Top 5 Forex Trading Strategies for Beginners

Top 5 Forex Trading Strategies for Beginners

• The level of competition in the forex market is high. Therefore, traders must carefully plan their tactics and implement those that work best for them. As a result, market players may better predict and capitalize on market shifts with the support of a well-developed trading strategy.
• This post will go over some of the most basic and effective trading tactics for novice traders. Remember that adopting a basic trading strategy does not always mean that you will have bad outcomes, just as using a sophisticated forex method does not ensure a successful conclusion. No matter how complex or straightforward a trading strategy may be, the result matters most in the foreign exchange market.
• Let’s look at the best five forex trading techniques for beginners that are not only simple to use but also generally regarded as adequate by professionals in the industry.

1. Price action trading strategy 

• As the name implies, the “price action” trading technique is based only on the naked movement of price on charts rather than on any auxiliary indicators. Instead, it centers on the standard price formations seen often on charts, which may be used to identify potential trend continuation or reversal points.
• Traders using this strategy take positions based on the appearance of patterns like triple tops/bottoms, head and shoulders (reversal patterns), flags, and pennants (continuation patterns). This straightforward method applies to all periods, although it is most effective on longer ones (1-H, 4-H, etc.).

Example

• Using the 1-hour chart for XAUUSD, we will explain the price action trading method in more detail below. We identified price movements rejected from a resistance zone, signaling the possible end of a positive run. In addition, there was a triple top formation as the price was repeatedly rejected after reaching new highs.
• After spotting this formation, investors might “go bearish” on the third price bounce. Again, setting a stop loss just above the resistance line is recommended, while using the Fibonacci retracement tool or carefully monitoring support levels is recommended for determining target prices.

2. Trend trading strategy 

• Although trend trading is sometimes lauded as a panacea, it’s important to remember that it’s a practice that has earned its reputation for success. Since price trends show up so often on price charts, providing excellent trading opportunities, this is the case.
• When the price starts moving in a bullish or bearish direction while still adhering to the corresponding moving averages or trendlines, traders may place several orders as part of a trend trading strategy. Long-term trend trading, on the other hand, is more successful since it reduces the impact of short-term fluctuations in the market while still yielding substantial profits. While instantaneous trend trading is conceivable, it is more precarious than longer-term trend trading because of the low stop-loss margin that even the slightest price volatility may trigger.
• In addition, sound risk management is crucial during trend trading in preparation for the inevitable market reversal. Traders may safeguard their profits by using measures such as trailing stop losses and numerous take-profit locations.

Example

• Here is an example of a bullish trend trading setup using the USD/JPY chart. On the price chart, we’ve plotted not one but two exponential moving averages: the 21-period and 50-period. If the price continues climbing, the MAs will provide dynamic support.
• Short-term traders might initiate a position when the price reaches the 21 or 50 EMA and exit at the first indication of a comeback, as shown by the little green arrows. At the same time, position/swing traders may get in early and stay in for the long haul. Setting a trailing stop loss and numerous take profit levels might be helpful in this situation.

3. Retracement trading strategy 

• Retracement trading is one of the best strategies if you’re looking for a decent entry point on an existing trend. A market retracement is the basis of this tactic, which calls for investors to watch for brief price recoveries before the trend resumes. As prices can’t always go in one direction, retracements are inevitable in the financial markets. As a result, price fluctuations, or “corrections,” may occur in even the most vital trends.
• Using the retracement trading method, participants in the market place a position on a brief price pullback to catch the dominant trend. The most popular method for this is based on the Fibonacci retracement, which identifies potential retracement zones. Global traders have found that the ratios of 38.2, 50, and 61.8 are the most reliable. However, if the price level is broken above the 61.8% zone, this is seen as “a reversal,” rendering the retracement trading strategy useless.

Example:

• See our application of the retracement trading method, complete with drawn Fibonacci zones, in the EUR/USD 1-H chart below. To capture the developing bullish trend at a good rebound point, the Fibonacci levels were stretched between the two circled levels. The price dropped to the 50% Fibonacci zone before turning back up again. If the price rebounds above the 0.5 ratio line, traders may place “buy” orders.

4. Range trading strategy 

• The range trading approach is an easy trading strategy that uses “support” and “resistance” zones. Indecisiveness on the part of the market is reflected in the fact that prices often fail to settle within a single range. Therefore, profits may be made by following the range trading technique and taking advantage of these fluctuations in price.
• Traders may make the most of this strategy by anticipating price action at critical support and resistance levels. Then, if you draw the two belts, you may maximize your profits by making bullish or bearish transactions.

Example:

• In the hourly chart of GBP/USD below, we have shown a range trading scenario. The highlighted regions represent critical support and resistance levels. When the price hits the level of support, traders may make “buy” transactions, and when the price reaches the level of resistance, traders can make “sell” trades. To maximize your chances of success with this tactic, you should lock in your gains before the price reaches the next zone since the market tends to make directional shifts either when it is in the middle of a move or just before it reaches the next level.

5. Break out trading strategy 

• When market sentiment fluctuates, a breakout trading technique is the best way to capitalize on a new trend as it develops. This is a breakout when the price moves beyond a range, support, or resistance level. False breakouts, in which the price “traps” the traders by triggering their stop losses and then reversing, are commonplace in the trading environment. Traders should start a position only when the price has broken through a resistance level with “strong” candles and then “retested” that level successfully.

Example:

• An illustration of the breakout trading method is shown in the following 1-hour chart of the GBP/USD. In this case, we’re using the same chart from the previous example (range trading) to demonstrate that the range has been broken to the downside, ushering in a new “bearish” trend.
• Traders have many options for taking advantage of this bearish breakthrough. For instance, “weak inside bars” that signal a diminishing potential to reverse price often follow significant and genuine breakouts. Conversely, small inside bars appearing following a breakout by “big” bearish candles may be used as support for a “sell” bet.

The diagram below is a more generalized version of the one above. Traders may launch a “sell” transaction when the price successfully retests a significant zone. If the price moves back up to the previous level where “support became resistance,” it’s strong evidence that the breakout was legitimate.

Disclaimer: No forex trading technique can guarantee you a profit. Market circumstances, the effectiveness of an approach, or random chance all have a role in influencing the final tally.