8 Best Forex Trading Strategies for Beginners - Simple and Easy
Top simple Forex trading strategies for beginners:
Trend trading - one of the most common and reliable forex trading strategies.
Price Action Trading - the movement of a currency's price plotted over a given time.
Range trading - aids the trader in identifying when the market has no clear direction or trend.
Momentum Trading - involves the buying and selling of currencies that have been influenced by recent price trends.
Carry trading - well-known strategy that most forex traders utilize.
Foreign exchange (forex) trading may appear daunting and complicated for beginner traders. However, it is a relatively straightforward process of buying and selling national currencies. Decades ago, the foreign exchange market was dominated by large companies, hedge funds, and governments. Nowadays, anyone can become a forex trader. The forex market is now easily accessible with a simple mouse click or an account in an investment firm.
Forex trading is risky yet rewarding if you employ the right strategies. As a beginner, you can avoid unnecessary losses with these effective strategies. In this guide, we explained the top 8 simple strategies for beginners to use when trading forex. But first, let us start with the basics of forex trading.
What is a Forex Trading Strategy?
A strategy is an intelligent plan that guides you to achieve a particular goal. In the same vein, forex trading strategy is a deliberate method that helps give a forex trader insight on whether to buy or sell a currency pair at a given time.
A forex trading strategy usually consists of:
Choice of analysis method —To choose a strategy, you need to select an analysis method. Most traders use technical analysis, while others use fundamental or a combination of both. Nevertheless, existing trading strategies need varying levels of both technical and fundamental analysis. You can decide to use tools such as a technical indicator, candles, or patterns to analyze trends.
Studying graphs as part of homework — As a beginner, you will need to understand how to read forex charts and graphs. Then, study these charts and graphs consistently to monitor the forex market.
Finding signals according to the analysis method — This is important in your trade strategy. Signals that alert you on whether to buy or sell will depend on your analysis method.
Testing the strategy on historical data — This is also known as backtesting. Backtesting is a method of analyzing how well your chosen strategy has worked to produce returns. This will help you to predict the chance for future profit.
Each forex currency transaction consists of essential parts:
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Entry point — In forex, an entry point is a level, position, or price at which a trader decides to trade, that is, buy or sell currencies.
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Stop loss—Traders use this function to protect profits or limit risk when the market becomes unfavorable.
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Take profit—You can use this order to close your trade when it gets to a particular price level in profit. Take profit is also used to minimize risk.
What are the Best Forex Trading Strategies for Beginners?
A productive trading strategy gives you the chance to understand how trading currencies work in the forex market. Though forex is complicated and competitive, it can be rewarding if you learn to play your cards right. You need to hone your trading skills and strategies to succeed consistently. It is advisable to begin trading currencies with low leverage as a beginner. Low leverage helps you withstand loss and protects your capital.
The forex trading strategies listed below are relatively easy for beginners to understand and implement. Also, they are well-tested and proven to be effective in maximizing profits. You can find out which Forex trading strategy you should use in the Traders Union article.
Top 8 Simple Forex Strategies
Trend Trading
Trend trading is one of the most common and reliable forex trading strategies. It is relatively straightforward for beginners to understand and carry out. Trend trading involves noticing and utilizing trading opportunities in the direction of a chosen price trend.
Firstly, you identify the overall trend direction, strength, and duration. You can determine the stability of the trend with these factors. After locating the trend and its stability, you decide on your entry and exit points.
Forex Strategies Resources
Small prices fluctuations that are contrary to the trend may arise over time. This means that there may be minor losses to endure. Trend trading can be short-, medium-or long-term trading. However, it favors a long-term strategy known as position trading. You can use tools to help you detect strong trends. These tools include relative strength indicators, volume measurements, directional indices, stochastics, and moving averages.
Price Action Trading
In forex, price action is the movement of a currency's price plotted over a given time. In this type of trading, you analyze the previous performance of a currency to predict its future performance. All technical analysis of the currencies stems from price action. In the price action strategy, you rely on your understanding and decisions instead of tools like technical indicators. When you identify signals in the pattern you are analyzing, then you can decide on your entry and exit points.
