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Knowledge Crunch

8 Best Forex Trading Strategies for Beginners (& Pros & Cons)

Tuesday, July 13, 2021 3:15 PM GMT

Best Forex Trading Strategies for Beginners

Strategy #1: Copy Trading

Strategy #2: Position Trading

Strategy #3: Price Action Trading

Strategy #4: Scalping

Strategy #5: Swing Trading

Strategy #6: Day Trading

Strategy #7: Trend Trading

Strategy #8: Transition Trading





Strategy #1: Copy Trading

Copy Trading is a method of choosing Traders and following those who have more experience and a larger success rate with their trading strategy. As a trading system, (also known as Mirror Trading) Copy Trading replicates signals from Traders, in real-time. This process is automatic and is up to the Investor to decide how they would like to approach copy trading. Copy Trading tends to focus on assets within the forex market (currency pairs), cryptocurrencies, stocks and other financial markets. 

 

Pros of Copy Trading

Invest with limited market knowledge and time - You don’t need to have the time to know everything about USD/Bitcoin or even the global markets to start your trading journey. You simply follow the Traders who have experience with the markets and when they do well, you do well. It’s that simple.
Build a passive investment - Copy Trading is easy to monitor and doesn’t require a lot of forethought or effort: follow the Trader after assessing their strategy, investment levels and risk appetite. Best of all, it’s something to do whenever it’s convenient for you.
Learn how others succeed - Copy Trading is a great way to learn how global markets operate. Learn from other experienced Traders who have their signals strategies with trading forex, stocks, crypto or other financial instruments. 

 

Cons of Copy Trading

Different investment goals -  Your financial goals are completely different from that of the Trader you are copying. An Investor may have a completely different investment horizon from what you have.
The wrong move - If the Trader you have invested in has underperformed, it means you have underperformed too. This also goes both ways if they perform well in their trades.

 

 

Strategy #2: Position Trading

Position trading is a popular trading style where a trader holds a position for a long period, usually months or years, ignoring minor price fluctuations in favour of profiting from long-term trends. Position traders tend to use fundamental analysis to evaluate potential price trends within the markets, but also take into consideration other factors such as market trends and historical patterns.
As a long-term trading strategy, this approach requires traders to take a macro view of the market and sustain smaller market fluctuations that counter their position. The success or failure of this strategy hinges on the trader’s understanding of the market in question and their ability to manage risk.

Source: insidebitcoins.com

Pros of Position Trading

No early exit of trades - Position traders keep their trades in the market even when the movement is getting in the other direction. There is no early exit in position trading like the other trading strategies. Many traders like day traders have to early exit their trades on the market with a loss. Position trading has not got that problem.
Accurate - One of the biggest advantages of position trading is that positions avoid false swings in the market and don’t have many false accurate signals, making it the best for accuracy in trades.

Cons of Position Trading

Potential loss - Position traders tend to ignore minor fluctuations that can become full trend reversals and could result in significant losses. 
Swap - The swap is a commission paid to the broker. If the position is open for a long time, the swaps can accumulate a large amount.
Fees - shorting a stock or an index might get you charged with a dividend (the same dividend a bullish investor receives)

 

 

Strategy #3: Price Action Trading

Price action trading involves the study of historical prices to formulate technical trading strategies. Price action can be used as a stand-alone technique or in conjunction with an indicator. Fundamentals are seldom used; however, it is not unheard of to incorporate economic events as a substantiating factor. Several other strategies fall within the price action bracket as outlined above.

Pros of Price Action Trading

Clear information - One of the top benefits is the fact that traders have a pure chart in front of them, not “watching’ multiple indicators that may distort reality. 
Easy to solve - Another advantage is the fact that traders do not have to solve situations when multiple indicators show contradictory outcomes at the same time.

Cons of Price Action Trading

Different outcomes - A big disadvantage of price action is that each trader may see different outcomes of price actions. Where one sees an upcoming bullish trend, the other sees a trend of dropping prices. 
Needs sufficient knowledge - Another disadvantage is that the reading of information from price action may be difficult for traders, and it needs sufficient knowledge and a focused mind.



Strategy #4: Scalping

Forex Scalping is an intraday trading strategy in which Forex traders buy and sell currency to shave small profits from each trade. In forex, scalping strategies are typically based on an ongoing analysis of price movement and knowledge of the spread. When a scalper buys a currency at the current ask price, they do so under the assumption that the price will rise enough to cover the spread and allow them to turn a small profit. For this strategy to be effective, however, they must wait for the bid price to rise above the initial ask price and flip the currency before the price fluctuates again.

Source: insidebitcoins.com

Pros of Scalping

Learn first hand - If you’re making a handful of trades per day, earning a few pips per trade can quickly add up to a substantial sum. This results in time being devoted to watching market moves and trading monitors, and as a result, lessons (both good and bad) are quickly learnt. It’s also easier to have a more stable result/income monthly.

Cons of Scalping

No room for hesitation - For any trader, managing more than one trade adds complexity to the process. In such a volatile, fast-moving market, the stakes are amplified. Succeeding as a day scalper demands unwavering concentration, steady nerves(especially in a downtrend), and impeccable timing. If a trader hesitates to buy or sell in a certain period they can miss their profit window and dwindle their resources.



