Forex trading is a ludicrously gigantic market where over 6.5 trillion dollars is traded daily worldwide. Who doesn’t want a taste of this pie? The rise and popularity of forex trading has seen an influx in the number of new forex traders and brokers competing to win trust and money. That has made many traders make research on potential winning fx trading strategies even before opening a Demo account.
However, if you are charged up and looking to make money trading forex, then you must have a proper forex trading strategy. Your strategy should be market-driven and realistic. Without an effective forex trading strategy, then your early stages as a forex trader can be horrific because of the losses that you can incur. You must be aware of the volatile nature of forex and also be cautious of the fact that when trading forex, a simple mistake can lead to massive losses.
With a good forex trading strategy, profits will automatically start rolling in, but what is the best forex trading strategy for beginners? There are several winning strategies for forex trading that you can implement and start making profits immediately.
Apart from your goals and resources, it would help if you also considered these factors when choosing the best trading strategy to adopt;
- The time and resources that the strategy requires
- Frequency of trading opportunities that comes with embracing the strategy
- Risk reward ratio of forex trading strategy
We have highlighted the best forex trading strategies that are ideal for traders building up on their skills. If you take the time to master these fundamentals, you will be able to trade confidently without making mistakes, therefore, making more profits. However, the risk levels of these trading strategies vary depending on a number of factors. Some are beginner-friendly and easy to implement, while others require a bit of time to master.
Why do I need profitable forex trading strategies?
As an investor, you can approach popular brands in the stock market and buy shares – doing this guarantees an over 90% chance of making profits because who expects popular brands to depreciate quickly?
However, if you are looking to make money in the forex market as a forex trader, that’s not how to make money! For you to be a profitable forex trader, you must be able to notice the smallest currency trading gaps and capitalize on them. These predictions are mathematical but not entirely dependent on your calculations but also on the trading style and strategies.
Proper fx trading strategies allow new traders to make appropriate market predictions that almost guarantee currency trading profits unless something unexpected happens. Moreover, having appropriate trading strategies lets you know what other traders are thinking and quickly notice red flags before they hit the market hard, preventing you from running losses. Let’s have a look at the different types of forex trading strategies:
Price action forex trading strategies
Price action trading is one of the standalone forex trading strategies which involves studying historical trading trends to formulate technical trading strategies. It is considered one of the best short-term forex trading strategies. Even though price action can be used over varying time periods, opting for long-term analysis gives more precise results, and with it, you stand a higher chance of making profits.
With price action trading, you should make your decisions based on price movements of specific instruments but not using technical indicators. Using price action, you can make decisions based on breakouts, reversals, or even advanced and straightforward candlestick patterns.
If using technical indicators is inevitable, stick to simple indicators like moving averages if they can help to understand the market trends easily. Check out our last YouTube video about the latest market trends.
The price action strategy is a widely used fx trading strategy for new traders since, regardless of your understanding of forex trade, it keeps the charts clean. This insulates you from the risk of suffering information overload, which often leads traders to make mistakes. However, be careful with the indicators you use on your charts. As a new trader, employing multiple traders can lead to confusion.
Tops of using employing price action trading
- You can quickly identify trading patterns by reading the price action. With this, you will always invest where there is profit, therefore, avoiding losses.
- Suitable for new traders looking to profit from short-term forex trading movements.
Trend trading strategy
The trend trading strategy is one of the most effective fx trading strategies for new traders since it is straightforward and easy to understand. The technique involves upward or downward fluctuations in currency before choosing trade entry or exit points. This strategy uses price trends to identify when a buying or selling opportunity pops up. This means that strategy and time are of the essence, and you must always be on the lookout to capitalize on these upcoming.
The exit and entry points depend on the currency’s market value and the trends’ relative strength. There are several tools that are used to evaluate currency trends. The most effective methods include; relative strength indicators, stochastics, volume measurements, relative strength indicators, and moving averages.
With this strategy, the appropriate time to invest is when trading instruments are making lower lows, and from your fundamental analysis, you are projecting it to post higher highs.
However, no matter how well you understand the market trends, forex is forex; never get too excited about it. No matter how predictable the market trends are, a slight driver can lead to massive changes and fluctuations. As a forex trader, you ought to be mindful of such possibilities to minimize your chances of running losses.
Tops of using trend trading strategy
- It is the most appropriate forex trading strategy for the less volatile market.
- It is a beginner-friendly strategy as it requires very few research tools.
- The trend trading strategy is appropriate for markets whose prices are relatively stagnant.
- Not very profitable compared to other forex trading strategies for new traders especially those with low trading volume.
