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Three Most Effective Forex Strategies for Beginners

Rockfort Makrets - Forex

When you think of forex strategies for beginners, what is the first thing that comes to your mind?

Just because of the word "beginner" doesn't mean that the trading strategy is any less inferior.

The misconception is that traders think a beginner forex strategy can never make profits. But this depends on the trading strategy itself and the trader.

You can find many forex strategies for beginners. But most of them are too complicated or need endless hours of watching the charts.

The forex market can be exciting for a beginner. And in this excitement, traders do not pay attention to the cardinal rules of trading.

As a result, you end up with a forex strategy that is not very effective.

  • Are you one of these traders who struggle to make money?
  • Do you find yourself jumping from one trading strategy to the next?
  • Are you looking for trading strategies for beginners which isn't too complicated?

If you answer yes to the above, then this guide to trading forex is for you. You will discover the most effective strategies you can use in the forex market.

Your hunt for the Holy Grail trading strategy ends here.

No, don't mistake this as a magic or hitherto undiscovered day trading strategy.

You will be surprised to see that the forex trading strategies in this article are simple and easy. And yes, they do work, despite their simplicity.

What are the cardinal rules in a forex trading strategy?

A forex trading strategy is not about buying and selling, albeit that being the case. The best forex trading strategies need a mix of more than a set of trading rules.

There are three elements to make a forex trading strategy to be profitable for you.

  1. Trading psychology
  2. Money management
  3. Trading rules

We will touch upon these points in brief.

Trading psychology is the most important of all. A trader should observe a certain level of rationality. You need to get rid of your trading bias. This is like having a prejudiced notion about something or someone.

Even the best forex trading strategies can fail if already come into the market with an opinion.

Forex traders need to be fluid and let the markets lead them along the way.

Money management is always given the last preference. This is the number one reason why the best forex trading strategies fail. Traders focus on the trading rules of buying low and selling high.

Forex traders do not give much attention to managing their risks during day trading.

You will lose money trading forex even if you follow the trading rules to the dot. Good traders manage risk, bad traders chase profits when they trade forex

Trading rules are important because these rules define the actions you must take. When traders face a streak of losing trades, they tweak their day trading strategies. This can turn even the best forex trading strategies into the worst.

Tweaking your forex trading strategies is acceptable, but to a limit.

When you deviate from the basic trading rules in the forex market, you can end up with a losing forex strategy.

How did we choose the trading strategies for beginners?

I'm sure you want to jump ahead to the trading strategies for beginners. But hang on!

Don't you want to know how we choose these day trading strategies?

There should be a method to this madness, shouldn't it?

Below is the criterion we kept in mind when coming up with the simple forex trading strategies.

  1. We ensured that the indicators in the forex trading strategy is no more than one or two. And for the forex strategy that does use indicators, we kept it simple and basic
  2. The focus is on intraday trading in the forex market. You do not need to spend too much time watching the charts. Day trading should be fun! Not intense.
  3. We also included price based set ups for the forex market. This is because we want to bring some variety to the day trading strategies listed here
  4. You can apply the forex strategy on the major forex currency pairs

With that out of the way, let's get on to the exciting part!

Trend trading strategy with moving averages

Moving averages are the simplest of all technical indicators. But it is interesting that many traders struggle with this indicator.

Forex trading strategies can be simple yet effective. So if you are using a simple forex indicator in your trading strategy, it does not mean it is less effective.

The trend strategy with moving averages is a forex strategy that takes you back to the basics.

Moving Average Strategy Set up and Charts
Time Frame1 Hour Chart
IndicatorSimple moving average (24, 48 periods)
Trading opportunitiesMultiple signals
Works best whenDuring a strong trend

Trading rules to go long:

  • The short term (24 period) moving average must be above the long term (48 period) moving average
  • Wait for price to make a high and then retreat
  • The resulting low should not be lower than the previous low
  • Set a pending long order near the high with stop loss at the previous low
  • For take profit, use a measured risk-reward set up

The first chart set up below illustrates the trading rules. We have an example of a long position using the moving average crossover method in the forex market.

