expensive, both domestic and overseas consumers will look elsewhere. That's the point where the U.S. stock market truly becomes vulnerable. Downside risk in the stock market will result in a negative impact on flows into the U.S. and consequently the long-term downtrend in the dollar would likely start to re-exert itself.

Conventional wisdom in the financial services industry suggests that placing 5-10% of one's portfolio in alternative investments, such as those offered by CFS Capital, is desirable to achieve the diversification necessary to protect against adverse moves in the more traditional asset classes.

Introduction To Fundamental Analysis: Forex

Forex traders almost always rely on analysis to make plan their trading strategies. There are two basic types of Forex analysis — technical and fundamental. This article will look at fundamental analysis and how it used in Forex trading.

Fundamental analysis refers to political and economic conditions that may affect currency prices. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.

Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.

Currency prices on the Forex are affected by the forces of supply and demand, which in turn are affected by economic conditions. The two most important economic factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.

Indicators

Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly.

Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.

Interest Rates — can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency.

International Trade — Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

Other indicators include the CPI — a measurement of the cost of living, and the PPI — a measurement of the cost of producing goods. The GDP measures the value of all goods and services within a country, while the M2 Money Supply measures the total amount of all currency.

There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so Forex traders should be aware of them when preparing strategies. Up-to-date information is available on many websites and many Forex brokers supply this information as part of their trading service.

Average True Range (ATR)

Average True Range is a technical analysis indicator that measures the price change volatility. It was developed by J. Welles Wilder Jr. for commodity market analysis. The indicator says nothing about trend strength or direction; instead it just shows the volatility level.

Calculation

True Range

Before proceeding to average true range calculation, it is necessary to calculate true range. True range is calculated using the following formula:

TR = max(High_t − Low_t, abs(High_t − Close_t − 1), abs(Low_t − Close_t − 1))

Where TR — true range for the period t,
High_t — price High for the period t,
Low_t — price Low for the period t,
Close_t − 1 — price Close for the period (t − 1),
max() — maximum value selection function,
abs() — absolute value calculation function.

The formula is translated into:

TR = max(High_t, Close_t − 1) −  min(Low_t, Close_t − 1).

Where min() — minimum value selection function.

Average value

Average true range for a given number of periods can be calculated after calculating the true range values for all those periods. The popular number of periods for ATR is 7 (proposed by the indicator's author in his book New Concepts in Technical Trading Systems) and 14 (used, for example, in MetaTrader default settings).

The principle of exponential moving average calculation is applied:

ATRt	=	ATRt − 1 × (n − 1) + TRt
		n

Where ATR_t — average true range for the period t,
ATR_t − 1 — average true range for the previous period (t − 1),
TR_t — true range for the period t,
n — number of periods for averaging.

The first average true range value is calculated using this formula:

ATRn	=	n  ∑ i = 1 TRi
		n

Where ATR_n — average true range for the period n — the first period, for which all the n true range values are present,
TR_i — true range for the period i.

Examples

7 periods

The first example shows a complete calculation process for the 7-day average true range on the EUR/USD currency pair. 8 price quotes is enough to calculate 2 ATR values. The price Close values are used with the negative shift of 1 period because only shifted values are used in the TR formula:

i	Close	High	Low
0	1.2919	-	-
1	1.2884	1.2942	1.2842
2	1.2881	1.2929	1.2846
3	1.2836	1.2889	1.2796
4	1.2881	1.2900	1.2819
5	1.2905	1.2933	1.2840
6	1.2857	1.2997	1.2833
7	1.2932	1.2956	1.2821
8	-	1.2993	1.2904

True range calculation:

TR₁ = max(1.2942, 1.2919) − min(1.2842, 1.2919) = 1.2942 − 1.2842 = 0.0100;

TR₂ = 1.2929 − 1.2846 = 0.0083;

TR₃ = 0.0093;

TR₄ = 0.0081;

TR₅ = 0.0093;

TR₆ = 0.0164;

TR₇ = 0.0135;

TR₈ = 0.0089.

