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Simple Forex Trading Strategies for Beginners

27 agosto, 2019

Easy strategies for Forex beginners.

The factors that make up a trading strategy are diverse and we can find elements such as the world economy, market conditions, economic theories, types of analysis, among others. For this reason, the amount of Forex strategies for beginners and professionals is incredibly high, and practically every operator in the market has its own method.

People who are just beginning in financial trading can get confused and frustrated when they do not find an adequate strategy to start.

You may ask yourself: “What are the elements of simple trading strategies that work “? Well, first of all, a simple strategy must be easy to understand and use. However, if we delve into the details, we must also consider other elements such as the types of analysis required, the amount of attention and time needed, among other factors. Next, we will explore these factors in order to define simple strategies.

The nature of the Forex market

Before continuing, it is important to clarify one of the most notable characteristics of Forex: it is a market in which many people participate. Although it sounds obvious, beginners generally consider Forex as a totally uncontrollable amorphous entity.

To understand the functioning of the market, it is important to bear in mind that there is a large number of participants and that their activity can influence currency prices. There are certain operators who try hard to have an advantage over others.

Without further ado, we will now present 3 simple Forex strategies that you can start applying quickly if you are a beginner. Each of these strategies has different requirements of time, capital and mental discipline, so you will surely find one that suits your style.

However, keep in mind that the objective is not to copy these strategies, but to study them, try them and try to improve them with your own adaptations.

The 3 strategies in question are: breakage, trend tracking and carry trade.

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Break trading strategy

This Forex strategy for novices is one of the least time-consuming, although it can be difficult to master by impatient operators eager to see action and get quick profits.

1. Preparation of the strategy

The conditions of the market are those that determine the moments when you open and close an operation. In the case of this Forex strategy for beginners , the necessary conditions to operate correspond to a market in rank, that is, a level in which prices do not show significant movements and volatility is low.

To distinguish these conditions, it is possible to use a simple moving average of 200 periods in the 1-day time frame. The period of 200 refers to a whole year of trading, so to measure the conditions you would be using the annual average. Subsequently, imagine a range of prices on each side of this moving average based on the currency pair and the average daily volatility. For example, a range can be 50 pips.

When the price of the currency pair is above or below this range, the breakout signal will be given.

2. Market entry

You must open an order when a candle is presented that exceeds the price range established in the previous point. For example, if the price range is 50 pips, the signal would be given when a candle of 50 pips or more appears and crosses one of the ranges.

If the candle crosses the top level, a purchase order opens. Otherwise, you must establish a sales order.

3. Market output

In this break trading strategy , the stop loss is the same simple moving average of 200. If the price subsequently returns to the SMA of 200 periods, it is likely that the break was false and the market continues in range or intends to change completely of trend.

This simple Forex strategy has many advantages for beginners. For example, it is a very easy method to understand and apply, and does not require a lot of time because you only have to check the market once a day.

However, the weak point of this strategy is that it only works when the market is in range. It should be mentioned that there is no perfect strategy, so you will probably find false signals.

You can modify the market entry rules of this strategy to find more opportunities or reduce your risks. If you tighten the rules, you will suffer less losses, but you will find fewer trading opportunities . Otherwise, you will find more opportunities, but you will have more losses. Ultimately, the decision depends on your appetite for risk.

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Trend tracking strategy

This is one of the simplest strategies of Forex , since prices remain in trend for a long time. In this method, you have to learn to identify market trends quickly to take advantage of all your opportunities.

1. Preparation of the strategy

You must apply an exponential moving average of 200 periods to a 1 hour chart in order to determine if the market is in trend or range. If the price remains close to the EMA, it means that the market is in range. Otherwise, it is a sign that the market is trending and the conditions are right to apply this strategy.

Additionally, you have to apply the Bollinger band indicator to later determine the entry points to the market.

2. Market entry

When the market has an upward trend (Bollinger price and bands above the EMA of 200), open a purchase order when the price touches the lower band of Bollinger.

On the other hand, when the market is in a bearish trend (Bollinger price and bands below the EMA of 200), open a sales order when the price touches the upper band.

3. Market output

In the case of the trend tracking strategy, the stop loss is established in the Bollinger band opposite to the one that initiated the operation. In a purchase order, the SL would be in the upper band. When a sale occurs, the SL must be established in the lower band.

This simple Forex strategy is really easy to understand and apply. However, one of its disadvantages is that it only gives results in the trend market and can generate losses in markets in the range.

As you can see, the trend tracking strategy takes some elements of the break strategy.

Carry trade strategy

Finally, we have a simple Forex strategy for beginners that differs from the previous 2. “Carry trading” refers to a method in which you get profits with the interest rates of currencies.

The carry trade is a strategy that gives good results in the markets in range and low volatility, besides being characterized by requiring very little time (although it may take too long to generate profits).

1. Preparation of the strategy

For this method, you should find currency pairs with low volatility and whose currencies have large differences in their swaps (interest rates). The objective is to keep the currency with the highest swap in order to accumulate the money generated by interest rates.

2. Application of the strategy

Now all you have to do is buy or sell the currency pair in order to keep the currency with the best interest rate, and maintain the position while you accumulate money.

The strategy of the carry trade has the advantage of being backed by several economic theories, since usually currencies with attractive interest rates are valued over time.

On the other hand, the carry trade requires large amounts of capital and good risk management, since the operations can last a few months. Similarly, movements in short-term prices may end up affecting your profitability.

Now you know 3 simple Forex trading strategies that you can start applying now. As you can see, each one has its advantages and disadvantages, so you can choose the one that best suits your style.

Even though these simple Forex strategies are a good starting point, they are not really perfect. Try these methods in a demo account and find the one that’s right for you. Later, when you acquire more experience, you can propose your own improvements to achieve higher profits in the market.