When you start Forex Trading, it is essential to keep things simple. As a beginner, avoid thinking about money too much and focus on one or two strategies at a time. The following three strategies are easy to understand and perfect for beginners.
1. Inside Bar Trading Strategy
This highly effective strategy is a two-bar price action strategy with an inside bar and a prior/mother bar. The inside bar is usually smaller and within the high and low range of the preceding bar. There are many variations of the inside bar, but what remains constant is that the prior bar always fully engulfs the inside bar. Although exceedingly profitable, the inside bar setup does not occur often.
There are two main ways you can trade using inside bars:
- As a continuation move – This is the easiest way to trade inside bars. The inside bars are traded in trending markets following the direction of the trend.
- As a reversal pattern – the inside bars are traded countertrend
When using this strategy, it is essential to look for these characteristics when evaluating the pattern:
- Time frame matters – avoid any time frame more minor than the daily.
- Focus on the breakout – the best inside bar trades happen after a consolidation break where the preceding trend is set to resume.
- The trend is your friend – trading with the trend is the only way to trade an inside bar
- A favorable risk to reward ratio is needed when trading an inside bar
- The size of the inside bar in comparison to the prior bar is significant
2. Pin Bar Trading Strategy
This strategy is highly recommended to start Forex trading because it is easy to learn due to a better visual representation of price action on a chart. It is one of the most straightforward strategies to trade. Pin bars show a reversal in the market and, therefore, can help predict the direction of the price. Pin bars consist of one price bar, known as a candlestick price bar, representing a sharp reversal and rejection of price. Candlestick charts are the clearest at showing price action.
There are different ways traders trading with pin bars can enter the market:
- At the current market price
- Using an on-stop entry
- At limit entry, which is at the 50% retrace of the pin bar
To improve your odds when using the pin bar strategy:
- Trade with the trend
- Wait for a break of structure
- Trade from an area of value
Some of the mistakes pin bar traders should avoid include the following:
- Assuming the market will reverse because of a pin bar
- Focus too much on the pin bars and miss out on other trading opportunities
- All pin bars are not the same and should not be treated as such
3. Forex Breakout Strategy
A breakout strategy is where investors find stocks that have built strong support or resistance level, wait for a breakout, and enter the market when momentum is in their favor. This strategy is essential to start Forex trading because it can offer expansions in volatility, major price moves, and limited risk. A breakout occurs when the price moves beyond the support or resistance level. The breakout strategy is suitable for beginners because they can catch every trend in the market. Breakouts occur in all types of market environments.
Traders establish a bullish position when prices are set to close above a resistance level and a bearish position when prices approach below a support level. Sometimes traders can be caught on a false breakout, and the only way to determine if it is a false breakout is to wait for confirmation. False breakout prices usually go beyond the support and resistance level; however, they return to a prior trading range by the end of the day.
Good investors plan how they will exit the markets before establishing a position. With breakouts, there are two exit plans:
- Where to exit with profit traders can assess recent stock behaviors to determine reasonable objectives. When traders meet their goals, they can exit the position. They can either raise a stop-loss to lock in profits or exit a portion of the position to let the rest run
- Where to exit with a loss – breakout trading show traders clearly when a trade has failed, and therefore they can determine where to set stop-loss order. Traders can use the old support or resistance level to close a losing trade
- You can catch every trend in the market
- Prices can quickly move in your favor
- Traders can get caught in a false breakout
- It can be not easy to enter a trade
Tips for trading breakouts:
- Never sell on breakdown or buy on breakout both carry extreme risks
- Trade with the trend
- Wait for higher volume to confirm a breakout
- Take advantage of volatility cycles
- Enter on the retest of support or resistance
- Have a predetermined exit plan
Beginners are more likely to be successful in trade than their experienced counterparts are because they have not yet cultivated any bad habits. Professional traders must break bad habits and put aside any emotions built over the years.