Trading forex as a way of earning. Sounds nice, right? Alternatively to other types of income, here it’s not just enough to be a good practitioner, but this is where theory pays off too, since this market isn’t the place where you can just keep your fingers crossed and hope for the best. This is the market where you need to dive deeper, test, read, analyze, decide, and finally make it. If you’re the one who has made such a decision to start trading, then just start. You might think "easy for you to say," but it’s actually the way how everything works – you just start, try and see what happens. There is a very interesting thing about the word "start" – a good beginning makes a good ending. Always. Trade forex as a beginner: step by step and get to the top.
This is the market where you need to dive deeper, test, read, analyze, decide, and finally make it. If you’re the one who has made such a decision to start trading, then just start.
What is a forex trading strategy?
How to become one of those for whom forex is the source of income? This is the right question for you to ask yourself at the beginning of your trading journey, as it brings your responsible attitude and patience to the table. Get ready. It’s impossible to get profit in the forex market without compliance with a formulated strategy and a systematic approach to your work. There are a lot of newbies prioritizing quantity over quality; thus, they’re in a hurry to make money in forex without even doing their homework: learning forex trading tips for beginners simultaneously with practice on the demo account, which is the right path to defining their trading strategy.
In order to start trading without any risks and losses, we highly recommend devoting your time to learning the basic concepts and terms according to the professional forex trading strategies. The next step you should definitely consider taking is to go through some ready-made and tested trading strategies that are offered by experienced traders in detail. To understand what strategy will work personally for you and your trading style, it’s important to test it first. So, why is it so important to have a strategy? A trading strategy helps to catch how the market works and predict the direction of the price movement. Even experienced traders won’t make a move without having a defined system that meets their trading goals.
There are a lot of newbies prioritizing quantity over quality; thus, they’re in a hurry to make money in forex without even doing their homework: learning theory simultaneously with practice on the demo account, which is the right path to defining their trading strategy.
A trading strategy can be understood as a system of defined rules that are considered to be your lighthouse; without them, you have all the chances to be in the middle of nowhere. In order to make a profit - stick to those rules. A well-developed trading strategy allows a trader to enter the market at specified conditions without any hesitation and exit it within the given timeframe while drawing a profit. You should probably understand that "nobody is immune" to losses in the foreign exchange market, but it all comes down to your trading attitude and how serious it is.
How to Develop a Forex Trading Strategy
Here, you will find an extensive guide on how to develop your own trading strategy in 6 easy steps. While it doesn't take a lot of time to get started with a new trading strategy, it takes some time to test it. Don't expect that your strategy will bring great results in the first days, but in the long-term perspective it can make you rich. So, let's consider each step in detail.
Step 1: Time Frame
Initially, you need to determine which type of trader you want to become. Are you going to monitor charts every day, every week, or once a month? What types of positions do you prefer, long or short? If you know answers to these questions, this helps choose a strategy matching your purposes and lifestyle.
Step 2: Choose Indicators That Will Help You Identify a New Trend
One of the most popular and easy-to-use indicators helping to identify a new trend is a "moving average crossover" system. This indicator does not predict the future, but it helps to define the market movement.
Step 3: Choose Indicators Helping Confirm the Trend
The second purpose is avoiding whipsaws without being caught in a "false" trend. To avoid whipsaws, you need to confirm it using other indicators, including MACD, Stochastic, and RSI. A combination of these indicators helps to identify and avoid false signals.
Step 4: Determine a Possible Risk
While designing the Forex trading system, it's very important to determine how much you are ready to lose. A successful trader needs to think about losses before thinking about profits. The most efficient way to determine possible risks is using a Demo account. In addition, each trader should get the basics of money management.
Step 5: Define Entries and Exits
After determining the losses, it's time to define when it's better to enter and exit a trade to make more profit. Some traders open orders based on the indicator readings while other traders wait until the close of the candle. When it comes to exits, there are two ways to exit. The first one is to trail your stop, which means if the price moves in your favor by the 'X' amount, you move your stop by the 'X' amount. Another way is exiting when the price reaches a set target.
Step 6: Develop Your Own Rules and Follow Them
This is the most essential step in designing a trading system. A successful trader needs to design trading system rules and follow them. Discipline is a must-have of any successful trader.
How to Check a Trading Strategy
The most effective way to check whether a Forex trading system is successful or fail is to find charting software where you can go back in time and move the chart forward one candle at a time.
Write down your wins, losses, average win, and average loss. If you are satisfied with the results, you can go from the Demo account to the Live account.
Read more: What is Carry Trade Strategy and How to Use It
How to Choose The Best Forex Trading Strategy
While choosing the best Forex strategy for you, there are three main things that you need to pay attention to a time frame, a number of opportunities, and position size.