Strategy #5: Swing Trading

The swing trading strategy entails predicting price trends and buying/selling accordingly. This is similar to trend and range trading, but swing traders inspect price trends in a smaller time frame and have a short position that closes trades within a few hours or days. 
Because swing trading is a short-term trading strategy, traders only need to focus on price analysis rather than long-term macroeconomic trends and important global developments. This makes swing trading simpler but also relatively risky since price changes are always more hectic on a day-to-day basis.
Oscillators and indicators can be used to select optimal entry/exit positions and times. The only difference being that swing trading applies to both trending and range bound markets.

Source: insidebitcoins.com

Pros of Swing Trading

Great for new traders - Swing trading can be more suitable for people with limited time and for people not wanting “a lot of action” in comparison to other trading strategies. However, it does require some research to understand how oscillation patterns work.

Cons of Swing Trading

Requires lots of research - A lot of research is required to understand how to analyse markets, as technical analysis comprises a wide variety of technical indicators and patterns.




Strategy #6: Day Trading

Day trading or intraday trading is suitable for traders that would like to actively trade forex in the daytime, generally as a full-time profession. Day traders take advantage of price fluctuations in-between the market open and close hours. Day traders often hold multiple positions on the currency market open in a day, but do not leave positions open overnight to minimise the risk of overnight market volatility. It’s recommended that day traders follow an organised trading plan that can quickly adapt to fast market movements.
To be successful, day trading strategies must also practice effective capital management and be ready to respond swiftly if the price moves against them. A day trader only opens short-term trades that usually last around 1 to 4 hours, which minimises the likelihood of risks that may exist in longer-term trades.

Pros of Day Trading

Time flexible - Day trading might suit people who desire flexibility with their trading. A day trader might enter 1 to 5 positions during the day and close all of them when objectives are hit or when they are stopped out.
Multiple trade opportunities -  A day trader can make use of local and international markets and can open and close many positions within the day, including taking advantage of 24/7 forex market hours.

Cons of Day Trading

Must have discipline -  Similar to other short-term styles, intra-day trading requires discipline. Traders should utilise a predetermined strategy, complete with an entry point and exit, to manage their risk. There’s also the possibility of flat trades, This is when some positions do not move within the day, which is to be expected.

 

 

Strategy #7: Trend Trading

Trend trading is another popular and common forex trading strategy. It’s also easy for beginners to understand and follow. The technique involves identifying an upward or downward trend in a currency price movement and then choosing trade entry and exit points. These points are based on the positioning of the currency's price within the trend, as well as the trend's relative strength. Trend traders use many different tools to evaluate trends, such as moving averages, relative strength indicators, volume measurements, directional indices and stochastics.

Pros of Trend Trading 

Approachable for new Traders = Trend trading doesn’t require traders to know what will happen next, only to understand what is happening right now. As such, it tends to be more approachable and easier to follow for new traders. Remember, “the trend is your friend.”
Many trade opportunities - A prevailing trend may offer various opportunities to enter and exit a trade. Additionally, trend trading may involve playing ‘both sides’ of the market. To trade effectively, however, it’s important to confirm the direction and strength of a new trend before entering into a position.

Cons of Trend Trading

Overnight risk - Trend trades are often open over several days so they may incur more overnight risks than other strategies. However, this can be mitigated by placing stop-loss orders.
Time-consuming - Studying trends will take some time and must be done very thoroughly to avoid as many mistakes as possible.


Strategy #8: Transition Trading

Transition trading is to enter a trade on the lower timeframe, and if the market moves in your favour, you can increase your target profit or trail your stop loss on the higher timeframe. In more financial terms, this strategy revolves around the idea of entering at a low time frame, bonus points if you are close to the resistance levels of a currency pair and increasing your target profit or trail your loss at a higher time frame.

 

Pros of Transition Trading

Speed and volatility - One of the most noticeable developments we can pinpoint as a direct result of the digitalisation of futures markets is the speed at which the transactions are enveloping. Once the orders are placed and all the necessary conditions are met, the trades are executed in a matter of seconds.
Risk and reward - Risk management can get an insane risk to reward (possibly 1 to 10 or more) and can lower your risk as your entry is on a lower time frame.

 

Lack of transparency – The electronic transactions effectively remove identity and with it, the accountability out of the trade. The market can be simultaneously hit by a large number of high orders with no one knowing who’s responsible for price fluctuations. This lack of transparency covers the futures market with an unnecessary shade of fear and anxiety.
Risky and needs knowledge - Only a handful of your trades will lead to monster winners and must understand the multiple timeframes well.


What is the Best Forex Trading Strategy?

The best Forex trading approach is by far Copy Trading, this is in terms of the learning, the risk to reward and the least amount of effort in trading forex. Copy Trading is becoming increasingly popular because it allows new Investors to learn about market strategies from other traders, enables you to get exposure from global markets and all the while saving you time from otherwise doing manual trading. 
ZuluTrade remains the most transparent and reliable among other trading platforms for Copy Trading. By creating a trading account, our top priority is our Investors. ZuluTrade is always open to feedback to improve the products and features for investors. 
Try out a demo account and see for yourself. Our years of experience, fantastic customer support and excellent features speak for themselves.



Now Over to You

Whichever methodology you choose, be consistent and be sure your method is adaptive. Your approach should keep up with the changing dynamics of a market. While you may have a preferred strategy if market conditions aren't appropriate for it, then your bottom line will probably be helped by you not trading at all or by using a different strategy.

 

Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.
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