The biggest problem most novice traders face when trying their hand at Forex is that they don’t understand the basic strategies to use when trading. Trading in forex for beginners can be cumbersome and if you have zero guidance on this as a newbie, it’s going to be virtually impossible to succeed. After all, it’d be like walking blindfolded into the woods. You won’t know what to expect.
But of course, the purpose of this article is to discuss Forex trading for newbies. So, in essence, this will be a Beginners forex trading strategy guide.
Follow the Trend
Simple and easy to get the hang of, follow the trend is a great strategy for Trading on forex for beginners. Once established, you only need to open positions in the direction of the trend. Market trends can be long, medium or short term. You must first decide what kind of strategy you want to follow: a long-term or shorter time. This decision will determine the type of charts to use. But the strategy will always follow the trend.
Should there be an upward trend regressions are expected in the price to buy a pair, to ensure a good entry price. In case of a downward trend, wait for a recovery in the price, before selling the coins. Market trends can be long, medium or short term.
Locating Support and Resistance Levels
Find the support and resistance levels. It’s best to buy near support levels and sell near resistance levels. The resistance level is usually a peak above the previous high. When resistance is finally broken, it automatically becomes a support. Likewise, when a support is finally defeated, it becomes, in turn, a resistance.
Retracements and Corrections
Generally the market correction, up or down, runs a significant portion of the previous trend. Corrections can be measured in an existing trend in simple percentages. A fifty percent trace above trend is the most common. The Fibonacci retracements of 38% and 62 % are also two of the highest levels followed by investors in Forex, including the biggest players, such as banks or financial institutions.
One of the simplest and most effective charting tools is trend lines. Draw a straight line connecting two points on the chart. If the trend is upward, a line is drawn below connecting two or more low points.
If the trend is down, a line is drawn over the chart also connecting two or more high points. Prices often respect these trend lines when approaching them. When a trend line is broken, this is often an indication of a change of the mainstream.
Moving averages often provide signals to buy and sell, which is why it is important to keep in mind. With the help of moving averages, it is possible to determine the state of a current trend.
One of the most common ways to use moving averages is the use of two different averages in the same chart, and wait for the crossing of the averages. If for example we have an upward trend and the prices were in a correction, at the time that a faster-moving average (e.g. 10-day) crosses above a slower moving average (20 days for example), this it is probably a good buy.
These help us identify the markets in a state of overbought or oversold. While moving averages provide a confirmation of the market trend, oscillators can often tell the right time to open a trade.
Two of the most common oscillators are the Relative Strength Index (RSI) and the stochastic. The two oscillators operate on a scale of 0 to 100. When the RSI is above 70, there is an effect upon purchase, and when it is below 30, indicative of no overbooking. The values of overbought / oversold stochastic are 80 and 20.
One of the most useful signals that provide the oscillators is the famous divergences. A divergence occurs when the direction of the oscillator signal differs from the direction of the same price. Such situations are usually a strong indication of a change in market trend.
The Average Directional Movement Index
The Average Directional Movement Index (ADX) helps determine whether a market is in a trend phase or is oscillating between ranges. This tool measures the strength of a trend or market direction but does not indicate the direction. For that, you should use other indicators or tools. Generally, a reading above 25 is an indication that the market is in a strong trend, but fluctuating between ranges.
There you have it, top 7 strategies for Forex trading for beginners!