Time Frame
One of the most important things while choosing the best Forex strategy is to find a suitable time frame. If you strive to make a profit from smaller price movements on the market, you need to focus on the lower time frames and pay attention to a scalping strategy.
Diverse time periods, including long, medium, and short-term, refer to different strategies.
Trading Possibilities
When choosing a strategy, you need to pay attention to the number of positions you want to open. If you are intended to open a lot of positions, a scalping strategy is for you.
Otherwise, traders who want to spend more time analyzing reports and factors provided by the fundamental analysis waste less time by staring at charts. They prefer higher time frames and bigger positions.
Position Size
It's also very important to find a proper trade size. If you want to make profits in trading, you need to know your risks. If you risk more than you can, this can lead you to overspend.
Professional traders advise setting a risk limit for each trade. If a trader sets a 1% limit on their trades, it means that they won't risk more than 1% of the assets deposited into the account.
Generally speaking, the fewer the number of trades you want to open, the more money you invest in one position.
Top 7 Forex Strategies that Work
There are a lot of newbies who strive to improve the strategy from the first days of trading, which leads to missing the most critical aspects and doubles the risks. Choose a method and strictly follow its rules as you’re just starting. Now, let’s get down to the popular forex trading strategies for beginners.
Channel trading strategy
Being considered one of the most successful forex trading strategies, this one can be interesting for newbies while they’re learning the basic concepts of the forex market. It’s impossible to upskill trading expertise without knowing about the support and resistance levels that are formed within the trading range. The main purpose of this technique involves forex market instability – it always goes up and down.
Forex channel strategy can be applied when a certain price corridor (channel) is clearly observed on the chart. The channel boundaries can be determined by the upper and lower bar, beyond which the value of the currency doesn’t cross over a certain period of time. When it comes to currency trading, it’s carried out according to the data of the channel. It’s advisable to hold the trade until the opposite level of the channel is approached by the price.
Breakout strategy
A breakout refers to a price that moves outside a specified support or resistance level with increased volume. Breakout trading is considered to be an important strategy because these "breakouts" are the signal of increased market volatility. You can use volatility to your advantage by catching a new trend once it’s observed.
According to a breakout strategy, a trader should enter a long position after the market price breaks through a resistance level or enter a short position after the price breaks through the support level. However, according to some experienced traders, it’s suggested to wait until it’s clear that a break-through does signal a real up or downtrend. It’s advisable to place your stop loss above or below the breakout candle, at a minimum.
Triple candlestick strategy
It’s a simple and, at the same time, very effective trading strategy for beginners. It all comes down to determining a combination of three candles. You can work on any timeframe, but remember that the higher the chart interval is, the more accurate the Price Action signals will be. The extremum of the first candle in the pattern must always be above or below the extremum of the previous candle. The second candle of the pattern should confirm the development of this correction. As long as the extrema of two previous candlesticks on the chart are consistently increasing or decreasing – the third one follows the same scenario. A trader should place an order at the moment of the third candlestick formation. In case of a price decline, a sell position should be opened, and when there is a consistent price increase, it is the green light for opening a buy position.
- If there is a downtrend observed on the chart, then the High and Low prices of the first candle in the pattern should be lower than the High and Low prices of the previous candle.
- In case of an uptrend on the chart, the trader should wait for the formation of a candle, the extremum of which will be higher than the extremum of the previous candle.
Pin bar trading strategy
Long-tail bars (or pin bars) usually have smaller candlestick bodies than the classic pin bars and are the most important signals on the price chart because they give traders a very strong clue (better than other bars) about the price directions. At the same time, their tails are always much longer than the ones of neighboring candles which is very easy to be noticed on the chart.
Now, a pin bar demonstrates a situation where the trend has reached its peak, and there is a price reversion in the opposite direction. This is how the situation in the market can change and play into the hands of a trader. Any currency pairs are suitable for trading using this strategy. It’s recommended to consider choosing the H4 and higher timeframes (D1, W1) for receiving more significant and reliable signals.
A trade can be opened when the model is fully formed. It’s better to enter the market with pending orders: Buy Stop for the bullish scenario and Sell Stop for the bearish one, which is located above the maximum value of the nose. Thus, traders are waiting for a complete rollback to occur, and the trend will go in the right direction.
Scalping Trading Strategy: Pros&Cons
Forex scalping is a strategy involving short-term trades that are intended to collect quick profits from the market. Using this strategy, a Forex trader opens a position in the market and closes it within a short period of time. This type of trade is open from several seconds to several minutes. The ultimate purpose of this strategy is to make small but regular profits instead of taking long-term positions. Let's consider its advantages and disadvantages.
