How to Find the Best Forex Strategy for Beginners
You may have heard that self-discipline is a key factor when trading currency pairs. While this is true, how can you ensure that you maintain this discipline during a trade?
One way that will help you do this is to have Day trading strategies that you can stick to. If it is well thought out and has undergone sufficient backtesting, you can be confident that it is a successful Forex strategy.
With this confidence, it will be easier for you to follow the rules of your Forex strategy – in other words, to maintain your discipline.
To find out which of the strategies listed below suits you best, it is advisable to first test the various strategies in a free demo account before applying them to your real trades. In such a demo account you can test all new strategies and ideas under real conditions in a risk-free environment until you trust them.
When people talk about a Forex strategy, they are usually talking about a specific trading method, which is usually only one facet of a complete trading plan.
Forex Strategies for Advanced Traders
When it comes to the question of which Day trading strategies are the best, there is no one-size-fits-all answer. The reason for this is that the best Forex strategies are only suitable for certain types of traders.
This means that you need to consider your own personality when creating the best Forex strategy for you. What works very well for others could end in disaster for you.
Conversely, a strategy that is rejected by others may prove to be suitable for you. For this reason, it is important to experiment and find the Forex strategy that works best for you. Those strategies that do not suit you can be safely discarded.
One of the key factors in your trading style is the time frame you choose. Below are some trading styles in different time frames, from short to long. These have become popular in recent years and remain so today. Here is a selection of the best day trading strategies:
This type of trade, as the name suggests, is closed before the end of the day. This avoids the risk of larger market movements – and thus possible losses – during the night. The trades only run for a few hours and candlestick charts with a time frame of 1 (M1) or 2 minutes (M2) are used.
The aim of this, one of the best day trading strategies, is to make potential profits as quickly as possible. The idea behind it is to trade in short periods of time in order to profit from minimal price movements.
It is an innovative strategy that requires a detailed analysis of the Forex market before a trade can be made. This forex strategy is particularly suitable for risk-averse day traders.
Rarely does one hold a position for longer than 5 minutes. For many traders, however, this is precisely the biggest disadvantage of this strategy. If you only trade for short periods of time, you are less likely to get a good return. This is because currency pairs usually only move up or down by one or two pips. In this case, however, the losses would be correspondingly small.
That is why scalpers tend to trade large volumes. Usually, as their skills increase, so do their stakes and thus their potential profits. Some experienced forex scalpers trade up to 200 positions a day. Not all of these positions will bring them profits, but the goal must always be to make higher profits than losses.
When using automated day trading strategies, such as scalping, you should set the stop loss very close to the opening price of your position to minimise possible losses if there is high volatility in the market. In general, you should never scalp without a stop loss. Let us now summarise the features of this advanced forex strategy:
How successful your scalping is depends on the volume of your trades. It also depends on speed, which is why you can be slowed down by a currency pair with low volatility. Let’s say you have chosen a major pair like EURUSD. Always keep in mind that traded volumes are never consistent, even though the forex market can be traded around the clock. Volume and volatility are usually highest when the major exchanges are open.
Now for a simple calculation example on trading strategies for beginners: The average profit per pip and lot is 10 USD. If the spread of your Forex broker is 3 pips, this would already mean a loss of 30 USD. If you buy an instrument and the market does not move, you can only sell the instrument again at a loss. The price must therefore move up by 3 pips for you to reach the break-even point. If you want to gain 5 pips per trade, you have to hope for a price movement of 8 pips upwards.
This is exactly why you should only scale currency pairs where the spread is low. At Admirals, for example, you trade EURUSD from a low typical spread. In addition, commissions are incurred. So you can work out your short-term trading strategies without worrying too much about costs. Instead, you can focus on being mindful and opening and closing positions within seconds.
A common mistake in short-term trading is to avoid closing positions because you think they will improve. Although this can happen in theory, in reality you should refrain from doing so as you could quickly overdraw your account. Instead of closing positions manually, you can also use a stop loss.
This is definitely one of the most advanced trading strategies forex as it is used by the highest earning traders. The biggest advantage of this strategy is that you need to pay much less daily attention to your trading. However, position trading can only be done with cautious, long-term market analysis.
This forex strategy is fundamentally different from day trading – and especially from scalping.
When position trading, one is expected to hold positions for a longer period of time. However, it is difficult to define a minimum time how long a position should be held, as this mainly depends on the overview the trader has of the market and the number of pips gained.
In position trading, you do everything differently than in scalping. The trade size is small compared to the trading capital. You aim for profits of over 100 pips, which can hedge your position in times of high volatility. To avoid too much risk, it is advisable to trade at a low level, i.e. not to use more than 2% of your capital. This way you can afford to lose 20-30 pips without closing your position. One of the most important features of position trading is to have reached at least break-even level at the end of the trade.
Sometimes in position trading forex it happens that one gains a few pips per trade but still loses their deposits. How is this possible? This is because positions are held for weeks or even months and are therefore subject to swaps. Swaps are the fees you pay to hold positions overnight. They are sometimes called rollovers or rollover fees.
Here is an example calculation: A trader goes long on EUR/USD on 2 May and closes his position on 1 July. His total profit is 50 pips. The swaps incurred for this could exceed the profit. However, such swaps are not always to the trader’s disadvantage. Some financial instruments include positive swaps. One therefore profits from holding a position for one or more nights. There is a special strategy for this called carry trade.
To be successful in position trading, you need a comprehensive overview of the current economic situation in the countries whose currencies you want to trade. You should also be informed about all geopolitical events. Most of your analysis should be done before opening a position, subsequent analysis should be used to determine the exit point.
