Forex Trading Strategies: Everything Beginners Should Know

In the bright, loud advertisements everything is so easy and beautiful: novice traders get quick returns with minimal time expenditures, and they reach stable earnings. In reality, the situation looks somewhat different: the majority of newcomers play by intuition and lose the whole deposit in a short period of time. Only a precise and skillful strategy will let the forex traders reach their goal. Today we will talk about trading strategies: the essence of trading strategy, their types, and application. Basically, everything a beginner trader must know before jumping in with both feet.

What Is A Forex Trading Strategy?

A strategy includes a specific set of certain trading rules that must be strictly followed. An important advantage of following the trading algorithm is that the trader is less subject to emotions.

A trading system helps to understand clearly when a trade should be opened and when it should be closed. In this case, decisions are made quickly owing to the created algorithm.

As a rule, the method of capitalizing on forex is developed by experienced traders. They are engaged in trading on a professional basis for many years. Thanks to their knowledge and experience, novice traders can successfully use ready-made solutions and perform successful trading.

In addition to directly determining when to open a trade, the strategy includes:

• The choice of certain time frames for trading;
• Risk management;
• The number of lots for each trade;
• Trade closing point.

A well-thought-out strategy takes into account all aspects of trading, so it is necessary to adhere to its rules in any situation.

Rules, provided by a certain algorithm, indicate in what situation what actions should be taken. Experienced traders recommend everyone, especially beginners, to keep notes to keep track of their successful and unsuccessful trades. Later on, this data can be used to analyze and correct the current strategy.

Another advantage of using the system is that it can later be used to automate your trading by using expert advisors.

Rules of your trading system are embedded in the algorithm of the advisor's work. Only in this case, the bot can really replace you and successfully trade.

Types of Trading Strategies

Given the popularity of forex and CFD trading, today there are numerous strategies for benefiting from price fluctuations. To simplify their understanding, they can be classified according to various criteria.

Let us consider the most significant classification - by time horizon of trade. These strategies are subdivided according into:

• Short-term, or intraday trading strategy - trades are opened and closed within one day, i.e. trading session. For successful trading it is necessary to constantly monitor the price changes, otherwise, you can miss the moment when it abruptly changes to one or the other side.

Scalping is also referred to as this type of trading - opening lots of trades at very short intervals of time. The gain from each trade is small, but due to a great number of positions, the trader hopes to attain a sufficient yield. Such a system is considered to be the riskiest.

• The medium-term, or position system implies the opening of trades for a period of several days to several weeks. This algorithm is the most stable and suitable for many traders, as it is not necessary to constantly monitor the price changes over one day.
• Swing trading – a system in which trading is based on the moments of the market correction. When the trend in the market is just being established, there is great variability, which is used by traders. The trade is opened at the moment when the trend changes in the market.
• The long-term strategy is more like an investment strategy and is quite rare in the forex market. Positions are open for a long term - from several months to several years. It is rather difficult to predict what will happen with the market during this time. That's why these tactics are more suitable for big players.

Depending on the method of market analysis, strategies are divided into:

• Indicator-based strategies are based on indicators that are overlaid on trading charts. Indicators give signals at the occurrence of certain conditions, laid down in the algorithm. The decision to open and close trades is made with the help of these signals.
• Non-indicator ones imply the analysis based on certain patterns, which appear on the candlestick chart. These structures indicate either the beginning of a particular trend or its reversal. Depending on the patterns found, the trader decides to buy or sell the asset.

Depending on the type of market analysis, strategies are divided into:

• Technical apply analysis based on the study of charts and looking for patterns of price movement. The basic postulate of this type is that the price of the asset should change in the future in the same way as in the past.
• Fundamental ones use economic data, news, and large-scale events in the world of economics and politics. It is necessary to estimate the influence that all these factors can have on price movement.

Combined ones include elements of both technical and fundamental analysis.

Depending on the moment of opening trades, the systems can be:

• Trend-following strategies imply the opening of trades in the direction of the change in the value of the asset. It is very important to correctly identify this direction.
• The counter-trend trading systems use the moment of a strong shock on the market, after which the reversal of the price in the opposite direction is assumed. This strategy can yield a substantial return but is very risky.
• Flat strategies are used at the lateral movement of the price, that is the movement in a certain price range. Such strategies are used at the moment of price consolidation and are not used when the trend recovers.

Depending on the technical component, strategies are divided into:

• Automatic – trading is carried out by a specially developed computer program without human participation.
• Manual – trading is carried out by the trader, while they can use the signals of trading advisors, which carry out market analysis.