Moving average strategy - Long position example

Trading rules to go short:

  • The short term (24 period) moving average must be below the long term (48 period) moving average
  • Wait for price to make a low and then retreat
  • The resulting high should not be higher than the previous high
  • Set a pending short order near the low

The next chart gives an example of a short position. As you can see, this is a very easy trading strategy for beginners.

Moving average strategy - Short position example

Pros and cons of day trading with moving average indicators

This is a simple but effective forex trading strategy which is beginner friendly. Using this method, you are using trend trading and following the price action.

This strategy for the forex market combines technical indicators with price.

The moving average crossover on the intraday time frame allows you to trade the market trend.

We use the MA settings of 24 and 48 because it reflects the average prices for the one-hour chart time frame. The risk management with this strategy is easy for beginners to incorporate this.

We target the 1:1 and 1:2 risk/reward set up using this method. You can apply this to any currency pairs of your choice.

The moving average crossover method patience, for the right set up to occur. If you rush into the trade too soon, it carries a high level of risk.

The strategy is effective during the start of the European forex session and the U.S. forex session.

A beginner friendly trend line trading strategy

Beginners in forex trading avoid price action trading strategies. They feel it is too complicated and subjective. But this trading strategy busts that myth!

The candlestick forex charts are easy to understand. We also recommend that you read about candlestick charts. It gives more meaning to your trading.

Learning to read candlestick charts can help you in your technical analysis.

In this forex trading strategy, will use trend lines. You will soon realize how simple but effective this trading strategy will be.

Trend line forex trading strategy for beginners

A trend line is a slanting line that connects two consecutive highs or lows in price. The trend line slopes up (indicating an uptrend) or it can slope down (indicating a downtrend).

When price breaks this trend line, what you get is price movements in the opposite direction.

Thus, a rising trend line break means a signal to short, and a falling trend line break means a signal to go long.

Trend Line Strategy Set up and Charts
Time Frame1 Hour Chart
IndicatorNone
Drawing toolsHorizontal line tool, trend line (ray) tool
Trading opportunitiesOnce a day
Works best whenMarkets are in consolidation

Trading rules to go long:

  • Plot the high and low from the previous day
  • Identify two consecutive highs and plot the falling trend line
  • The trend line should form within the high and low of the day
  • Wait for price movements breaking this trend line and take a long position

The long trade example illustrates this set up. This forex trading strategy is straight forward.

Trend line strategy for beginners - Long position example

You first plot the previous day high and low. You then draw a trend line and wait for the next day. When the trend line breaks, you take a long position in the market with a 1:1 and a 1:2 risk to reward ratio set up.

Trading rules to go short:

  • Plot the high and low from the previous day
  • Identify two consecutive lows and plot the rising trend line
  • The trend line should form within the high and low of the day
  • Wait for price movements breaking this trend line and take a short position

For the short set ups using the trend line forex trading strategy, you do the same as above. The difference being that in this case, you will use the rising trend line.

Trend line strategy for beginners - Short position example

What you should know when day trading with trend lines

Trend line day trading strategy can be intimidating as a forex beginner. But hey, everyone has to start somewhere.

We recommend that you spend time practicing how to draw trend lines on your forex charts.

With enough practice, you will realize how easy trend line trading can be. This is one of the simple forex trading strategies that offers a different trading style.

The risk management rules are also outlined. It allows you to take consistent profits every time you are day trading with this method.

One of the risks of day trading with trend lines is over trading. You will find many trading opportunities.

Never open a new trade until all your existing forex trades are closed.

Simple intraday breakout strategy

This strategy uses trading styles that may not be suitable for all traders. You need to have a good grasp of candlestick chart patterns. We do not use any indicators with this method.

This is one of those trading strategies that work because you focus only on price. You can use this strategy for news based trading such as interest rates decisions.

These events are volatile, but you can use for trading different currency pairs.