Swing Trade Strategies
When you make trades based on current prices without the aid of a tool, it is referred to as "pure" or "naked" price action. You might want to take a long position if the strategy points to a rise in the price. However, if the prices are falling, you might choose to go short or sell the currency.
Range Trading
Range trading is an active forex trading strategy that aids the trader in identifying a range to trade when the market has no clear direction or trend. Markets only have a clear trend about 31% of the time. This means that the market consistently fluctuates between two different prices for a definitive period. Traders who want to take advantage of trends consider this a problem. So, they choose a trading range and trade within the borders of the range.
The first step of this strategy is to check the highs and lows of the chart. Then, choose the borders of the range or find support and resistance. The borders are often determined when the higher highs and lower lows fall on a roughly horizontal line.
To make a trade, you have to track the overbought and oversold state of the prices. By doing this, you can sell when the currency pair is overbought ( that is, at resistance) and buy when the currency pair is oversold ( at support). Traders use technical indicators called Bollinger bands to mark range borders. Also, they use oscillators to locate overbought and oversold conditions within the range borders.
Momentum Trading
In forex, momentum trading involves the buying and selling of currencies that have been influenced by recent price trends. Momentum trading focuses on price action, with the idea that a price will continue to move in a direction with enough force.
Traders are moved to invest in currencies with high prices, which increases the market price even higher. The high price attracts more traders to enter the market, until the momentum changes and causes the price to fall. In this period, a momentum trader will observe the trend's strength, and trade when the price is at its peak, just before it falls. Momentum trading works well for liquid and volatile markets like forex because price fluctuations and herding are more frequent.
To employ this strategy, you'll first identify the trend's momentum. This is done by evaluating the market's volume, timeframe, and volatility. Then, open your position when the price trend increases consistently (gains momentum) and close it when the trend starts to slow down.
Before choosing a momentum trading strategy, you have to understand the market and be quick to notice small changes in the trend. Also, be sure to establish solid risk control and management.
Momentum strategy relies on aspects of fundamental analysis such as market sentiments from the news or economic events. Technical indicators mostly used for this strategy are the momentum indicator and stochastic oscillator.
Carry Trading
Carry trading is a well-known strategy that most forex traders utilize. This strategy involves borrowing or selling a currency with a low-interest rate to buy another currency with a high-interest rate. In the end, you collect more returns from the currency with a high-interest rate. Carry traders attempt to profit from the interest rate differential between the two currencies pair. Many forex carry trading comprises currency pairs with high-interest rate spreads such as the USD/JPY and GBP/JPY.
Historical price chart of USD/CHF
Historical price chart of GBP/JPY
The first step in the carry trading strategy is to identify the currency with high and low-interest rates. Then you proceed to open positions and trade. Carry trading allows you to make high profits when using leverage higher than your capital. However, there are uncertainties in the exchange rates, making this strategy high-risked. As a beginner, it is advisable to start trading with low leverage when using this strategy. It is also important to properly hedge your position to manage and control risk.
Swing Trading
Swing trading is a strategy forex traders employ to acquire profits from a free within some days or weeks. Swing traders hold positions longer than day traders to maximize profits from a currency trade. As a result, they combine technical and fundamental analysis to take advantage of trading opportunities in the long run.
Capital requirements for swing trading are relatively high, making it less accessible for traders. Nevertheless, you learn to mature with time while using this strategy as a beginner. Swing trading allows you to take time to analyze the market before deciding to trade.
The swing trading strategy is ideal for beginners. This is because you can start trading without experience and learn how to combine technical and fundamental analysis.
Breakout Trading
In forex, breakout trading strategy is important because it allows for easy locating and positioning when a volatile period begins. As a result, traders take advantage of the trading opportunities presented by the volatility. The first step in this strategy is to identify currencies with strong range borders, that is, support and resistance. Then, observe the market while waiting for the breakout. When the breakout occurs, decide when to enter and exit the market after making a profit or incurring a loss.
A breakout occurs when the currency price goes out from a range and forms a new trend. This strategy helps traders—especially beginners, by indicating where a new trend begins. Not every breakout leads to a new trend. But you can still take advantage of the opportunity to open early positions, place your stop loss, and profit from the new trend.