Advantages and Disadvantages of Various Types of Forex Trading Strategies

Each type of trading algorithm listed in the previous section has both pros and cons. Let us briefly examine them for each of the above strategies.

As we have mentioned above, a scalping strategy implies making a large number of short-term trades. The advantages of this strategy include:

• Rather quick acquisition of trading experience;
• Studying basic mechanisms of market working;
• No large initial capital is required;
• A quite simple trading scheme;
• Trades are not carried over to the next day or later periods.

The main disadvantages of this system are as follows:

• Requires a lot of time and effort, and greatly exhausts the trader;
• High commissions due to a large number of trades;
• Highly dependent on the equipment and the Internet connection.

The next type is intraday trading and the advantages of such strategy are:

• All trades are closed together in one day, at night, the trader can rest and not worry about the account balance;
• A trader places much fewer orders than a scalper (up to 10 per day), but it helps to gain experience;
• One can learn how to trade with the help of educational articles and videos which are available free of charge.

Among the disadvantages of this type of trading are:

• It takes a full working day, that's why it can hardly be combined with another job;
• It requires a high concentration and a lot of effort, which wears out a trader, just like scalping;
• With a lack of knowledge and experience - it is very probable to suffer losses instead of returns.

The advantages of swing trading are:

• The opportunity to open trades for a longer period, so there is no need to be constantly in front of the computer screen;
• There is time to do other things and rest, which reduces the stress level;
• A trade can bring more return if it is closed not on the day it is opened, but some time later.

Among the disadvantages of this system are the following:

• This can lead to bigger losses than in intraday trading;
• Because traders do not constantly monitor the market, they rarely manage to enter the market at the best price;
• Waiting for the signal to enter the trade can take several days.

Medium-term trading also has its pros and cons. Among the benefits are:

• A broad choice of assets for trading;
• The reduced influence of commissions on the final return;
• The possibility of quietly analyzing the course of events and the prospects of growth in the price of a particular asset.

The disadvantages of the medium-term strategy are:

• The necessity to carry out fundamental analysis;
• The need to scan a large number of markets in search of the best assets to trade;
• Not suitable for active traders.

The last type is long-term trading, which is more commonly referred to as investing. The advantages of this type of strategy are:

• Reduced amount of stress;
• Plenty of free time;
• The possibility of obtaining dividends (in the case of purchasing shares of companies) in addition to the growth in the value of the shares themselves.

The disadvantages of long-term trading include:

• A sufficiently large amount of free capital is needed for investing;
• Requires serious knowledge of the assets that are purchased, and the possible movement of their price;
• Demands a lot of patience to resist the temptation to sell assets ahead of time.

What Is the Best Trading Strategy for Beginners?

It goes without saying that there is no consensus on what strategy is perfect for novice traders. Each person is different and has distinct talents and pieces of knowledge. One person is easily able to do technical analysis analyzing indicators and charts, while another one is good at reading the market sentiment.

When choosing an appropriate trading system newbies must be guided by their own preferences. For example, a strategy full of complicated terminology, indicators, and complex instructions will be challenging to grasp. If a forex trader does not understand the work of a particular analyzer, the investment will be wrong and lead to losses. One should not reject technical indicators completely, it is recommended to choose two or three as a base and get acquainted with their function in detail.

Forex systems for newbies should be straightforward and clear. The optimal option is a scheme that will not require the trader to constantly learn, long contact with the trading platform. At the very beginning, it is better to spend small intervals of time trading, so that each step was significant and planned. Experience does not come at once.

It is very easy to trade the basic recommendations for the setting of Stop Loss, the choice of Take Profit, and currency assets. A detailed description of the system's algorithm allows an understanding of the principle of the charts, and the formation of a trend. Thus, the beginner can effortlessly select and place successful trades on their own.

It is advised to sidestep systems with high promised profitability. High returns always go along with the highest risks. A beginner is not ready to operate with own capital professionally, and the probability of losses is very high. It is impossible to earn millions from the first day of work on the currency market. It is better to increase the sum of investments by several percent but steadily.

Today there are dozens of simple approaches that are perfect for inexperienced traders. Each of them includes elements of popular systems. A beginner can determine the assets and create a system of rules on their own after basic training.

In most cases, it is most useful to employ a strategy worked out over many years. Professionals actively share their knowledge, post videos, lead forums, and publish articles. These materials provide real statistics on the formation of the business, describing the effectiveness of a particular strategy. Before investing, it is better to spend extra hours testing a strategy of your choice on the demo account, than to regret the funds lost later.

