There are as many Forex trading strategies for beginners as for professionals. And it’s hardly a surprise given the number of factors involved in creating an effective Forex strategy. Besides the choice of the right Forex broker, your approach to the market and the strategies you use are crucial. Also, some of the factors important for creating a trading strategy include:
- market and economic details,
- analysis theories and tools
- the abilities of traders to understand the behavior of other market participants.
Let’s see the most common and quite simple strategies you can use in Forex trading if you are a beginner.
1. Breakout strategy
Breakout is an example of a beginner’s Forex strategy that is not particularly time-consuming – but it can test traders who lack patience and focus a lot on the results present rather than focusing on the long-term results.
The essential condition for this beginner trading strategy is that the market is consolidating – in a relatively narrow area, the volatility is relatively low and the price corridor horizontal, where buyers and sellers are more or less equal.
2. Forex scalping strategy
Traders who use this strategy make 10 to 200 intraday trades, assuming that small price changes are easier to anticipate correctly than large ones. These traders are called “scalpers.” The primary purpose of these scalpers is to open a position at a given price, then unwind it after a change of a few cents (or “pips” in Forex terminology) by making a small gain. Many small wins can quickly turn into big profits if a well-mastered exit strategy prevents big losses.
3. Forex swing trading strategy
Swing trading is a trading technique in which the trader attempts to generate capital gains over one to four days.
The traders must act quickly to find situations in which a currency can move so strongly over such a limited period of time. Only day traders and retail traders use this technique. Big institutions are trading too large amounts to go back and forth so quickly on stocks.
4. Carry trade
The carry trade is a long-term approach that requires time to accumulate profits. The idea behind this approach is to find currency pairs with low volatility and with the most significant interest rate differential. The bigger the differentials, the more interesting it is. By trading in the direction of a positive exchange – buying the currency with the higher interest rate or selling a currency with a lower interest rate – a trader can accumulate considerable profits in the long run.
This logic is supported according to the economic theory of fundamental analysis. According to the latter, a currency with a higher interest rate will attract more investors. And by their financial contribution, the reverse currency will appreciate relatively in the long term.
The problem with this trading strategy is that short-term price swings can affect the results. Therefore, the trader must be patient enough to accept that it can be negative for extended periods. In addition, strict capital management is required, considering that the assumed duration of such a trade is at least a few months.