Scalping Trading
A scalping trading involves the quick capture of short-term profits from small price changes of the currencies. It is a short-term trade characterized by taking gains and closing the exchange once it becomes profitable. This strategy requires discipline and firm adherence to avoid incurring a major loss that can overshadow small profits.
Scalping trading is one of the most straightforward trading strategies for beginners to master. To maximize this strategy, you need to master how to implement orders and close open positions. Also, it is important to understand market signals and know when to make a move within a short time. You can read about choosing a trading strategy depending on your type of thinking in the Traders Union article.
Best Forex Brokers For Beginners
The best brokers for beginners listed below not only allow you to trade but have a demo account to help you practice. Also, they allow low initial deposits and offer opportunities for passive income.
How to Design Your Unique Forex Strategy?
As a beginner, you need to develop a trading strategy that works for you. Below are a few tips to guide you on designing your forex strategy:
Know the basics
As a fresh beginner, it is essential to master all the fundamentals of currency speculation and trading. Forex trading is a comprehensive aspect of finance. So, you have to build knowledge of it first before venturing into the trade.
Decide on your time frame
The many forex trading strategies that exist rely on a time frame. Some require short to long time frames. It will be best for you to determine whether to choose to trade every day, week, month, or even year.
Determine your risk appetite
The trading strategy you opt for will depend on how much you can stomach risk and loss. If you can deal with high risk, you can employ high-risk strategies for high returns. If not, you can settle for more stable low-risk strategies.
Choose indicators that can detect and confirm trends
Technical indicators are important for pointing out market trends and signals. Once you determine your trading style, you should look out for good indicators. MACD, RSI, and stochastic indicators are common among traders to identify and confirm trends.
Specify your entry and exit points
Be sure to define the best point to enter and exit a trade to maximize profit and minimize loss.
How to test a Forex trading strategy?
Testing your Forex trading strategy before applying it to real time markets would help you navigate through the trading process smoothly. Experts suggest taking the following steps to test any trading strategy.
Decide on the strategy you want to use
Analyze all the strategies based on your capital commitment, risk-taking ability, time-availability, complexity level, and other relevant factors. Choose the one that fits most of your requirements. Then, outline all the rules and guidelines for the strategies clearly. Also, decide on the Forex pair that you would apply this strategy to.
Gather historical data
The next step is to gather historical data for the Forex pair you have chosen. Make sure you take data for the same time frame that you would be trading in real-time. Alternatively, you can also look for dedicated backtesting platforms that give out results instantaneously.
Backtesting
Backtesting is the process of simulating a trading strategy on historical data to test its effectiveness. It can give you important measures regarding the strategy, including accuracy and ideal risk-reward ratio.
Accuracy is the number of profitable signals generated by any strategy compared to the total number of signals generated. For example, if, during the backtesting process, 6 out of 10 trades taken through the strategy were profitable, the accuracy of the strategy would be 60%.
The ideal risk to reward ratio is the risk to reward ratio that maximizes the accuracy for any strategy. In order to find this ratio, you can use the trial-and-error method by adjusting your stop-loss and take-profit levels till the maximum accuracy is achieved.
According to experts, an accuracy of more than 60% along with a risk to reward ratio of 1.5:1 is considered good. However, the number of trades back tested should be reasonably high.
Demo trading
Once you have optimized your strategy for accuracy and ideal risk to reward ratio, you can test it in real-time on demo trading accounts. This would help you simulate actual trading decisions and highlight the shortcomings of your strategy when applied to live markets. Modify and refine the strategy based on the results.
Live testing
Finally, start trading in live markets with a small sum of money and increase your capital commitment gradually as your confidence increases.
Expert tips for Forex trading beginners
If you are about to begin your Forex trading journey, these expert tips can be essential guidelines for you
Apply strict risk management processes to safeguard your capital.
Discipline is paramount. Never deviate from the strategy rules.
Overtrading is the quickest way to burn your capital. Take a few focused trades.
Leverage is a two-edged sword. Always evaluate potential outcomes before using it.
