The foreign exchange market is the world's largest and most liquid. At $6.6 trillion in average daily trading volume, it dwarfs the New York Stock Exchange.
For those ready to accept the risk, currency trading may be quite profitable. If they wish to thrive long-term, newbies must avoid various dangers. To do so, choose your trading style!
Learn about forex trading strategies and how to pick the best one for you.
Finding the correct FX strategy is rare. Most will spend a lot of time backtesting or testing methods on a demo trading account. This allows you to test in a risk-free environment.
Even if a trader finds a technique that works well and feels good, it is doubtful that they would continue with it for long. The financial markets are continuously changing, and traders must adapt.
Beginners should stick to simple tactics. The use of too many technical indicators in a strategy leads to information overload and contradicting signals. You may always adjust your approach based on your backtesting and demo trading results.
Here are 5 excellent forex trading methods for beginners:
1. Price action trading
Price action trading is a method that relies on price movements rather than technical indicators to make judgments (e.g. RSI, MACD, Bollinger Bands). You can use price action tactics like breakouts, reversals, and basic and complicated candlestick patterns.
2. Range trading strategy
Range traders seek trading instruments that are consolidating in a range. Depending on the timescale, this range might be anything from 20 to hundreds of pips. In other words, the price bounces off support and is rejected at resistance.
Traders implementing this approach must hunt for non-trending securities. Just watch the instrument's price activity, or utilize indicators like the moving average and average Direction Index (ADX). The weaker the trend, the lower the ADX.
After finding a decent trading instrument, you must discover the range it is consolidating in.
3. Trend trading strategy
Trend trading strategies seek trade chances in the trend's direction. The assumption is that the trading instrument will continue to trend in the same way (up or down).
An uptrend occurs when prices constantly rise (higher highs). Inversely, falling prices (lower lows) imply a downtrend.
Traders can spot trends using tools other than price action. One of the most used is moving averages. Traders can employ MA crossovers or just look at price trading above or below a moving average (the 200 DMA is a common one).
A fast MA and a slow MA are required to employ moving average crossovers (also known as entry signals). The 50 DMA and the 200 DMA are popular. A 50-day moving average crossing over the 200-day moving average may signal the start of an uptrend.
4. Position trading
Position trading seeks to profit from long-term trend moves while disregarding daily noise. Traders that use this trading approach may maintain positions open for weeks, months, or even years.
It is, along with scalping, a challenging trading style. It demands a trader to be cool and disciplined even when a position swings against them by several hundred pips.
5. Day trading strategy
Day traders do not trade for seconds like scalpers. However, their trading day is usually concentrated on a certain session or time of day. While scalpers may trade on M1 charts, day traders often trade on M15 to H1 charts.
Scalpers often open over 10 transactions each day (some very active traders may even exceed 100), whereas day traders typically open 2-3 deals per day.
Day trading may be right for you if you prefer to close positions quickly but don't want the extreme degree of pressure that comes with scalping.
Demonstrate them using virtual dollars. When you know which one suits you best, you may try it out in a live scenario. Even then, the work is not done.
Some traders prefer day trading but subsequently switch to position trading. Traders' tastes and the market environment are always changing.
You may also take one of the numerous free online personality tests to gain more information.
Use a demo trading account to explore the market and test trading methods. Start trading FX online immediately if you're ready for the real experience!