The Easiest and Most Advantageous Strategies for Beginners

It has been mentioned many times that there is no flawless trading strategy that brings high returns and entails minimal risks. Still, some approaches can help beginners to get a stable return of average size from the first trade. Let's look more deeply into the most simple but really working strategies for forex trading.

Reversal Candlestick Strategy

The Candlestick reversal strategy works great for any time frame and different financial assets. The main goal is to identify candlesticks and calculate the potential for changes in the trend. If the depth of the impulse decreases, most likely a reversal is approaching, or a pullback will occur. The fundamental trading principle is in great demand among traders, it brings good gains.

Every day up to fifteen signals for investment are recorded. A candle is detected on the analyzer, then the trend line is expected to change. At the moment of weakening of the force of a trend, we can open positions.

The best option is to gain experience with the candlestick reversal in a demo account. Also, a trader should keep a trading journal and record the statistics of the positions. After gaining the starting skills, the beginner is ready to start live trading. The strategy will allow earning small amounts of funds each time.

It is essential to have sufficient knowledge ground before applying this tactic. If the user draws false lines of resistance and support, and trading figures are far from the ideals of didactic materials, the deposit is at risk of ruin. When drawing the lines it is worth taking into account the closest periods.

Price Action Strategy

This is a set of tactical techniques combined into one strategy. The name of the tactic comes from the fact that it is based on the basic principles of trading by technical analysis with minimal risks. This system is suitable for any time frame, but it is most effective in H4 and higher. Therefore, it is perfect for busy people who are not ready to commit all of their time to trading.

To trade successfully, it is necessary to determine the most evident support and resistance levels, marked by frequent and obvious price spikes. It is not necessary to highlight all fluctuations, it is very distracting and illogical. The most accurate subjective forecast will be made by a trader with good trading experience. Consecutive downward and upward movement points of the quote are connected to mark the trend line.

Another constituent element of the model is the so-called psychological level. This term has appeared among professionals, but there is no exact definition of it. Figuratively, it is a figure or a segment, during which the user expects to place orders. The fourth component of the tactic is the Fibonacci levels, which every trader encounters when running the trading terminal for the first time.

Pin bars that form a long tail when the quote changes, as well as absorption bars when the element completely overlaps the previous wave, are also used. The trades are opened right after the formation of confirmation bars. Stop Loss is set based on resistance levels or local extrema. According to statistics, it is confirmed that the strategy is ideal for a beginner and carries minimal risks.

Sonic

This tactic involves the use of short-term fifteen-minute time frames. Analysis of entry points is made on resistance and support lines. The system is positioned in the search of strong impulses, and the formation of price waves, and is ideally suited for any currency pairs and instruments. The ease of use of this strategy is due to the minimum of analytical data: only the Moving Average indicator is used.

Before you start trading, it is necessary to define the currency pair. Trades on EUR/USD are optimal for the London session, on the Asian session - AUD/JPY. The strategy is perfect for long-term trading and scalping.

Moving Averages-Based Strategy

The Moving Average indicator is present on any trading platform. Signals are determined by crossing the lines, and the principle of making strategic decisions is constructed. MA is an averaged model of price flow opening and closing calculations. In practice, traders use two types of MAs – slow and fast. Periods of their formation differ practically twice.

MA is an indicator of trend strength. When the lines cross, the probability of trend reversal is forecasted. This moment will be ideal for entering the market. To place long positions, a situation is selected, when the slow MA crosses the fast one from bottom to top. The short positions are opened in opposite conditions.

It is important to understand that the system works with fewer mistakes during the formation of a trend, and this method is inefficient and unsuccessful during the flat period. Consequently, it is particularly valuable to determine the phase of market trading at the analysis stage.

Professionals can identify the trend in a few minutes, while beginners need considerable time. A beginner should draw lines between the peak highs and lows. If the direction of growth is fixed, the trend is upward and vice versa. When the dynamics of price fluctuations range in the corridor, it is advised to keep away from trading.

The Turtle Strategy

This a classic strategy that has existed in trading for dozens of years, but does not lose its popularity. It lets the trader take an inside look at currency trading and estimate the possibility of big trends. It is exceptionally uncomplicated for novice traders: it is not necessary to trace the close correlation between currency pairs or conduct a long technical analysis.

It is necessary to choose three-week charts for major currency pairs to determine the entry point to the market. Two indicators: Donchian Channels and "the Classic Turtle Trader" will optimize the forecasting process. However, traders can draw their own candlesticks. Yet, it will take a lot of time and effort.

