As a novice, trading forex might be intimidating, so you might be seeking a good plan to get started. Check out this useful guide to the top 3 forex trading strategies.
When you first start trading forex, you’ll need to learn a lot about how the FX market operates. Understanding currency pairings, choosing how to trade FX, developing your strategy, and managing risk are all part of the fundamentals of forex trading. You must also decide on your trading approach, whether it be day trading, swing trading, or scalping. Position trading is another option, although it is more appropriate for long-term trading than for forex.
However, being a newbie in forex trading does not always imply that you are just getting started. Although you may have previously executed a few deals, you now require tried-and-true forex trading strategies to guide you.
Top 3 Trading Strategies For New Traders
Trend Trading Strategy
Probably one of the most popular methods in forex trading is a trend trading technique. To do this, one must use technical indicators to determine the market’s momentum’s direction and then decide whether to go long or short.
This trading strategy’s fundamental idea is that previous patterns and movements may be used to forecast future market behavior since forex markets frequently exhibit predictable behavior. A strong risk management plan should still be in place, though, as a currency pair’s historical performance is not a guarantee of any future price changes.
Moving averages (MAs), the relative strength index (RSI), and the average directional index are some of the most often utilized technical indicators in the forex market for spotting trends (ADX).
Moving Averages
With the use of moving averages, which smooth the data and provide a single trend line for traders to follow, moving averages determine the price of a currency pair over a certain timeframe.
Simple moving averages (SMAs) and exponential moving averages are two forms of MAs (EMAs). An EMA adds more weight to recent prices, making the data more sensitive to new information. An SMA is a basic estimate of the mean price of a collection of values over a certain time period.
RSI
In order to determine whether price changes were positive or negative, the relative strength index takes into account the average gains and losses over a certain number of periods. It may thus be used to spot price momentum and overbought or oversold indications.
Average Directional Index
The strength of an upward or downward trend in the price of a currency may be estimated using the average directional index. Anything above 25 on the indicator line, which ranges from 0 to 100, denotes a significant trend. The tendency is greater the higher the number.
Range trading strategy
One of the simpler strategies, a range trading strategy is quite well-liked by novices. A market is said to be in a “range” when it oscillates continuously between two price levels. You might then spot specific upward or downward movements within that range.
Depending on where the price is located inside that particular range, you would use this approach to go long or short – long in a rising trend and short in a declining one. Any time range, including both short- and long-term, can result in this.
Within this range, you can manually execute trades or set stop losses and limit orders. The range’s two lines (support and resistance) are shown below, along with potential stop and limit levels.
Breakout trading strategy
For many traders, the best forex trading technique is breakout trading since it allows them to enter a position at the beginning of a tumultuous phase. Because it presents additional trading chances, more volatility is frequently preferred by forex traders.
A “breakout” occurs when the price of the currency pair abruptly departs from a range that has been constrained (ie out of levels of support and resistance). By starting your FX position relatively early in the new trend and setting your stop-loss order at the market breakout, you may use this approach.
