5 Forex Trading Strategies For Beginners
There are many different trading strategies to choose from and it is important to pick the one that suits your mindset and monetary goals. Read on to find out more about matching your strategy to your individual needs.
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- Choosing a strategy
- 5 Forex strategies for beginners
- Comparing between strategies
Whether you’re a trading beginner or a market expert, making impulsive and random trades is sure to land you in trouble sooner or later.
On a personal level, your strategy will depend very much upon your character, stress tolerance, risk-aversion, and patience, amongst many other things. In technical terms, you’ll find over time that your strategy evolves to reflect your preferred methods of analysis. Your favourite indicators and assets will define your trading comfort zone.
In your first forex trades, you don’t have to set your strategy in stone forever! You’ll develop your own habits through trial and, yes, error. We’ve highlighted 5 top trading strategies to suit different trading temperaments to get you started.
1. Swing Trading
Swing trading is a medium-term strategy whereby you’ll hold trades over days or weeks. The idea is that you profit from areas of price fluctuations even during larger directional trends. You can do this by identifying recurring peaks (resistance) or troughs (support). For example, you’ll go long on a currency pair around levels of support and short around levels of resistance.
A grasp of basic technical analysis is ideal for successful swing trading. This insight helps you become familiar with support and resistance zones, candlestick patterns, and moving averages. You will not capitalize on major trends, but this relatively simple strategy offers modest returns on a regular basis. When holding positions overnight, do remember to factor in the cost of rollover interest.
Trader temperament type: Conservative.
2. Position Trading
Position trading takes a longer view of bigger market trends, seeing you place trades over weeks or even months. Technical analysis remains useful for confirming the strength of your chosen trend. For example, with the Moving Average Convergence Divergence (MACD) for price momentum or the Relative Strength Index for warning of overbought or oversold conditions. However, fundamental analysis will also offer you clues of trends influenced by economic reports, political events, or fintech developments.
Position trading demands less daily management but a significant level of research into your chosen currency pairs. You’ll also need the patience to overlook fluctuations and minor reversals in order to concentrate on the long-term prize.
Trader temperament type: Quietly confident.
3. Breakout Trading
Breakout trading exploits the emergence of new trends, often after a period of consolidation. MACD, RSI, and oscillator indicators will help to confirm the strength of a new trend when prices have tested and broken through support or resistance lines.
If you successfully identify a breakout, you may well be able to take significant profit. Unfortunately, breakouts might not occur on a regular basis, and you risk wasting time searching and waiting for their elusive patterns. In addition, it is always worth safeguarding your trades with Stop Losses in case the breakout turns out to be fake!
Trader temperament type: Patiently optimistic.
Scalping is the most fast-paced trading stratagem, involving trade orders passing in minutes or even seconds. Fundamental analysis is entirely disregarded as scalpers focus entirely on the charts to make frequent, incremental gains over immediate market movements.
Not for the faint-hearted, scalping demands constant monitoring and connection. With hours spent poring over a screen, it has the potential to incur significant mental and physical tolls alongside your slippage costs and transaction fees. Nevertheless, it allows for frequent market exposure, practice, and profit, and has the advantage of being applicable to any currency pair at any time.
Trader temperament type: Proactive.
5. News Trading
If the charts are already giving you headaches, news trading might be a more appealing strategy. Prioritising fundamental analysis, you’ll make your trading decisions out of broader economic research, seeking to profit from surprise changes in the market triggered by news events.
Initially, it’s worth focusing on a single currency pair and making a diary of influential dates, such as the Federal Reserve Announcement or Corporate Earnings Report for USD. If you choose to specialize in news trading, you may well establish the confidence to jump between currency pairs according to current affairs. But as always, be wary of being manipulated by market sentiment – and your own emotions.
Learn more about news trading here.
Trader temperament type: Opportunist.
Whichever type of trader you are, your chosen strategy is only as good as the effort you’ve invested in refining it! Be sure to practice risk-free with a Sage FX demo so you can master the markets and trade like a Sage.