Discover The Best Forex Trading Strategies For Beginners

Discover the best forex trading strategies for beginners

Although forex trading is rapidly becoming more popular than ever, beginner traders quickly find that the learning curve is quite steep even though everything may seem quite simple as soon as you learn how to open and close a position in MetaTrader. However, the realization that trading on a whim is not the best approach comes after you blow your account on a couple of poorly planned trades. If you don’t have a proper trading strategy in place, a roadmap you can follow consistently, you can’t hope to have consistent results. In this forex trading tutorial, we’ll go through some of the most commonly used forex trading strategies that are proven to work.

Forex trading for beginners: Fundamental analysis
In contrast with other financial assets like stocks, oil and gold; we can only estimate the value of a currency when we compare it against another. This is why when you trade forex, you are actually trading currency pairs like EUR/USD or GBP/USD. Traders who use fundamental analysis mainly focus on the various financial news, economic data and political events because these are proven to have a deep impact on the strength of a currency. For example, trade wars, sanctions and elections are closely observed by traders because they can negatively affect the economy of a country and its currency as well. Therefore, when the US – China trade war started, the CNY, Chinas currency dropped against the dollar due to the uncertainty and lack of confidence in the Chinese market.
Fundamental analysis provides a macroeconomic view of the market and is an incredibly useful skill to hone regardless if you like to trade the news or not. If you are aiming to use fundamental events to your benefit, you first need to know when they are coming up and this is why an economic calendar is an invaluable asset to any forex trading strategy looking to take advantage of the volatility that financial news and economic data inject to the market.
While there might be some unexpected announcements from politicians and policy updates from financial institutions, an economic calendar includes all the major news you need to watch out for and even categorized by their impact intensity. For example, the Non-farm Payroll report (NFP) is one of the most anticipated economic announcements for the US dollar because it reveals the employment outlook for the US economy and consequently it’s an important indicator of the strength of the dollar. Since the NFP report is released on the first Friday of each month, you will find it marked as high priority in every economic calendar.
Trading the news is quite an effective trading strategy because the volatility provided opens up new opportunities in otherwise slow-moving markets. A good strategy to use in anticipation of high impact news is to wait for a breakout. A breakout happens when a rangebound market i.e. a currency pair trading within a tight price range, breaches the support or resistance level which happens quite often during news announcements. If the FNP indicates healthy employment records, investors will look to buy the dollar and its value will rise considerably. The buyers will push the price to new highs, breaking the previous resistance level which usually is the catalyst that makes the price skyrocket and providing significant gains for those who were going long or buying the dollar.
Regardless of how confident you may be of the future direction of the market, however, it’s always prudent to have a protective stop loss in place in case the price unexpectedly moves in the opposite direction. The price action is usually choppy during news announcements so your stop loss should not be set too close to the support/resistance level since the market may reel back and then jump to the upside again like a slingshot.

Forex trading strategies: Technical analysis
While fundamental analysis focuses on the external factors that may drive the markets, the philosophy behind technical analysis is based on the fact that price action provides all the insight a trader needs to make his analysis and predictions. Looking at past movements in a currency pair, technical traders have identified key patterns that repeat over and over again and can take advantage of this knowledge to identify their entry and exit points.
Knowing when to open a favourable position is a powerful asset and for this reason technical analysis is perhaps the most popular approach to forex trading. All the technical indicators used by more experienced traders may be confusing and overwhelming at first but the premise is quite simple; you apply the indicator on your chart and try to identify your next entry point according to the information it provides. Some indicators are more suited for identifying trending markets or when a trend is likely to form and others can gauge the momentum of the price.
The most effective trading indicator that you can always use in your trading strategy is one of the support and resistance group. This type of indicators is useful in identifying key price levels and these include the Pivot levels and the Elliot Wave indicator.
The exchange rates of currency pairs may always be moving but they mostly tend to find a level that they won’t drop below or exceed and as soon as that level is reached, the price reverts to its previous range. There are various reasons why the price reacts this way like investor confidence or the lack thereof.
Keep in mind that even though support and resistance indicators may be placed at a specific point on the chart, you should consider them as general areas where the price may float towards or away from and not an exact price point. Also, it’s important to note is that in forex, you can profit regardless of the market direction. As long as the price is moving, traders have the opportunity to position themselves in order to take advantage of future moves even if the price is rising or falling.
Whereas fundamental analysis tends to focus on the bigger picture, technical analysis favours short-term trading and strategies like scalping. Scalping refers to making multiple hit and run trades during the day and if used correctly; it can be a very efficient method of trading forex. This is because a scalper only aims to profit from a few pips above the spread from each trade and exit as soon as the target is hit. Doing this several times each day, scalpers look to accumulate a decent amount of gains in a short period of time.

Final word
Both technical and fundamental analysis are proven to be reliable and effective forex trading strategies but most traders find success by having consistent trading plans. Even if you aim to incorporate both philosophies into your trading strategy or just trade the naked chart, it’s important to have a clear understanding of why you are entering a trade, where you are placing your profit targets and the timing of your exit.
As long as you keep yourself accountable to your trading strategy, your wins and losses both will be meaningful as you will be able to learn from them and utilize the information to optimize your strategy.