3 easy-to-understand trading strategies for FX beginners
There are many super successful Forex traders out there and the secret to their success is that they all share one thing in common - a Forex trading strategy that works for them.
Of course, there are many different time-tested strategies out there, all of which cover a range of technicalities and complexity. It can become very overwhelming, very quickly. But I'm here to guide you in the right direction and set you on the path to becoming a true FX pro.
In this article, I'll explore three trading strategies that are great for Forex beginners.
Why is a Forex Trading Strategy Important?
Before we dive into the nitty-gritty of strategizing, it's useful to understand why finding a solid trading strategy is important.
Trading strategies allow all Forex traders, both novice and veteran, to draw important financial conclusions that will help them identify price movements and market trends.
By being able to spot this data autonomously, traders can make more accurate price predictions and place trades with more confidence.
Without a strategy, a trader is essentially making blind bets on where they hope the market is going. And that's no formula for success.
That said, it's also important to note that no trading strategy is infallible. Traders should use their strategy as a useful guide that can steer them in the right direction and not rely on it as a commandment that's set in stone.
Furthermore, not every trading strategy will work for every kind of trader. That's why it's important to try out different strategies and find one (or a combination of a few) that suits your trading style and reaps you solid results.
So with no further ado, here are our top three trading strategies suited for beginners. You can practice trading risk-free on a Demo Account, no sign-up fee required!
1. Trend Following
The most straightforward strategy for newbie Forex traders to try out is arguably the Trend Following Strategy. Why? As the name suggests, it's all about following the up and down trends of the financial market. The trader only needs to keep an eye on which direction a currency pair's price is moving.
The idea is to buy a currency pair when its price goes up and sell when it goes down. The strategy can be applied over the long-, medium-, or short-term.
In essence, trend following is a strategy that requires careful observation of graphs, patterns, and changes. It's a great way for new traders to get to grips with the ins and outs of the Forex market.
It will also help traders begin to notice correlations between price movements and breaking financial/political news, data releases, and other anomalies affecting specific economies and their exchange rates.
2. Trend Lines
For those who are more technical minded, the Trend Line trading strategy is a great starting point. The strategy helps traders spot up and downtrends by plotting a straight line that cuts through the many zigzag movements of a trading graph. And the good news is that these trend lines are pretty simple to draw.
All you need to do is locate two major tops or bottoms on a graph and connect them with a straight line. It's important to note that while two markers suggest a valid trend line, it will usually take three points to confirm a trend.
Of course, a simple ascending or descending line on a graph is not much help to a trader. It's by analyzing the context surrounding the lines where things become more insightful. For example, a trendline that has been in effect for several months will be of more use than one that covers a few days or so.
The angle of the line is also noteworthy. If a trend line gets flatter, this can indicate that a market is reaching a peak and may soon head into decline.
Conversely, if a line is getting steeper, it may mean the market is experiencing a bullish rally, which is a great time to buy. If you can identify market conditions correctly via the trend lines, you can adjust your trading strategy accordingly.
3. Breakout
In order to understand the Breakout trading strategy, it's important to know two other trading terms: Support and Resistance Levels.
Support and Resistance are common trading phrases used to describe specific price levels where, historically, a currency pair has found it difficult to go beyond. Resistance levels act like a price ceiling, which stops a price from increasing further. Support is the opposite, and, as the name suggests, acts as a support level to stop prices from falling lower.
A Breakout basically happens when a currency pair finally breaks beyond either a support or resistance level. Using a Breakout trading strategy is very useful to a beginner trader as it can help you spot when a new trend is emerging quite early on, indicating whether now is a good time to buy or sell.
Put Your Forex Trading Strategy into Practice
Ready to put your Trend Following, Trend Line, and Breakout trading strategies into practice?
Also read: FP Markets in 2020-21 [ A Brief Overview ]
