Forex trading is a very good way to speculate on the performance of certain foreign currencies. Beginners, in particular, often approach Forex trading with a lot of fun and expectations. They make their decisions based on feelings and acting from the gut. This results, among other things, in mistakes that could have been avoided. In Forex trading, it is only an optimal strategy that can lead to lasting success.
In this article, we will inform you about the basic strategies for Forex trading. Also, we will tell you how you can best proceed to find and implement your trading strategy.
Forex trading strategies for beginners
Forex trading with a good Forex strategy is considerably more promising than if you act according to feeling. There are unlimited profits that can be made in the Forex market. However, to gain access to this profit, you must have a working and winning strategy. Accept business thinking and not player thinking if you want to reap the benefits of Forex trading. Some of the most profitable Forex strategies for beginners are:
1. Trend following strategy
One of the best known and at the same time, most promising trading strategies is the trend-following strategy. This strategy is highly recommended for beginners in particular. Trend strategy is based on the fact that most currencies stay for a long time over a certain narrow price range. As soon as a trader identifies a trend, he places a buy order above the upper limit, or below the lower part of the price range
For example, if the value of the US dollar against the euro has risen continuously in the past few days or weeks, this would be a trend. With the trend-following strategy, you would then speculate at a suitable point on further rising US dollar rates.
The trend-following strategy can be used universally and is ideally suited for beginners who are speculating with foreign currencies for the first time. The disadvantage of the trend following strategy is that the potential profits are often not as high as when implementing other strategies. This is why the trend-following strategy is often not necessarily used by experienced and professional traders, as they expect disproportionately high profits.
2. Trend reversal strategy
This is the opposite of the trend-following strategy. This is because investors use the reversal strategy to speculate that a trend will end abruptly, and the price movement will be reversed. Using the previous example, this would mean that the dollar’s exchange rate against the euro will not continue. But instead, the euro will gain strength, and a falling value will characterize the dollar.
With the reversal strategy, it is important to note that the trend must stop before a reversal occurs. Therefore, do not use the reversal strategy immediately after the existing trend has stopped. Wait at least a few hours or days for a trend reversal to take place.
3. Breakout strategy
A breakout is a term that indicates when prices break an important level of support or resistance. The principle behind the breakout is simple. It is assumed that support and resistance represent an obstacle to the price path. Once one or the other is overcome, the market will have the green light on its way. If a substantial increase in trading volumes accompanies the breakout, this takes on greater importance.
Forex breakout trader monitors the behavior of prices and expects worthy breaks to make quick and high profits. For the best success using a breakout strategy, you should determine the best times for breakouts. These are usually periods of high volatility in prices, such as when two market sessions overlap.
4. Scalping strategy
Scalping is a short-term trading strategy that achieves low but frequent profits by focusing on a high success rate. The theory is that it is as easy to capitalize by making small profits very often as it is to place fewer orders and let the gains run. Scalping requires having a very strict exit strategy because losses can quickly exceed profits.
5. Swing trading strategy
Swing trading is about taking advantage of short-term price changes on the assumption that prices never go in one direction within a trend. Instead, swing traders seek to capitalize on both the upward and downward variations that occur over a short period of time. If trend traders want to take advantage of long-term market trends, swing traders are generally more interested in small reversals in price variations. They try to detect these reversals in advance and capitalize on small market movements.
What is the basis for a good strategy?
In order for the aforementioned and other trading strategies to work, some basic requirements are necessary. The most important requirement is that you adhere strictly to your strategy. This requires discipline, and above all, not get cold feet in some situations, even if the strategy used temporarily results in losses. In addition, it is extremely important that you understand how the strategy used works.
While these requirements relate more to the trader, there is another important basis for the functioning of a trading strategy. This consists of the fact that trading signals can be clearly recognized in the currency pair to be traded. The trading signals are actually the basis of any strategy. This is because it is only when certain signals are recognized, then can purchases and sales be targeted.
With the trend-following strategy as an example, there must always be a clear signal that there is actually a significant trend so that the strategy can be used to invest in the corresponding currency. Therefore, identifying the right trading signals is an extremely important part of any trading strategy.
Forex strategies for beginners should be simple and straightforward. A trading strategy can be the best for a trader if he is able to understand and apply it appropriately. There is no need to implement the best Forex trading strategy if you can’t understand the rules. Thus, it would be best if you chose a strategy that is easier for you and carefully study its use.