- Studying the markers trend is time-consuming
Position fx trading strategies
Position trading is an easy-to-master forex trading strategy for beginners, which requires time to understand it fully. This long-term strategy is appropriate for passionate forex traders who are up to date with the latest macroeconomic trends and latest forex news.
Position trading is heavily dependent on fundamental forex analysis. The fundamental analysis is crucial since this strategy pinpoints head-to-head price pointers over a long period of time, say months or even years. These statistics are then used to predict the market trends in the foreseeable future.
For this strategy, the “head and shoulder,” which are the points where the prices were highest, are used to predict when such peaks will again be reached. You can then invest and anticipate that everything goes as expected for you to make profits, which is often the case.
The strategy calls for patience and being time conscious. Moreover, you must also be significantly updated with the current trends and news so that you can utilize all the data, including charts, news, and significant economic events, for data analysis.
- It is appropriate for long-term traders
- Very low risk-reward ratio, which is vital for the survival of new forex traders
- Also suitable for stock market traders
- Lengthy and thorough research is mandatory.
- Offers forex traders rare trading opportunities which may negatively affect traders in the long term
Day trading forex trading strategy involves buying and selling financial instruments the same day you bought them or even several times during the course of the day. This offers lucrative profits for new forex traders who are keen enough to take advantage of small price moves if the strategy is utilized correctly.
For this forex trading strategy to work, you must be diligent, focused, and unemotional when trading. Day trading involves looking at the liquidity, volatility, and volume before deciding on which financial stock to buy. To ensure that you get everything step right, there are several tools that, as a new forex trader, you can use for proper analysis, and they include; trendlines and triangles, and volume candlestick chart patterns.
Technical analysis is more appropriate than fundamental analysis to be a successful trader using the day trading forex trading strategy. Even though both are not equally important, they both have a role to play. You also have to make sure you start creating habits to be a successful trader.
Technical analysis is crucial when identifying short-term forex trading patterns which are vital for day traders.
Likewise, fundamental analysis is more appropriate for forex traders looking for long-term opportunities.
What are top-day trading strategies for beginners?
- Be knowledgeable– keep track of the latest stock market news and events are they are vital to understanding when to buy and sell your stock.
- Set aside a specific amount of funds for day trading- day trading is a risky affair, but in business, risking is increasing your chances of success. For instance, if you can dedicate 1% of your capital (say $50,000) to day trading, you only risk $500, which reduces the risk of massive losses.
- Set aside time- success in day trading involves the dedication of time which you must be ready to commit if you are to succeed.
- Start small– as a beginner, stick to a maximum of 1 or 2 stocks per session. This also makes tracking and finding profitable opportunities much easier for you.
- Avoid penny stocks– penny stocks are often liquid, and your chances of hitting the jackpot with such stocks are minute. Instead of building you, penny stocks only as time-wasters.
- Embrace limit orders as they minimize losses– limit orders guarantee price, which helps new forex traders trade with precision and confidence.
- Have realistic profit goals– ensure that every financial risk you make is limited to a realistic profit percentage, preferably 50% or below.
- Have a plan and stick to it– as much as thinking fast is a plus for forex traders, it can lead to rushed decisions which can lead to massive losses. This is why you must have a proper day trading strategy and stick to it to prevent emotions from getting the better of you.
Pros of day trading
- Day trading is an excellent forex trading strategy as it offers new forex traders with a Substantial number of trading opportunities.
- Low risk-to-reward ratio
- Entails strong use of technical analysis, which can make it difficult for new traders to understand and use
- Its time consuming
Forex scalping strategy
Forex Scalping trading strategy is one of the most popular forex trading strategies, which is effective for new forex traders. It involves selling your financial stocks immediately after a trade becomes profitable. The price target is to sell when the market price reaches its peak (according to your analysis). You can achieve this using a mathematical algorithm that compares prices or calculates manually when establishing entry and exit positions.
Even though the market price might continue to appreciate after you sell your financial stocks, the small profits collected throughout the day inform the bigger picture making this strategy effective.
Like other technical strategies, you must first identify the market trends driving the forex market at the moment. Most scalpers utilize indicators like moving averages to come up with proper fundamental strategies for verifying trends. Market trends help in evaluating support and resistance bands.
To ensure profitability using a forex scalping strategy, forex traders open and close and close individual trades within a short time- often after a few minutes. This is done several times a day. When scalping, you must first identify a market trend and ensure that the price highs and price lows are simultaneously appreciating. Upon realizing this, buy the dip and keep watching the highs and lows rise. As soon as the upward momentum reaches the resistance line, sell the dip, and there you have it, your profits!
- Forex scalping is applicable to nearly all financial instruments
- Most brokers discourage scalping. Repetitive closing of trades quickly can lead to the closure of your account, leaving you with frozen funds.
