Safest Way To Trade Forex – We all know that getting started in forex trading can be complicated, but finding the right forex trading strategies is crucial for novice traders entering the forex market.
The Forex market is the largest and most liquid financial market in the world. With an average daily trading volume of $6.6 trillion, more than double that of the New York Stock Exchange, it is an attractive venue for traders.
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Currency trading can be a rewarding endeavor for those willing to take risks. However, there are many pitfalls that beginners must avoid if they want long-term success.
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Keep reading to discover Forex trading strategies that work and gain insight into what you need to do as a beginner trader to succeed in the Forex market. But first, understand exactly what a forex trading strategy is and how to choose the right one for you.
A trading strategy could be described as a set of rules that help a trader determine when to enter a trade, how to manage it and when to close it. A trading strategy can be very simple or very complex – it varies from trader to trader.
Traders using technical analysis will find it easier to determine their entry/exit rules, while traders using fundamental analysis will find it a bit more difficult as more discretion is involved. Regardless, every trader should have a strategy in place as it is the best way to achieve consistency and help accurately measure performance.
Very few traders find the right forex strategy right away. Most will spend a lot of time trying out different strategies with a demo trading account and/or backtesting. This allows you to run tests in a safe and risk-free environment.
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Even if a trader gets to the point where he finds a strategy that has promising results and feels right, he is unlikely to stick with that exact strategy for long. Financial markets are constantly evolving and traders must evolve with them.
If you are a beginner, it is better to stick to simple strategies. Many beginners make the mistake of trying to incorporate too many technical indicators into their strategy, leading to information overload and conflicting signals. You can adjust your strategy on the fly at any time and use the lessons learned from backtesting and demo trading.
Price action trading is a strategy that focuses on making decisions based on the price movement of a particular instrument rather than integrating technical indicators (eg RSI, MACD, Bollinger Bands). There are various price action strategies you can use – from breakouts to reversals to simple and advanced candlestick patterns.
Technical indicators are generally not part of a price action strategy, but if they are included, they should not play the main role in it, but should be used as a supporting tool. Some traders like to include simple indicators like moving averages because they can help identify a trend.
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The advantages of trading with price action are that your charts stay clean and there is less risk of information overload. Having MULTIPLE indicators on a chart can send conflicting signals, which can be confusing, especially for beginners.
Reading price movements can also give you a better feel for the market and help you identify patterns more effectively. Another reason why price action trading is particularly popular with day traders is that it is more suitable for traders who want to make money from short-term movements. In day trading you need to make quick decisions, if you have a “clean chart” and focus solely on price action, this process will be easier.
Below is an example of a simple breakout trading strategy. 1.1772 was an important support level and our traders were waiting for a breakout to short EUR/USD to take advantage of the next leg lower. We can see that the general trend is in their favor (downtrend). There was a breakout and the currency pair fell over 70 pips before finally finding support at 1.1700.
Some traders prefer to enter as soon as the price falls below a key support level (perhaps even with a sell stop order), while other traders wait to watch the price move and act later. False outbreaks happen frequently, so it is important to have the right risk management policies in place to deal with them.
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Traders using a range trading strategy look for trading instruments that consolidate within a certain range. Depending on the time frame you are trading, this range can be anywhere from 20 pips to several hundred pips. The trader looks for consistent areas of support and resistance that hold – ie. the price bounces from the support zone and the price is rejected in the resistance zone.
Traders using this strategy should look for non-trending trading tools. To do this, you can simply look at the price movement of the instrument or use indicators such as moving averages and the Average Directional Index (ADX). The lower the ADX value, the weaker the trend.
A classic range trading strategy will tell you to sell when price hits a key resistance zone and buy when price hits a key support zone. Some traders focus on two specific levels, others will trade “bands” or “zones” – for example, if you have identified 1.17 as a key resistance level, but the price often stops at 1.1690 or 1.1695, you can mark this area (1.1690 ) . – 1.17) and start looking for sales opportunities within. Focusing only on this particular level could mean missing out on good trading opportunities as prices can often reverse before you reach them.
Below is an example of a currency pair that is ranked (EUR/SEK). The ADX has low readings most of the time and we can see that the price often bounced from the 10.00 / 04 support area, while it struggled to break through the resistance area between 10.27 and 10.30.
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Trend trading strategies involve identifying trading opportunities in the direction of the trend. The idea behind it is that the trading instrument continues to move in the same direction as it is currently trending (up or down).
When prices are constantly rising (posting higher values), we are talking about an uptrend. Conversely, falling prices (a trading instrument making lower lows) will indicate a downtrend.
In addition to observing price movements, traders can use supporting tools to identify the trend. Moving averages are one of the most popular. Traders can easily see if the price is moving above or below a moving average (the 200 DMA is popular and widely seen) or use MA crossovers.
To use moving average transitions (which can also be used as entry signals), you need to set a fast and slow MA. One popular example is the 50 DMA and the 200 DMA. A 50-day moving average above the 200-day moving average could signal the start of an uptrend, and vice versa.
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The goal of position trading is to capture profits from long-term trend moves while ignoring the short-term noise that occurs every day. Traders using this trading method can open positions for weeks, months and in rare cases even years.
Along with scalping, this is one of the more difficult trading styles. It requires the trader to remain highly disciplined, able to ignore the noise and remain calm even when the position moves against him by several hundred pips.
For example, imagine that at the beginning of 2018 you had a bearish forecast for stocks. You shorted the S&P 500 at the beginning of the year with the intention of keeping the position open until the end of the year. While you may have enjoyed the price movement at the beginning and end of the year, the rise from March to September can be a painful experience. Few traders have the discipline to hold onto their positions for so long.
Day traders usually don’t hold trades for just a few seconds like scalpers. However, their trading day is usually focused on a particular session or time of day when they try to trade opportunities. While scalpers may use the M1 chart to trade, day traders typically use anything from the M15 chart to the H1 chart.
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Scalpers tend to open more than 10 trades per day (some very active traders can even end up with more than 100 per day), while day traders usually take it a bit slower and try to find 2-3 good opportunities per day.
Day trading may suit you if you want to close your positions before the end of the trading day but don’t want to have the high level of pressure that comes with scalping.
In scaling, traders try to take advantage of small intraday price movements. Some even have a target of only 5 pips per trade, and trade durations can vary from seconds to several minutes. Scalpers must be good with numbers and able to make quick decisions even when under pressure. They usually also spend more time in front of the screen and prefer to
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