Advantages
One of the main pros of the Forex scalping strategy is the possibility to open several trades per day. One more advantage of this strategy is making small regular profits. Using other strategies, you hold a trade for days or weeks before closing a profitable trade. With a well-thought stopping strategy, you will make a profit every day. Scalpers use a high position size as compared to the rest of trades while making several short trades. This trading strategy doesn’t belong to stable trading on an everyday basis.
Another potential benefit of the scalping strategy is that it doesn't take a great deal of market movement to make a profit. Using a long-term trading strategies, you need to set your sights on big profits requiring the market to move essentially. Using the scalping trading strategy, a few pips movement is enough to reach your goal.
Disadvantages
One of the main disadvantages of this strategy is that it's difficult to predict the price movement during short periods of time. While traders can predict the price behavior during long-term timeframes, it's difficult to forecast how a price will behave within the next several minutes. A lot of professional traders think that it's impossible to make profit with short-term scalping trades using technical indicators.
One more disadvantage of this strategy is that you need to win constantly to accumulate a large amount. However, using a long-term trading strategy, you can make an essential profit with only one trade.
Day (Intraday) Trading
Traders choose this strategy very often. An intraday trader holds a position open for no more than one day. There are no swap costs in day trades. Unlike the scalping trading strategy, trades are open for several hours. The most popular time intervals include H1 and H4.Due to this, you can evaluate the situation without emotions and haste.
Intraday trading is a favorite strategy of newbies. Brokers don't have any problems with this trading strategy.
Swing or Momentum Trading
If you have chosen swing trading, pay attention to both charts and fundamental analysis. Swing traders trade currency pairs on the recurring movements or swings happening in the currency pairs. Swings trading is a strategy that allows entering and exiting the market during any kind of price wave.
Swing Trading Into the Trend
Using this trading strategy, a trader opens a long position on rising momentum and enters a short position on falling momentum. They strive to time their orders to coincide with the market's ebb and flow while purchasing into troughs and selling into peaks.
In the trading system based on impulsion, a swing trader enters the orders in the direction of the main trend. In addition, they don't hold long positions in a prevailing downward trend.
Swing Trading Against the Trend
Some traders think that swing trading against the trend resembles picking cents off a busy highway. Since this strategy involves moving against the trend, traders are faced with a higher risk of losses.
The purpose of the trading style is to work on the upswings occurring against the main trend. In an uptrend, swing traders enter an order while the price is dropping through a short-term correction.
Read more: Forex Position Trading
Conclusions
It’s better to devote more time to mastering theory and then practice it. The best thing you can do is to consider trading and testing the above-mentioned strategies on our demo account where there is no risk of losing money. It would be optimal to choose a strategy with a minimum number of indicators and analytical tools. The profitability of trade strongly depends on your emotional stability and concentration of attention.
Remember, it’s essential to prioritize forex trading strategies that work for you and your trading expectations.
FAQ
What is the best strategy for forex trading?
Several forex strategies can lead to lucrative trades. The choice of a strategy is predetermined by the trader’s personality, goals, and risk tolerance.
What is the easiest forex strategy?
We recommend beginners start trading with the Support and resistance strategy and the Moving average trading strategy.
What is the most successful trading strategy?
The most successful strategy is the one that has proved to bring profit. Traders select a strategy based on personality, goals, and risk tolerance.
What is the most profitable forex strategy?
Such strategies as Scalping, Day trading, and Position trading have proven to bring high profit. The profitability of any of the above-mentioned strategies depends on market conditions at the time of a trade.
Where can I find a forex strategy?
There are several forex strategies: Scalping, Day trading, Position Trading, and Swing trading. You can read about them in JustMarkets article sessions.
What are the 4 investment strategies?
The four common investing strategies include value investing, growth investing, momentum investing, dollar-cost averaging.
How can I day trade without 25K?
It is possible to trade forex even with $1. Traders who have limited funds sometimes use leverage in order to increase their profit.
What software do day traders use?
Clients can use Expert Advisors to implement strategies that are not prohibited by the Company Policy and the Client Agreement.
How do you win forex every time?
It is impossible to make a profit every time. Even the most experienced traders lose money from time to time. The art of trading lies in the ability to compensate losses with much larger gains.
How can I double my money in forex?
A holistic strategy and disciplined approach can lead to impressive results. Traders commonly use leverage to increase profit while trading with limited funds.
How can I make money fast in forex?
The scalping strategy provides opportunities for quick gains in the forex market. Opening short-term leveraged positions can bring instant profit.
How do I trade forex with $100?
$100 is a decent sum of money to start trading and learn the best forex practices. It is worth choosing a strategy and testing it by opening multiple positions.
by , 2023.04.24