Intraday Breakout Strategy Set up and Charts
Time Frame1 Hour Chart
IndicatorNone
Drawing toolsHorizontal line tool
Trading opportunitiesVery frequent
Works best whenMarket consolidation right after a strong move

Trading rules to go long:

  • Identify three consecutive bearish candlesticks. They should have lower highs, lower lows, lower open and lower close
  • Set a pending long order near the high of the first candlestick
  • When price breaks out from this level, set your stop loss to the pivot low
  • Using the risk from the pivot low, book profits with a 1:1 and 1:2 risk/reward set up

The first chart shows this trading set up.

Intraday Breakout Strategy - Long example

Trading rules to go short:

  • Identify three consecutive bullish candlesticks. Each candlestick should have higher highs, higher lows, higher open and higher close
  • Set a pending short order near the low of the first candlestick
  • When price breaks out from this level, set your stop loss to the pivot high
  • Using the risk from the pivot high, book profits with a 1:1 and 1:2 risk/reward set up

Intraday Breakout Strategy - Short example

When does this forex trading strategy work best?

This intraday strategy works on any of the currency pairs.

We recommend you stick to the major currencies such as the euro or the Japanese yen.

The buy or sell signals are quite easy. This strategy works best is when used on trading volatile news events. Interest rates, GDP release and so on are some examples.

As with all strategies, move the stop loss to break even when the market moves in your favor. A forex trader will need some practice when trading this strategy.

Which of these three forex strategies for beginners should you choose?

In the previous sections, we covered the different day trading strategies.

Going by the trading strategy names and rules, you already have a fair idea of how they work.

These forex day trading strategies for beginners are all effective in their own way. And you can make money right off the bat.

The trick is to get comfortable trading with one method and sticking with it.

But! It is important that you understand if a trading strategy suits your style or not.

Many in traders misinterpret this.

You do not throw away a trading strategy because it caused you some losing trades. If you keep doing this, you will only end up looking for the next best forex strategy.

And this endless chain will continue to no end.

You must use a demo trading account first to become familiar. But there is more to it than that.

To help you break this habit, here are three things that every beginner to forex trading should keep in mind:

1. Your risk profile determines your trading strategy

Are you a trader that does not feel comfortable with large swings in prices?

Then, focus on day trading strategies that can make you consistent profits.

This will come at the cost of having to spend a little bit more time with the forex charts. But as long as you are comfortable with this, you can find one of the trading strategies to work.

2. Objective or subjective?

Let's face it... Not every forex trading strategy is mechanical. Strategies using price (support and resistance or trend lines) are subjective.

Not all forex traders are the same. Some find more success trading forex with one trading style than the rest. This is OK!

If you are one of them, then you should opt for trading strategies that work for you.

3. Does the forex market trend matter to you?

Different people interpret trends in different ways in the forex market. The trend is your friend when you trade forex. But you can also find many trading opportunities using different strategies.

A trend following strategy will not always make you money.

Trend following and counter-trend following forex trading strategies are both effective.

The trading strategies for beginners outlined here are easy to use. They follow the concept of trend, but you can also apply this long term and short term.

Depending on your goals, you can focus on the different ways you can trade forex with these methods.

How to use these simple forex strategies?

When using these forex trading strategies for beginners, remember the following points:

  1. Before you start trading, read up on the indicators/methods we use. Ask questions when it doubt.
  2. A forex strategy works only if you have enough practice. So start with a demo trading account first.
  3. There are many trading platforms, but the Metatrader 4 platform is one of the best. It has lots of indicators and tools that even professional traders use. It is also free to use for trading forex.
  4. No strategy is 100% foolproof. You will lose money. Losing trades are part of the game. The trick is to manage these risks when trading forex. Trade only with the money that you can afford to lose.
  5. The trading strategy for beginners are simple strategies. So do not overcomplicate the methods outlined here.
Disclaimer 
The information provided is of a general nature and is not intended to be personalised financial advice. The information provided is not intended to be a substitute for professional advice. You may seek appropriate personalised financial advice from a qualified professional to suit your individual circumstances.
Trading in Rockfort Markets derivative products may not be suitable for everyone as derivative products may be considered as high risk. Please ensure that you understand the risks involved. A Product Disclosure Statement can be obtained here and should be considered before trading with us.
Any questions? You can call us on 09 281 2012 or email us at info@rockfortmarkets.com any time to help you with your trading requirements.
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