There are many strategies that a Forex trader can follow for carrying out his/her trading activities. However, understanding a strategy that suits your trading and psychology style is essential. In this article, we will see the top 5 forex trading strategies which beginner traders can implement in their trading.
06 January 2020 | AtoZ Markets – A Forex trading Strategies for Beginner Traders is a system that a beginner forex trader uses to define when to buy or sell a currency pair. There are various forex strategies including technical analysis or fundamental analysis. A suitable forex trading strategy allows a trader to analyze the market and execute trades with a good management technique. Forex trading strategies can be divided into organizational structure or individual.
Forex trading strategies require to consider multiple factors to formulate a strategy. There are many strategies that a trader can follow. However, understanding a comfortable strategy is essential. Every trader has unique resources and goals, which should consider when selecting a suitable strategy.
In this article, we will see the top 5 forex trading strategies for beginner traders. However, many advanced and successful forex traders earn by using these strategies.
What are the Best Forex Strategies for Beginner Traders?
There are a lot of forex trading strategies available in the world. However, all strategy is not recommended for the beginner traders. There are many strategies that require a minimum investment that a beginner trader cannot afford. therefore, beginner traders should use easy to understand methods that will give him an assurance of profit without much hassle. Here is the list of top 5 trading strategies for beginner traders:
- Support & Resistance Trading Strategy
- Trend Trading Strategy
- Fibonacci Trading Strategy
- Scalping Trading Strategy
- Candlestick Trading Strategy
Let's have a look at one one of them.
#1 Support & Resistance Trading Strategy
All beginner Forex traders should find out how to spot support and resistance levels on the charts, regardless of the currency pairs they are trading. Support and resistance are barriers within Forex markets and are easy to spot on price charts, as they prevent the price from moving beyond the level. Moreover, support and resistance work well in all time frames. This forex trading strategy is one of the effective ways to successfully predict the future direction of a specific currency pair. Many well-known forex traders, Hedge funds, Banks use the level to analyze the market.
Besides, indicating an appropriate entry point, they can also highlight where not to enter a trade. Therefore, support and resistance create a map of the price chart to indicate the potential price reversal point. Having the ability to predict future price directions is a powerful tool that can be mastered using a simple chart analysis.
Let’s have a look at the real chart, the NZDUSD price found a potential resistance point that makes it drive down from the level. In the chart, the price first rejected the resistance area and then moved to the downwards. The same concept works with the support level that is a potential buy point.
Conditions for support and resistance Trading Strategy
- Understand the market context to understand the overall picture.
- Only take sell entries as soon as the price rejected the resistance area.
- Only take buy entries as soon as the price rejected the support area.
- Avoid counter trading when a trend is very strong.
#2 Trend Trading Strategy
The concept of this popular trading strategy is that price tends to move in a trend behind it is picking a top or a bottom. The typical trend trading strategy involves identifying Forex pairs that are trending either bullish or bearish so traders know the direction they should be looking to trade. For a bullish trend, any buy trade entries will work well than any sell tradings.
The next step of the trend trading strategy is to find trade entries using a trending indicator. There are a lot of trading indicators are available in the MT4 or MT5 charts. You just need to find a suitable one for you. However, there are many custom indicators available and you can make your own indicator as well.
For example, RSI (Relative Strength Index) stood the test of time that moves up or down between levels 0 to 100. The level in the indicator indicates the strength of a currency pair’s movement. The RSI above 70 levels indicates potential selling possibilities and the RSI below 30 is a potential buying possibility. The exit plan for this strategy is to set a stop according to the near term support and resistance. Learning a trend trading strategy is obvious for every trader as it is one of the most financially lucrative of all strategies.
#3 Fibonacci Trading Strategy
This is one of the most famous Forex trading strategies which is named after a famous Italian mathematician. This trading strategy is considered as a medium to long term strategy. It used to follow repeating support and resistance levels so that it requires extra time to complete a trade. As we know, the markets historically move in trends and Fibonacci tools work well when the market is trending.
The basic idea behind using this strategy is to take buy entries on a retracement at Fibonacci support at an uptrend. Conversely, take sell entries on a retracement at a Fibonacci resistance level when the market is on a downtrend. When the price moves within the Fibonacci patterns, traders will find that it will find support levels by key 0.328, 0.5 or 0.618 levels. Additionally, this is usually where traders can take their entries by waiting for reversal. The Fibonacci trading strategy is used by many traders including institutional traders. However, it should be noted that it requires a lot of practice to grab the overall strategy.
In the chart, the price rejected 61.8% Fibonacci retracement level for the for further upside movement. This strategy works well in all currency pairs and all timeframes.
#4 Scalping Trading Strategy
Scalping is a very useful technique, especially where beginner traders have concerned it as a low-risk strategy. However, strong traders still have the potential to make attractive profits from this strategy. Scalping is a trading strategy that specializes in taking profits on small price changes as soon as the trade has been entered has become profitable. Scalping reaches results by increasing the number of winning trades by sacrificing the size of the wins.
It is very common for a trader to make a profit on a longer timeframe to achieve positive results more easily. On the other hand, it is not easy to make winning trades through a scalping strategy. This strategy requires much practice and determination to control over the strategy. Additionally, there are many scalping strategies that work well from the 1-minute chart to 1 hourly chart. Any take profit from 5 pips to 50 or 100 pips is considered as a scalping strategy.
However, successful scalpers have a higher ratio of winning compared with losing trades. Additionally, this strategy requires traders to have a strict exit strategy to avoid large losses that may eliminate the many small gains. Overall, scalping requires a great amount of patience but it can be highly effective.
#5 Candlestick Trading Strategy
Candlestick charts are the most common chart types that are used by the Forex traders. There are other kinds of charts like line charts and bar charts but they don't reveal much about past price action. On the other hand, the candlestick chart provides accurate information about the past price movement when trading is based on technical analysis. Therefore, traders can take the decision of future price action based on how the price has reacted in the past.
Candlesticks are basically the price action for a certain period of time, that is available from 1 minute to a week or a month and candlestick formations. This is a very useful tool for indicating possibilities for trading entries and exits. For this reason, there are many traders’ who favor this system. This systemworks perfectly during times of volatility or non-volatile times if trades use a combination with one or more other indicators along with qualified support and resistances in the chart.
Additionally, there are many candle formations with 2 or 3 candles that work as a potential price reversal signal like an inside bar, two bar, engulfing, etc. Moreover, there are also many price patterns like, head and shoulder, flag pattern, cup & handle patters that are formed with several candlesticks in the chart which increases the probability of trading decision accuracy significantly.
To conclude, there are many Forex trading strategies that traders can consider as the most appropriate one. However, the accuracy of a strategy depends on an individual execution and how well the strategy is implemented. As it is a fact, forex trading involves trial and error. Therefore, you should practice the above-mentioned strategy to identify a suitable one for you to implement in your trading activity.
The scalping requires a lot of attention to the chart. Hence it not suitable for part-time traders. On the other hand, candlestick trading on a daily time frame doesn’t require much time. Therefore, it is quite suitable for a student or job holder.
A suitable forex trading strategy depends on how much time you can give in your chart. Moreover, there is a stress of loss so you should be careful about the trading psychology. Additionally, trading strategies will not work if you do not use any good money management system. As we know trading is all about probabilities. So in any strategy, maintaining good money management is a must for all traders.
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