In the past few years, forex trading has grown in stature as more and more people take the decision to join the forex trading bandwagon. Most of those who take the decision to join the forex trading bandwagon are pulled to the ‘field’ by the success stories they see and read online about others who successfully managed to build fortunes via forex trading. In the hope that they too will become ‘success stories’, many decide to venture into forex trading.
However, stats show that not so many actually succeed when they venture into forex trading and one of the big reasons why this is so is that many beginners do not know (or adhere strictly to) the best forex trading strategies to use in their adventures.
Just as spread-trading is the advisable strategy for those who venture in futures trading, there are also advisable strategies for those who decide to venture into forex trading. Before we jump into the best trading strategies for beginners, let`s take a moment to share with all traders who in future aim to venture in futures or options trading that spread trading could be the strategy to settle for.
Spread trading entails the trader purchasing one security and selling another security simultaneously. If done correctly, the trader benefits from the ‘spread’ i.e. the difference in price between what has been bought and what has been sold. Armed with this, lets now learn more about the best forex trading strategies for beginners.
Arguably, the breakout strategy is the one which is highly advisable for all beginners. The breakout strategy is premised on the notion of trends. A trend in forex trading basically means that the market is set or is moving in a given overall direction, it may be a positive trend i.e. prices/value moving upwards or it may be a negative trend i.e. prices/value moving downwards.
Trends, however, do not carry on for eternity, rather, they do come to an end. As such, the breakout strategy is there to help traders avoid the trap of losing money when they are banking on the markets to continue following a particular trend. In essence, this simply means that at times, traders may become too complacent when the markets have been on an upward trend for such a long time that they continue thinking that the situation will remain the same for some time.
Using the breakout strategy, traders will quickly know when there has been a change in direction in the market trend hence they will be afforded the opportunity to quickly adjust their trades.
Moving Average Crossover
The Moving Average Crossover strategy in many ways is similar to the Breakout strategy but it differs in one main area i.e. this strategy uses averages rather than relying on trend changes as is the case with the breakout strategy.
When traders opt to use this strategy, they will be asked to place averages both upwards and downwards on their trades. Whenever the price/value of the trader’s instrument (forex) moves near or reaches the averages set (either upward or downwards), the trader will quickly become aware of the changes in the price/value of the trade hence will be able to adjust his trade.
The Carry Trade strategy is different from the two strategies discussed above in that it is not premised on trends but rather on the difference in yield between two currencies.
Basically, what this entails is that the trader uses one currency usually a currency that comes with a high-interest rate to fund the second quote currency and in the process receive funds from the positive swap rate. Using this strategy, intuition should be your guide as you have to pick rightly the currencies to trade.