The forex market is the largest financial market in the world. With average daily trading volumes in the trillions, finding the right forex trading strategies is a bit of a challenge for beginner traders entering the market.
While trading currencies can be rewarding for those willing to take the risk, there are some pitfalls that beginners should steer clear of if the goal is long-term success. To find the forex strategies that work, you need some understanding of what is required as a beginner trader to succeed in finding your style. It would be best if you first understood that your style would be unique to you. You will develop this style as you learn and apply various strategies.
What is a forex trading strategy?
The easiest way to explain a trading strategy is to liken it to a set of rules. These rules help a trader identify the best time to enter a trade, how to maintain control, and when to close the transaction. A trading strategy can be fairly simple, or it can be very complex. A lot depends on the style of the trader and the way they work the market. Some traders use technical analysis to help identify trends and make predictions. Others use fundamental analysis, which allows them to search for stocks and determine their fair market value. Regardless of the way you get your information, every trader needs a strategy prepared if they want to have consistency. This is also the best way to allow you to measure your performance. There are many strategies to choose from, and seldom will a trader use the same one forever. But, there are good reasons for a beginner trader to stick to straightforward strategies and not try to incorporate too many indicators, which can send conflicting signals. As time goes on, you can tweak your strategy as you gain experience.
Top three strategies for beginner traders
- Price action trading
Price action trading is a simple strategy based on making trading decisions focused on price movements. With a price action trading strategy, technical indicators are not used, though they can be used as a support tool.
One advantage of price action trading is less risk of “information overload.” Your chart remains clean and easy to read. A price action strategy gives you a better feeling for the market. It makes it easy to identify patterns effectively. An advantage some traders point out is the method is more suitable for traders who seek to profit from short-term movements. Having a clean chart enables you to make decisions quickly, allowing you to keep your focus solely on the price action.
It is essential to have a risk management rule in place. Some traders choose to enter the moment the price breaks. Others wait to monitor the price action and take action later.
- Range trading strategy
Traders using a range trading strategy use trading instruments in a particular range. This range can vary. It can be anything from 20 pips to several hundred pips. It depends on consistent support and resistance areas that are holding.
A trader using this strategy will look for trading tools that are not trending. To accomplish this, he looks for the instrument’s price action to determine the weaker trend. Once he has found a trading instrument, he has to identify the range that the instrument is combining within. This type of strategy will tell you to sell when the price reaches an area of key resistance and to buy when the price reaches an area of key support. While this trading strategy is more complex than the others, you will accomplish it easily if you learn to read the trends.
- Trend Trading Strategy
As the name implies, you must identify and watch a trend to use this strategy. When the trading instrument keeps posting higher highs, it is trending up. When it is continually posting lower lows, it is in a downward trend.
Traders can use the tools to identify the trend, such as “moving averages or MA.” You will set a fast MA and a slow MA. A popular example is the 50-day moving average crossing above (or below) the 200-day moving average. This can indicate the beginning of an uptrend or a downtrend.
It is important for beginner traders to identify their skills and fine-tune them to fit their unique personalities. There are a lot of strategies to take advantage of. You will not learn them all at once, and you will not master them immediately. It would be best if you took the time to learn and compare the strategies. As your knowledge grows, your preferences will evolve. Then you will discover your personal style as a trader. This is your first measure of success in the field and the beginning of a lucrative and exciting future.