Traders buy assets when the rate exceeds the trading line and sell when it falls. If the price of the currency pair varies within one corridor during a twenty-day period, you should not place any orders. The probability of rate reversal or unpredictable fluctuations is high. Potential risks using the Turtle strategy are equal to 1%.

What Else a Trader Needs for Successful Trading

We talked a lot about choosing the right trading strategy and strictly following all of its rules. But for successful trading, there are a lot of important decisions to be made. One of them is choosing a brokerage company for opening an account.

When choosing a broker, there are several important things to consider:

• Whether the company has a license and who regulates its activity;
• What spreads and commissions are stipulated for opening trades, deposits, and withdrawals;
• How fast the orders are executed;
• What types of accounts are available, and if there is a possibility to open a demo account or a cent account;
• Which trading platforms the company uses, and if you know how to use them;
• Whether there are trading education opportunities at the broker, this includes educational articles, videos, webinars, and so on.

In addition to choosing a reliable broker, you also need to learn all the nuances of the trading platform you will be trading on.

The terminals may differ from each other, and they may have different interfaces, but the functions they perform are the same. That's why you need to choose the one that is closer and clearer to you personally.

Experienced traders recommend everyone, especially beginners, to keep the so-called trader's journal. Keep a record of all your trades for a certain time (day, week, month).

This will help you analyze your strategy and see any shortcomings or inaccuracies, which you can later fix.

There is no need to chase high returns immediately because it also implies high-risk levels. Without the proper knowledge and skills, you are more likely to lose everything you have invested than to earn anything. Don't ignore the opportunity to try trading on a demo or cent account. This way, you will perfect your strategy, test its efficiency, and feel more confident trading large amounts of capital.

Tips for Beginners

For every investor, it's crucial to invest safely and gainfully. The best advice from professionals is to use capital in trading that is not able to damage personal and family budgets. When finances are insufficient, no tactic will help improve them many times over a short period. And the psychological pressure will be at a maximum level because of the fear of losing everything. It is easy to invest rewardingly with in-depth knowledge of currency market analysis and fundamentals.

When selecting a financial asset it is advised to assess the probable volatility and study the statistics of successful trades and the percentage of return. In addition, it is essential to select the trading session: Asian and the Pacific are not particularly lucrative, and the European and American are aggressive trades, in which beginners can easily increase or lose deposit.

Novice traders should determine their trading style: spend several hours on the market or devote minimal time to trading. Here we should consider that long-term trading is much easier to predict, while scalping and intraday require a high concentration, logic, and thinking.

For complicated and unclear strategies it is better to give more time to mastering the theoretical material, and then only to practice. The optimal variant - training on demo accounts. Here you can use virtual funds, there is no risk of losing real funds.

It is worth mentioning that no strategy will be perfect. That's why it is recommended to study the market constantly, to test new assets and indicators. Constant development and improvement of trading will allow one to trade successfully and productively.

It is better to test your tactics on small amounts before increasing the size of the traded lot. It is also recommended to listen to professional advice, read their articles, and watch their video reviews. If you are a beginner and do not have professional skills, it is better to choose well-known currency pairs.

It is not enough to choose a good strategy, you will have to keep statistics of trading, note and analyze the most complicated moments to gain a stable income. Such an approach will allow the trader to gain experience, reach a new level, and make investments lucrative.

A popular mistake made by beginner traders is creative ideas. Everyone tends to improve their strategy from the first days. As a result, beginners lose vigilance, miss the most important moments, and double the risks. It is better to choose a tactic and strictly follow its rules for opening and closing contracts.

Reliable brokers offer dozens of ready-made strategies, each of which is more suitable for beginners. It is this client group that analysts' products are focused on. Traders use the tactics of famous, successful investors until they gain their own experience. It is optimal to choose a strategy with a minimum number of indicators, and analytical tools. The earnings potential of trading directly depends on the amount of capital, concentration, and emotional stability of the personality.

About AdroFx

Established in 2018, AdroFx is known for its high technology and its ability to deliver high-quality brokerage services in more than 200 countries around the world.  AdroFx makes every effort to keep its customers satisfied and to meet all the trading needs of any trader. With the five types of trading accounts, we have all it takes to fit any traders` needs and styles. The company provides access to 115+ trading instruments, including currencies, metals, stocks, and cryptocurrencies, which make it possible to make the most out of trading on the financial markets. Considering all the above, AdroFx is the perfect variant for anyone who doesn't settle for less than the best.