5 Simple Strategies To Trade Forex For Beginners

If you want to join the ranks of successful forex traders, you must identify a strategy that can work for you. Unfortunately, some people jump into trading without following any particular strategy. Such traders end up losing their capital. But you can save yourself from this by choosing a strategy depending on your circumstances.   

Some of the simplest strategies you can use as a beginner include breakout trading, moving average crossovers and carry trading. You can also employ fundamental analysis and trend trading. 

If you are a beginner, you may get overwhelmed and not know the best strategy to use. Also, some strategies are too complex and may not be suitable for you. But when you use a strategy, you take the guesswork out of forex trading.

5 Simple Strategies To Trade Forex For Beginners

Here are some of the simplest trading strategies to use if you are beginning.

Breakout Trading

It is a simple style to adopt if you are getting started in forex trading. Breakout is a term used in forex trading to refer to price movement beyond a defined resistance or support level. The price may increase above the resistance level or drop lower than the prevailing support level. When it increases above the resistance area, it forms a bullish breakout, while moving below the support area forms a bearish breakout.

Thus, breakouts signal volatility, and so a trader can take advantage of such volatility to place trades. Therefore, a trader joins the trend at the point the price makes a breakout and exits when the volatility dies out. But the best time to get into the trade is when the support or resistance is breached. However, it may be helpful to wait and confirm an upward or downward trend before trading. Ensure to place your stop loss below or above the resistance and support level, respectively.

Moving Average Crossover

It is a technique that smooths the up and down price movements by creating average prices. It may average prices for 20 minutes, one hour, 5 weeks, or any period you may choose. The strategy can be tailored to suit any time frame depending on whether you are a short-term or long-term trader.

Moving averages help to identify the direction the trend is heading to. It also makes it easier to determine resistance and support levels. When the price of a currency crosses over the moving average curve, it is a signal for certain actions. For instance, when the price crosses the MA from above or bounces off, it signals to sell. When it crosses over from below, it signals that you buy the asset.

Carry Trade

It is a trading strategy whereby a trader takes advantage of interest rates. They do this after comparing interest rates in two countries whose currencies they want to pair.

It works because the bought currencies are held overnight, and the trader is paid the interbank interest rate. So traders that execute carry trade borrow low-interest-rate currencies so that they fund a currency unit that provides a high-interest rate. The traders target to gain from the difference in interest rates which may be substantial when leveraged. It works well when you pair the New Zealand dollar vs. Japanese Yen and the Australian dollar vs. Japanese Yen. The reason why it works for these currencies is that interest rate spreads for the three countries are quite high.

Fundamental Analysis

Here, a trader looks at a country’s economic performance to know whether a currency is overvalued or undervalued. They also use this information to understand how the currency’s value will move relative to other currencies. But fundamental analysis involves many elements of a country’s economic data and investment trends. The most important ones are GDP, retail sales, CPI, purchasing manager index, housing data, inflation, and industrial production.

Trend Trading

The strategy entails identifying a downward or upward trend in price movement and following it. You need to look at the trend’s relative strength and the positioning of a currency price.

Conclusion

Of course, there are many other strategies that beginners can use when trading forex. However, Fundamental analysis, trend trading, and moving averages are the most commonly used. Thus, as you gain more knowledge, you may also use breakout and carry trade. Visit PrimeXBT for more information.