Recent data shows that most beginners lose money when trading Forex, and a major reason is their poor choice of trading strategy. This article outlines some effective, simple Forex trading strategies for beginners that can help shift the odds in their favor of profitability.
These strategies are based on technical analysis and require minimal discretion for beginner traders.
1. Trend Following
Trend following is a great Forex trading strategy for beginners because it allows them to participate in the market without requiring extreme precision. This is because it is slow paced and only requires trading at certain times of the day, which means that a trader could even do it from home or during a lunch break.
However, trend following isn’t easy and requires patience and discipline. It can be especially difficult in volatile markets or during periods of whipsaw market conditions, where prices move back and forth with no clear trend established.
2. Bollinger Bands
Bollinger Bands are a popular volatility indicator that provide traders with valuable insights into price and momentum. Over time prices tend to return to the middle band (which represents the “normal” value) – this is known as the Bollinger Bounce.
Traders can use Bollinger Bands to identify overbought and oversold levels by looking for sell signals when the price touches the upper bands and buy signals when the price touches the lower bands. This strategy can be used to trade trending markets and ranging markets alike.
Bollinger Bands are created by adding a moving average to an indicator and then creating upper and lower bands that are set a certain number of standard deviations apart. This allows for the use of mean reversion strategies and is often used in conjunction with other volatility indicators such as MACD.
3. Fibonacci Retracements
Beginner traders are best off with a Forex trading strategy that is simple, easy to follow, and has a proven track record of profitability. In addition, it is important for beginner traders to learn how to identify their own trading style and skills.
One of the most popular tools in a trader’s toolbox is Fibonacci retracements, which are areas on a chart that align with significant high and low points. These levels can predict areas of possible reversal in price movement, making them an ideal indicator for a Forex trading strategy.
4. Relative Strength Index
The Relative Strength Index (RSI) is a momentum indicator that helps traders identify overbought and oversold market conditions. Developed by analyst James Welles Wilder and introduced in his 1978 book New Concepts in Technical Trading Systems, this popular MT4 indicator is calculated by multiplying the average of a security’s past X period up closes with the average of its past X period down closes.
It’s often used by swing traders to look for short-term trend changes that may present trading opportunities. Some traders also watch for a centerline crossover, which occurs when the RSI value moves from below the 50 line up to above it.
5. Moving Average Convergence/Divergence
There are various Forex trading strategies that can help beginner traders gain a solid understanding of the markets. One such strategy is trend trading.
In this method, a trader follows a price trend by taking a long position in a currency pair that is rising. If the price is falling, they short sell it.
This is a great strategy for beginners because the market is volatile most of the time. However, it’s important to remember that this strategy does not work well with retail brokers and is very risky.
6. Fibonacci Retracements
A Forex trading strategy that aims to profit from a currency pair’s movements around specific levels of volatility. This can include interest rate announcements, monetary policy changes, elections and more.
Traders can use these levels to identify potential reversal points, and they can be used alongside other technical indicators to confirm trading signals.
Traders that follow this Forex trading strategy will take long positions when prices reach Fibonacci support levels during an upward trend, and they’ll sell short when prices hit these levels during a downward trend. This is a low-risk, high-potential-reward trade style.
7. Fibonacci Extensions
Fibonacci Extensions are tools that help traders determine potential price levels beyond traditional retracement levels. These price levels are calculated based on ratios and percentages of the previous swing’s high to low distance.
Traders use these levels to set price targets or to identify areas where the price may reverse. These levels are also useful for determining take profit orders on long trades. However, it’s advisable to wait for confirmation before trading a Fibonacci extension level. In particular, a trader should look for confluence with other analysis tools or indicators.