Succeeding as a forex trader requires a lot of knowledge and skills along with the ability to plan and implement a trading strategy in the best possible manner. The strategy you choose for trading is like the route map that takes you to the destination. Those who deviate from their track are bound to get lost and will never reach their goals as a trader. But choosing the wrong map for a journey will be the worst thing ever as you won’t go anywhere with it. Similarly, choosing the wrong strategy will make trading harder for you as a beginner. However, choosing the right strategy would be easier with so many helpful trading tools available. So, you must spend some time learning about different strategies as you have to choose the one that perfectly aligns with your trading goals.
This article acts as a guide to the best forex trading strategies you should know about as a beginner in the currency market.
Table of Contents
Meaning of Forex Trading Strategies
If you ask what it means from the term ‘forex trading strategy’, this denotes the action plan you will follow for trading in the forex market. It describes every step you are about to take as a trader and justifies its logic. Your forex strategy will describe the perfect time and trade scenario for your moves in the market. The strategy will also clarify what you can and cannot do as a trader. It also includes a set of rules that you will follow for trading. The strategy should be directly connected to your profit targets and goals as a trader.
Steps for Devising Forex Trading Strategy
- Identify the Trading Style That Suits You the Best – The first step for devising your forex strategy is identifying the trading style that suits you the best. This can be made clear with an example. Those who don’t have much time to spend trading or don’t have enough patience to watch charts all day will mostly go scalping, as it is the only trading style that allows you to enter and exit trades within minutes. Those who wish to make quick profits with smaller-sized trades will also choose scalping as their trading style. When you are done scalping, make sure to calculate the profits you have made for records, and for that, a profit calculator would prove quite useful, as it lets you calculate the profits in the currency of your choice.
Now, those who want to close their trades by the end of the day and have enough time to monitor the markets will choose day trading as their preferred trading style. Those who have more patience to wait for the prices to take a swing before closing the trade will find themselves choosing swing trading or even position trading if they are willing to hold their trades longer.
So, you will have to understand what type of trading style can fit well with your personality and routine while also allowing you to attain your trading goals. There is no ‘one size fits all trading style’ that we can recommend to all traders alike. You will have to choose the one that resonates with you the most.
- Choose Your Currency Pairs- The next step is choosing your trading instruments, i.e., currency pairs, in the context of forex trading. The pairs you choose for trading will have much to do with your strategy and the trading results you get. Most traders stick with major pairs as they are the most liquid and predictable. Their pip movement is significantly higher than others, and if you want to calculate the exact pip movement the pair has made in your trade, use a pip calculator for that. But you can also consider minor pairs with a good trade volume. Talking about exotic pairs they are quite risky to begin with, but you can still check if they match your trading style or strategy.
- Know Your Risk Profile – The next step is knowing about your risk profile, as each strategy has a different level of risk involved, and the trader should be able to cope with that well. Those with a low-risk appetite should never start trading with a strategy with a significant risk of loss. Traders often follow strategies offering the highest profit potential but overlook the risks, resulting in significant losses. So, always ensure the risks in your strategy are manageable, and you can afford to lose that much as a trader.
- Consider Your Budget- The next step is considering the budget that you have set for trading. Here your budget is the capital with which you will start trading. This is not a one-time investment, as you must keep depositing funds as you move ahead as a trader. Also, consider the various costs involved in trading and see if the chosen strategy can generate profits by covering all the costs you will bear as a trader.
- Calculate the Results and Backtest- The fifth and last step is backtesting the strategy, where you can see the hypothetical results of your trades. This data can also be used to calculate various trade-related metrics such as pip value or other trade-related aspects.
You can also find various automated tools for calculating the profit potential of that strategy. Trying your strategy on a demo account and use of trading calculators is the best way to find the probability of success it has.
So, we recommend you try different tools for optimising your strategies further and keep revising them until you are satisfied with the performance and results.
Which Forex Strategies Are Best for Beginners?
Now, let’s look at some of the best forex strategies you can consider as a beginner.
- Trend Trading – The first forex strategy I suggest for newbie traders is the popular trend trading strategy, where you simply place trades that justify the ongoing market trend. To implement this strategy, you just need to identify the real-time market trend with technical analysis, and you can also use various momentum indicators. RSI and Stochastic Oscillators can fit well within the trend trading strategy. You just need to ensure that the trend you are planning to trade is strong enough before entering and exiting as soon as you see a reversal in the trend.
- Range Trading – The 2nd strategy is for those who rely on price action for trading. Range trading is all about support and resistance levels as it tries to identify the price range when no strong trends are happening in the market. This strategy also uses momentum indicators and would suit scalpers who are comfortable trading when there is choppiness in the market. Swing traders can also rely on range trading when only sideway movements happen in their pair.
- Retracement Trading – The third strategy we suggest involves using Fibonacci retracement levels, a popular indicator forex traders use. Retracements are often confused with price reversals, but they are quite different. A retracement is a brief reversal in price, but afterwards, we can see the previous trend resuming, giving a perfect entry point for someone who wants to join a trend at a better price.
- Grid Trading – Grid trading is a strategy where you just want to confirm the trend and enter at any price level as long as the trend seems solid. Here traders will use stop-entry orders, which often result in entering trades at a less ideal price than the current price. The only goal of a grid trader is to confirm the trend before making an entry and also to open a position irrespective of the direction in which the market moves.
- Carry Trading- Carry Trading is a strategy which involves trading currency pairs with interest rate differences in currencies that allows traders to earn from swaps paid by brokers as they open a trade position for a longer duration. Carry trading can be a good strategy for those who lack time to monitor the markets or spot trends and reversals that can happen anytime. Carry Trading is about focusing on swap rates and earning profits.
With that, we are wrapping this introductory guide to the best forex trading strategies you can consider as beginners. The above-mentioned strategies are just a foundation for beginners, as you will have to work on the details to frame a proper strategy out of these. Now to talk about more specific strategies, I would like to mention the one-hour and 50 pips per day strategies as examples.
You can easily find more information about these on the internet. Still, we can give you a brief idea that the one-hour strategy would be more suitable for day traders, whereas the 50 pips a day strategy is more of a scalping style strategy, as you can guess from the name. So, take your time researching the best trading strategy and see how it transforms your trading for good.