Continuous learning is a must in the field of Forex trading. Stay updated with the latest knowledge and news to get the best results.
Best Alternatives to Your Forex Strategy
There are opportunities to acquire passive returns in the forex market, which is a good alternative for beginners. These alternatives below can help beginners earn and learn while trading with little skills.
Copy Trading
Copy trading is a good option for beginners who lack experience in trading forex. In this method, you automate your trading by mirroring the moves of other professional traders. This increases your chances of getting high returns. However, you can also incur a loss if the trader you are copying loses. Nevertheless, copy trading enables you to master the forex market faster.
PAMM/RAMM accounts
PAMM is the acronym for Percentage allocation money management. It is the process by which two or more investors allocate funds in specific proportion to a skilled trader(s)/money manager(s). At the end of the trade, the trader or money manager distributed the profit of the trade to the investors.
RAMM means Risk Allocation Management Model. It is a model that combines features of copy trading and PAMM. RAMM enables beginner traders to use proven strategies to trade better and maximize profits.
Forex Signal Providers
Forex signal providers are platforms that help you detect trading opportunities at a given time. They are suitable for beginners, as they guide you on making the right moves when trading.
Expert Opinion
Choosing a suitable forex trading strategy as a beginner takes some research and understanding of your own skills and risk tolerance. However, this article has highlighted some of the simplest strategies that balance effectiveness with ease of implementation. The trend following, price action, and swing trading approaches are gentle introductions to the technical aspect of analyzing charts. Meanwhile, range trading and scalping require a bit less market sentiment evaluation.
Overall, the best next step is to experiment openly with demo accounts offered by reputable brokers. This allows trying different strategies risk-free as the market shifts over time. Remember that no strategy works in a straight line - have a process to re-evaluate as conditions change. With study and practice finding entry and exit points, any newcomer can progress to trading small volumes comfortably. Keep learning from educational resources too, while respecting that experience takes time. With persistence, one of these beginner tactics may become your core approach.
FAQs
What is the easiest forex trading strategy?
The easiest forex trading strategy would be to use a simple moving average crossover strategy. This involves plotting two moving averages on a chart, one with a shorter time period and one with a longer time period.
What is the 80 20 rule in forex?
The 80 20 rule in forex refers to the idea that 80% of a trader's profits will come from 20% of their trades. This means that a trader should focus on identifying and maximizing the profitability of their best trades, rather than trying to make every trade a winner.
What is the most profitable trading strategy in forex?
There is no single most profitable trading strategy in forex, as the profitability of a strategy will depend on various factors, including market conditions, trading style, and risk tolerance. However, some popular and potentially profitable strategies include trend following, breakout trading, and range trading.
What is the best forex strategy for beginners?
There is no single "one size fits all" strategy for beginners. Choosing the best strategy depends on your understanding of the market, capital and time frame. There are active and passive strategies that help you learn while you earn. Stick to strategies that you can understand and master with ease.
Is there a 100% winning strategy in forex?
No. All forex strategies have pros and cons. You must be prepared to handle risks and losses. Profiting from financial markets like forex depends on taking advantage of favorable conditions. Otherwise, you incur losses.
What is the easiest forex strategy?
The easiest forex strategy is the strategy that is easy for you to master and works well for you. Some relatively easy-to-learn strategies are swing trading, scalp trading, RSI, and moving averages. Once you find a suitable strategy, try to learn other types too. However, to get substantial profits in forex, you need to master 2-4 strategies and incorporate them into your trades.
Which strategy is best for day trading?
Scalping is considered the best strategy for day forex traders. It relies on short, quick trades of profitable currencies. It requires you to make quick decisions and execute them within a short timeframe.
Team that worked on the article
Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.
The area of responsibility of Mikhail includes covering the news of currency and stock markets, fact checking, updating and editing the content published on the Traders Union website. He successfully analyzes complex financial issues and explains their meaning in simple and understandable language for ordinary people. Mikhail generates content that provides full contact with the readers.
Mikhail’s motto: Learn something new and share your experience – never stop!
Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.
Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.
Olga’s motto: Do well and you’ll be well!
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.