Possibly the simplest strategy in FOREX trading is, Swing trading and it has been known to be quick and reap good profits. It is a preferred way to trade by beginners simply because, it does not require the expertise or discipline that is needed by the long term players and holders in the market.
Overbought and oversold
When looking at a trend chart, two things can be readily seen in a trend line, the ups and downs. The reactions to these highs and lows can also be easily studied by seeing how far up or down the prices get pushed. Average prices will always bring it back to a more stable and realistic level. The aim here is to buy into oversold levels and sell into overbought levels, liquidating the trade right as the prices return to the normalized levels.
First thing to remember is that there is no real one correct pair to trade. You can trade on any major currency against just about any other currency. The only thing you need to really look for are the levels of liquidity, high volatility and tight pip spreads. If these criteria are met, you can begin to swing trade based on them. The trade typically lasts between a day and a week. Every good trade-able currency may have two to four profitable swing trades every month or so. Being patient is key, so there is no use of trading everyday, rather, waiting for the right setup and making a few good moves will always help.
Swing Trading Strategies
Simple swing strategy can be made by using the three indicators, then applying the MACD to one of them. They are all logic based and you don't really need to do the internal working of the indexes, rather, just use them as a visual aid.
Relative strength index
The recommended usage is 70 overbought and 30 oversold, so RSI above 30 is bullish and anything below 70 is considered bearish. RSI convergence and divergence are preferred trade setups and when they appear on the chart, the currency will quickly reverse. In an overbought market, the RSI divergence is a perfect setup to go short. While being very simple to use and learn, it may not be very wise to rely only on the RSI while trading. Most traders use the system as a backup tool to the others or as a complementary index to the stochastic.
Above 80 is overbought and below 20 is oversold, this however does not necessarily mean that the rates will automatically reverse. The Stochastic is known to have a lot of false signals, so trading is limited to the extreme values.
The Bollinger bands are an indicator that has three 'bands'- the upper, lower and middle. The middle band is a line showing the simple average, while the upper and lower bands are measures of deviation. They are very useful and a strong way to measure trends and their reversals.
MACD (Moving Average Convergence- Divergence)
MACD is a lagging indicator and it mainly helps novice traders develop patience and trains them to not be rash in their decision making. The delay helps users to have a favorable entry way and to maximize profits by holding positions longer. The MACD is seldom used alone, but can be a powerful tool when used alongside the other indexes.
Swing trades are played on the odds and because you are playing the odds, it is wise to keep it as simple as possible with few essential but strict parameters which cannot and should not be broken. May the odds be ever in your favor.