The first average true range is calculated using simple arithmetic average formula:

ATR7	=	0.0100 + 0.0083 + 0.0093 + 0.0081 + 0.0093 + 0.0164 + 0.0135	=	0.0107
		7

The next average true range should be calculated using moving average formula:

ATR8	=	ATR7 × 6 + TR8	=	0.0107 × 6 + 0.0089	=	0.0104
		7		7

14 periods

The second example shows calculation process for the 14-day average true range of the EUR/USD currency pair's quotes. 2 ATR values will be calculated, so a total of 15 Close/High/Low quotes are required. Close prices are taken with a negative shift of one period as the TR formula uses them with t − 1 index:

i	Close	High	Low
0	1.3111	-	-
1	1.3075	1.3140	1.3053
2	1.3078	1.3131	1.3067
3	1.3151	1.3194	1.3071
4	1.3041	1.3176	1.3009
5	1.2935	1.3050	1.2935
6	1.2974	1.2999	1.2941
7	1.2919	1.3029	1.2912
8	1.2884	1.2942	1.2842
9	1.2881	1.2929	1.2846
10	1.2836	1.2889	1.2796
11	1.2881	1.2900	1.2819
12	1.2905	1.2933	1.2840
13	1.2857	1.2997	1.2833
14	1.2932	1.2956	1.2821
15	-	1.2993	1.2904

True range calculation:

TR₁ = max(1.3140, 1.3111) − min(1.3053, 1.3111) = 1.3140 − 1.3053 = 0.0087;

TR₂ = 1.3131 − 1.3067 = 0.0064;

TR₃ = 0.0123;

TR₄ = 0.0167;

TR₅ = 0.0115;

TR₆ = 0.0064;

TR₇ = 0.0117;

TR₈ = 0.0100;

TR₉ = 0.0083;

TR₁₀ = 0.0093;

TR₁₁ = 0.0081;

TR₁₂ = 0.0093;

TR₁₃ = 0.0164;

TR₁₄ = 0.0135;

TR₁₅ = 0.0089.

The first average true range is calculated using simple arithmetic average formula:

ATR14	=	0,1484	=	0.0106
		14

The next average true range should be calculated using moving average formula:

ATR15	=	ATR14 × 13 + TR15	=	0.0106 × 13 + 0.0089	=	0.0105
		14		14

Chart

The following chart displays the average true range (cyan line below) for the EUR/USD price (shown above). Standard Average True Range indicator from the MetaTrader 5 trading platform with period set to 14 is used for calculation.

Application

As the indicator's mathematical formula suggests, average true range cannot be used for trading signals on its own. ATR is showing neither trend's strength nor its direction. A trader can apply it as a price volatility gauge and then use this information in trading:

• Some trading strategies require high (scalping, grid) or low (trend trading) volatility. Average true range can help measuring it, both in automatic and in manual modes. It is important to remember that indicator's values are relative but absolute and thus should be compared to the values derived from the same trading instrument and not to some specific fixed threshold.
• ATR can be used as a stop-loss value because price deviation for a number of pips greater than time period's average range is definitely a significant change in price's behavior. For example, such a stop-loss can be used for intraday trading, while ATR is calculated on daily chart. ATR Trailer expert advisor is based on ATR as its trailing stop-loss.
• ATR can also be used as a potential stop-loss in trading systems. It is applied in position sizing for strategies that do not set stop-loss order. In this case, the potential loss size is limited by the current market volatility.

Indicator of Forex Market Economy

All the investors in the forex market often base their decisions in trading upon economic and political news around the world. Forex and stock market depend on the countries economy. Using of industrial production index is the best way to predict the market trends in the future. All the traders are using this market indicator specially the traders who want to trader for a long time because if a country's economy is improving definitely its currency rate goes up and if the economy is decreasing, currency rate will automatically goes down.

What is Indicator?

Forex indicators are the primary and most essential tools used to determine the trend of foreign exchange and their future prospects. These tools sometimes become so important for the users to anticipate future ups and downs of the Forex market according to which, they could invest and deal their finances with foreign exchange.

There are a variety of Forex indicators available to the users of foreign exchange, which are highly advanced and avail an enhanced platform to the Forex dealers and users to deal the challenges with foreign exchange efficiently. These indicators are useful not only to the novice Forex trader, but also an experience Forex dealer as well. The two most significant indicators of them are as follows.

Moving Averages: Simple, Exponential and Weighted

Most Forex traders use Moving Average Indicators to calculate the trends in foreign exchange. This procedure can be set and interpret easily. Using this indicator, we can easily measure the average movement of the price within a particular time period. Through this indicator, the price data get smoothen with which, we can easily observe the market trend and tendencies.

Stochastic indicator

Stochastic indicator is another significant tool used as a Forex indicator by the Forex experts and dealers to estimate market trends and tendencies. The main idea suggested by this indicator is that the rising price always lies closer to its previous highs and the falling price always lies to its previous lows.