The 5 Forex strategies beginners need to know

The foreign exchange (forex) market is the only financial market that is open for trade 24 hours a day. It is one of the most actively traded markets in the world, and sees an average daily turnover of around $6 trillion.

There are 170 different currencies to choose from when you trade in the forex market, which are traded against one another in currency pairs, with the value of one currency being determined by comparing it against another.

The forex market is highly volatile and with this comes some great opportunities to profit from short-term price swings. However, this volatility also presents you with the risk of making losses on your capital, so it’s important that you understand the factors that can induce volatile periods and plan ahead accordingly.

In order to stay on track when trading, it is wise to implement a trading strategy. The level of success of the strategy that you employ will be based upon how well it suits your trading style and how effectively you can stick to it.

As a beginner, you might need help figuring out what your trading style is and what strategy would suit it best. This article will tell you all about the five best forex strategies for beginners to help you to decide which one you would prefer to use when trading currencies.

Day Trading

Day trading is a strategy that requires you to make all of your trades in one day, and is one of the most popular approaches among traders. You can make one single trade in this timeframe or multiple, but they all must be closed by the end of the day.

When day trading, you’ll be required to monitor the market throughout the day, relying heavily upon an economic calendar to inform your decisions, as this lists dates of events that take place each day that could affect market prices.

This is a short-term trading strategy, as positions will usually be held for a matter of minutes or hours. It requires you to be responsive to price changes in the market, in order to make the most of the profitable opportunities that arise. Day traders typically choose to open multiple small trades and use stop orders like a ‘Close at Profit’ and ‘Close at Loss’ to secure any profits made and limit the extent of losses that could occur.

Position Trading

If you’re looking for a longer-term trading strategy then you may want to consider position trading. This will require you to have a patient disposition and hold a trade for days, weeks, or even months at a time. This means that you’ll have to rely on fundamental analysis of the markets to inform your decisions. This is macroeconomic data such as gross domestic product, employment rates and inflation rates, for example, that could cause the prices of currency pairs to fluctuate.

Because fundamental analysis is at the core of this strategy, you’ll need to have a good understanding of the market, so it’s vital that you undertake extensive research if you’re a beginner considering this trading style. However, because it is a longer-term approach, it won’t require you to analyse data so frequently, or dedicate hours to speculating the market.

Swing Trading

Swing trading is an approach that will see you study the market to identify price swings, hence the name. You will need to use technical analysis, including chart tools and indicators, to find upward or downward trends in the market.

Once you’ve identified a trend, you’ll want to attempt to enter the market at the most opportune time in an effort to manipulate the pattern, and profit from it before it ends. Swing traders typically hold a position in the market for a minimum of two days, but this can extend to several weeks.

Scalping

Scalpers open lots of very short-term trades, in an attempt to make lots of small profits frequently, to accumulate an attractive return on their investments. These trades only last a matter of minutes, for as soon as a small profit has been made, the trade is likely to be exited.

This is a great strategy when it comes to risk management, since your exposure in the market is minimal. However, it can be quite time consuming because you will constantly have to look for very small movements in the market that could result in a profit.

Trend trading

As a beginner in the forex market, trend trading could be a great strategy to adopt, since it is one of the most clear and reliable approaches. It simply requires you to follow the direction of the price patterns in the market. This means that you’ll have to first identify the direction of the trend, its strength and the duration, to figure out if it’s viable to open a position.

Unlike some alternative approaches, you won’t need to know a specific time at which the trend will end, but you will be required to plan your exit, so that you can secure your profits and minimise or avoid losses.