- Low risk-to-reward ratio
Breakout trading strategy
The initial phase of being a forex trader is always marred with uncertainties. One common factor with all new forex traders is the urge to be a successful and profitable forex trader. This is only possible if you adopt proper and easy forex trading strategies and stick to them.
There are several advanced forex trading strategies; however, breakout trading stands as one of the most straightforward strategies for beginners. A breakout is a price movement that occurs outside a defined support or resistance area.
These breakouts are often caused by bullish breakout patterns occur. These patterns are caused by the increased prices above the resistance area. Another phenomenon that can cause breakouts is bearish, which happens when prices decrease below the support areas.
As a forex trader, you should always be on the lookout for breakouts as they signify the start of increased market volatility. A price breakout gifts a forex trader the advantage of joining a new market trend as it starts. Upon entering the market, ride with the tide until the volatility dies down.
When placing your stop loss, place it below the breakout candle to help tie your bets o the initial resistance levels.
Range trading strategy
Range forex trading strategy is easy to understand and utilize. It involves looking at the price charts and finding the resistance and support lines. The terminologies sound quite challenging for forex beginner traders, but the interpretation and working principle of range strategy is very simple. You can simply make a resistance line marking all the highest price points over a period of time and connecting them using a straight line.
The resistance line represents the highest usual price of forex currency. When the price hits this limit, you are required to sell as it’s improbable that you will get a higher price than this. When the price of a cryptocurrency goes beyond this, you might think that you are soon going to make more money. As much as that can be the case, the price can drop very fast anytime because when currency price goes past the resistance line, that means it has been overbought, and the value is soon going to fall.
Unlike the resistance line, to draw a support line, you connect all the points where the price of a currency dipped. When the price e of a currency goes below this line, it means that the forex traders have oversold the currency. To maximize your profits, you should buy the currency’s price drops below its support line since that’s when the currency is cheapest.
Now that you know the resistance and support line of a currency, yours is o monoi the market trends to know when to buy or sell currency. This strategy is perfect for complete newbies who are just getting into forex trading.
Success when using this strategy is dependent on how fast you can buy and sell currencies at the predictable highs and lows of resistance and support lines. There are several tools that range traders can use to identify suitable exit and entry levels, including commodity channel index, stochastics, and strength index.
- The range strategy is suitable for low volatility markets.
- It is suitable when the currency price is in a relative stagnation phase.
- It is a beginner-friendly strategy as it requires a minimum of research tools. This makes it safe since beginners can hardly make trading mistakes.
- It is time-consuming. Drawing the resistance and support lines involves studying the market trends for a while to realize the highs and lows of the currency.
- Range trading is not the most profitable forex trading approach.
Carry forex trading strategy
As a beginner, it is essential to maximize your profit margins by taking advantage of all the profit-making openings. This is where carry forex comes in. it involves taking advantage of interest rate differentials between international currencies. However, as much as this strategy is widely used, there are several risk factors, especially those caused by fluctuations. Moreover, these trades are often highly leveraged and can easily be overcrowded.
Forex traders looking to profit using the carry strategy borrows from currencies with low-interest rates and purchase from currencies with higher exchange rates. The number of profits realized utilizing this strategy is dependent on the amount of leverage used.
- It is not a time-consuming fore trading strategy
- Possesses an average risk-reward ratio
- If you master this strategy, you can easily make high profits
- Even though forex traders can profit using carry trading strategy, good trading strategies are very rare
- Running profits is dependent on specific upward trends which makes this fx trading strategy unattractive
How to identify the best fx trading strategies that may work for you
Every forex trader should identify their own edge by analyzing their unique skill sets and trading aspirations. For instance, there are traders with a short attention span but are very quick with numbers. Such traders are excellent with fundamental analysis and are comfortable with fore trading strategies with several research tools like the range trading strategy.
For beginner traders, it is important to test specific strategies in a demo account with virtual funds, which are always provided by every forex broker for learning purposes. Moreover, taking free personality tests on the internet is very helpful in giving further trading insights into currency trading. If and when you feel ready for the real deal, create a live account and start trading forex online today!
You can also follow weekly reports to identify trends and news that will impact the market! Information is power when it comes to becoming the best forex trader, it might also help you create your own secret forex trading strategies!
Here are 4 Things you must know before trading forex
- Researching the market and market trends is the key to a successful forex trading career.
- Read our FX Blog and learn about everything forex.
- Know which forex broker fits your trading style and strategies.
- Finding out what influences currency traders – there are positive and negative influences that you must know before starting forex trading.
- Know the risks of forex trading – especially as a forex day trader since day trading can be lead to massive losses if not properly executed
- Beware of forex scams. Always check reviews!
- Follow our Social Media to keep up with the news!