The abbreviation NFP stands for Non Farm Payrolls. This important economic indicator is published monthly in the US and usually has great implications for trading forex day traders, as the price of forex majors can easily fluctuate by 50 pips or more after publication. The main disadvantage of this advanced forex strategy is that it can only be used once a month, after the release of the NFP figures.
NFP trading is similar to scalping. A few hours before the NFP numbers are released, the Forex market starts to fluctuate. Your main goal should then be to identify the possible NFP results and then determine how they differ from previous releases and predictions. You can find these values in our Forex Calendar. You also need to ensure that you have enough margin to survive all fluctuation before the NFP is released.
Once the news is released, leverage trading currency rates can change drastically. If you bet on the right development, you can collect a large profit within a few hours. However, if the exchange rate goes against you, you have to expect high losses. Therefore, you should always trade with a stop loss. NFP trading is therefore about making profits as large as possible and limiting losses.
The Role of Price Movements in Your Forex Strategy
The extent to which fundamental data is used varies from trader to trader.
However, the best Forex strategies inevitably refer to price movements. This is called technical analysis.
When it comes to a Forex strategy on a technical basis, two styles are distinguished:
Both FX day trading strategies try to generate profits by exploiting price formations.
When it comes to price information, the most important concepts are based on support and resistance.
Simply put, these two terms describe the market’s tendency to reverse at previous lows and highs. “Support” is thus the tendency of the market to rise from a previous low. Again, “resistance” describes the market’s tendency to fall from a previous high.
This is mainly due to the fact that market participants evaluate future prices based on recent highs and lows.
What happens when the market approaches recent lows? Simply put, buyers are attracted to what they perceive as a cheap buying opportunity.
What happens when the market trading strategies approaches recent highs? Sellers are attracted to what they perceive as expensive, or a good opportunity to secure profits.
That is why the recent highs and lows are the benchmark for evaluating the current price. This makes support and resistance a kind of self-fulfilling prophecy. This inevitably happens because market participants expect certain price movements at these prominent points and act accordingly. As a result, you yourself contribute to the market behaving as expected.
However, it is worth bearing three things in mind:
The Trend-Following Forex Strategy
Sometimes the market breaks out of its range. There is a move below support or above resistance and a trend begins.
But how does this happen?
When support is broken in a market, buyers become hesitant. The reason for this is that they keep seeing lower prices and therefore wait for a bottom to form.
At the same time, there will be traders who sell in panic or are simply forced out of their positions. This trend continues until the selling subsides and there is a growing belief among buyers that prices will not fall further.
Trend-following strategies buy markets when they break through resistance and sell markets when they fall below support.
Trends can be dramatic and can also be long-lasting. Because of the larger movements, such systems are potentially successful trading strategies. Trend following systems use indicators to help you identify when a new trend has started. However, there is no guarantee.
Now the good news.
If the indicator is able to show an increased probability of a trend starting, the odds change in your favour.
The indication for the formation of a trend is called a breakout.
A breakout is when the price is above the highest high of the previous days or below the lowest low. An example of a 20-day breakout is when the price overcomes the highest high of the last 20 days.
Trend-following systems require a certain mindset. Because of the long duration – during which gains can melt away as the market fluctuates – these trading strategies can be more psychologically challenging.
In volatile markets, for example, trends are harder to spot and price swings are larger. This means that trend-following systems can often be the best trading strategy because they can be characterised as calm and trend-following.
The Countertrend Forex Strategy
Countertrend strategies are based on the fact that most breakouts do not lead to a long-term trend.
A trader following this strategy tries to profit from the fact that the price tends to bounce off previous highs and lows.
On paper, countertrend strategies are the best forex strategies to build confidence because they have a high success rate. However, it is very important to follow tight risk management.
These trading strategies rely on support and resistance zones to hold. However, there is a risk of large losses if these zones break down. Therefore, it is advisable to constantly monitor the market.
The market best suited for this strategy is stable and volatile at the same time. Such a market environment offers healthy price fluctuations that are limited in their range.
It should be noted that market conditions can change. For example, a previously stable and calm market could begin to transition into a trend, initially remaining calm, only to become volatile as the trend continues its development.
How a market changes its respective state is uncertain. You should look for clues about the current state of the market and then decide if it is suitable for your trading style.
Over the years, many types of technical indicators and trading strategies have been developed. The great advances that have come with online trading technologies have also made it much easier for private traders to develop their own indicators and systems.
You can learn more about technical trading indicators by checking out our educational resources or the trading platforms we offer. A good starting point would be some simple and well-established forex strategies that have already proven to work.
FX strategies are systematic approaches that traders use to analyse market conditions, make decisions, and execute trades. They are essential because they provide a structured framework to navigate the complexities of the forex market. Strategies help traders identify potential entry and exit points, manage risk, and optimise their trading outcomes.
Choosing a forex trading strategy depends on your trading goals, risk tolerance, and personal preferences. Consider factors like your preferred time frame, trading style (scalping, day trading, swing trading), and the level of analysis you’re comfortable with (technical or fundamental). It’s crucial to align your chosen strategy with your strengths and limitations.
No, fx strategies are not universal. What works for one trader might not work for another due to individual trading styles and market conditions. It’s essential to customise a strategy to fit your trading personality and adapt it over time as market dynamics change. Developing a personalised approach increases the likelihood of success.
Yes, combining fx strategies is possible, but it requires careful consideration. Combining strategies should be done thoughtfully, ensuring that they are compatible and work well together. It’s essential to thoroughly backtest the combined strategy and monitor its performance in real-time. Keep in mind that combining strategies can increase complexity, so proper risk management is crucial.