Forex trading strategies every beginner trader should know
The Forex market is one of the most vibrant financial markets in the world. Each second, currencies move against each other creating opportunities for traders. Trading in this market requires skill and discipline to always make the right calls.
When picking Forex trading strategies, you have to find what is best suited for you. It would be fallacious to state that there is a single magic formula for getting winning trades all the time. In fact, it is not possible to make the right call every time. The objective is to be on the correct side more often than not, and ensure that your bottom line is great.
Before going into strategy and detail, it helps to understand macro-economic issues that shape Forex markets. Currencies move based on issues like political stability, interest rates, speculation, inflation trends, and the like.
For instance, the results of the US election this November will likely cause movements in the financial markets globally. Having a general understanding of such important factors like reading this review improves your decision making.
Here are some Forex trading strategies that can suit beginners:
1. The Pin Bar Trading Strategy
The Pin Bar strategy is one that is relatively simple to understand. Pin Bar is a term derived from the phrase Pinocchio Bar which is a single candlestick setup that clues price action traders into potential reversals in the market. The word candlestick a trading model used to analyze charts.
A candlestick is drawn in a chart and consists of the market's open, high, low, and close price for the day. The size of the candle shows the price range between open and closing prices. These boxes, arranged for a number of days of trading, look like candlesticks.
To find good pin bars, a trader has to find points of resistance during a rally. Typically, the rally will break through the resistance and the former resistance becomes the new support. Traders usually trade at these resistance points hoping another swing upwards will be a boon for their bottom line.
The strategy requires a trader to locate a trend and capitalize on another rally. This is obviously a simplistic illustration of the Pin Bar strategy but shows the general outline on how it works
2. Inside bar Trading Strategy
The Inside Bar strategy is another effective strategy for beginners. Unlike the Pin Bar, it relies on continuity. Traders use the inside bar hoping that the next move will be a breakout trend. The inside bar is proof of consolidation before a continuation of the trend.
For an inside bar strategy to be possible, there has to be an upward trend, then a phenomenon where two bars in the middle of the trend have varying sizes. The inside/ second bar has to be smaller than the first showing evidence of some consolidation.
A trader can utilize the inside bar strategy in the middle of such a trend hoping that this consolidation is an indication of further upward movement in prices.
3. Forex Breakout Strategy
This strategy is different from the two before it in one major way. The others rely on the break of a level to get in while in a Forex breakout strategy you wait for a pullback and retest before entering.
For instance, in a declining market chart, the market may have a terminal wedge where there is a certain trend that emerges. This market terminal wedge is constructed from the high and low points going horizontally.
When the market has pullback from this wedge in either direction this can be a cue to get in. The third strategy obviously needs a little more sophistication and research to execute. A trader has to be precise in identifying the market reset and whether to use it as the new base level.
The Big Picture
To reiterate again, there is no perfect trading strategy.
These picks feature some of the most popular choices among new traders. You have to settle on what works out for you and hope to fine-tune your strategy to fit your trading goals.
This market needs patience and a strategic approach to identify and execute the right trades. For anyone looking to start out, these three can provide a general template on how to start out.