Forex
Trading Strategies for Beginners
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The Forex market is filled with hundreds of different
trading strategies, but what are the best Forex trading strategies for
beginners? This is a common question among traders just
starting out and for good reason.
It’s often said that a
beginning trader is closer to becoming consistent profitable than a trader who
has been trading unsuccessfully for years. This is because a beginning trader
hasn’t had time to create any bad habits. The trader who has been struggling
for years has to not only find what works best for them, but they also have to
break any bad habits and put aside negative feelings they may have built up
over the years.
But no matter if you’re a beginning trader or you’ve been
trading for years, there are a few price action trading strategies that you
should always keep in your back pocket. I welcome you to read on and learn
three trading strategies that have become staples in my trading plan.
#1 Pin Bar Trading Strategy
The pin bar trading
strategy is perhaps the best Forex strategy for beginners. This is because
it’s a very obvious pattern, making it easy to identify on a chart. It’s
also one of the easier strategies to trade.
Notice how the market
came into resistance during a rally but was soon able to break through
that resistance. One of the basic principles of technical analysis is that
former resistance becomes new support. Sure enough the market found support at
former resistance and formed a bullish pin bar in the process.
Let’s take a look at a
bullish pin bar that formed on the GBPCAD daily chart.
In the chart above,
GBPCAD met resistance after an extended move up. Once the market broke through
resistance, it found new support and formed two bullish pin bars. Shortly
after forming these pin bars, the market continued its rally for an additional
370 pips.
For more information on this particular strategy, see the lesson
on the Forex pin bar trading strategy.
#2 Inside Bar Trading Strategy
Another highly-effective
Forex trading strategy for beginners is the inside bar strategy. Unlike the pin
bar, the inside bar is best traded as a continuation pattern. This means
we want to use a pending order to trade a breakout in the direction of the
major trend.
Below is an
illustration of an inside bar during a rally.
Notice how the bar
preceding the inside bar is much larger in size. This bar is called the “mother
bar” because it completely engulfs the inside bar. The real magic to this
strategy comes after the consolidation period, which is represented by the
inside bar, on a break of the mother bar’s range.
Below is an inside bar
that formed on the USDJPY daily chart during a strong rally.
Notice how USDJPY was
coming off of a very strong rally when it formed the inside bar on the chart
above. These are the best inside bars to trade because it shows a true
consolidation period which often leads to a continuation of the major trend,
which in this case is up.
#3 Forex Breakout Strategy
The Forex breakout
strategy we’re going to discuss here is a great trading strategy for beginners.
This strategy is different than most of the conventional breakout strategies
out there. Instead of simply trading the actual break of a level, we’re waiting
for a pullback and retest before entering.
Another difference
here is that we’re only interested in breakouts that occur from a wedge pattern
rather than a horizontal level.
Here is an
illustration of the Forex breakout strategy.
Notice how the market
has worked itself into a terminal wedge, which simply means that the
pattern must eventually come to an end. The opportunity to trade this pattern
occurs when the market breaks to either side and then retests the level as new
support or resistance. In the case of the illustration above, the entry would
have come on a retest of support-turned-resistance.
Let’s take a look
at the same breakout strategy but this time we’ll apply it to a
USDJPY 4 hour chart.
Notice how in the
USDJPY 4 hour chart above, the market touched the upper and lower boundaries of
the wedge several times before eventually breaking lower. As soon as the 4 hour
bar closed below support, we could have looked for an entry on a retest of
former support, which came just a few hours later.
Although the pin bar
trading strategy is my favorite, I have had some of my largest trades using the
Forex breakout strategy above. The market will often react quite aggressively
after the breakout occurs, allowing traders to secure a large profit in a
relatively short period of time.
Summary:
So there you have it.
Three simple Forex trading strategies for beginners. These strategies are by
far my favorite and for good reason. If used properly, they can quickly
build your trading account into a sizeable amount. The best part is, they are extremely
simple to understand and are therefore easy to incorporate into your trading
plan.
Here are a few key
points from the lesson:
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The pin bar trading
strategy is best traded as a reversal pattern in the direction of the major
trend
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The inside bar trading
strategy is best traded as a continuation pattern
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The Forex breakout
strategy should be traded after a break and retest of either support or
resistance
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All you really need to
become profitable trading Forex is two or three great trading strategies
