When you first get involved in Forex trading, everything to do with the process can seem a little overwhelming. The best Forex trading strategies for beginners are the ones that talk in simple terms about a very complex topic.
If you try diving head first into Forex trading, you will already be in over your head. But if you take the time to learn some basic strategies, then you will be able to slowly develop a method for success.
There is a lot of information you can absorb about Forex trading strategies for beginners that could become confusing if you don't have the basics in place.
One of the few similarities between Forex trading and stock trading is that most of the people who develop strategies also tend to create their own language.
When you go through strategies, you will read about candles, trendlines and other things that seem like a foreign language. The important thing is to take your time and ease yourself into Forex trading and, after a while, it will all start to make sense.
The most basic Forex trading strategies for beginners deal with breakouts, trends and carries. As a Forex trader, you will spend a great deal of time staring at charts and trying to find movement that will indicate a chance at profit. When you use these basic strategies, you will be able to turn all of those numbers and lines into cash in your pocket.
A breakout trading strategy gives us the chance to introduce the concept of the candle on a Forex chart. Most Forex charts are simple lines that move as a currency pair's value changes. When there is a sharp drop or rise in a pair's value, the result is a straight, vertical line of the chart. That vertical line is known in the Forex world as a candle.
When you see a candle, you could be watching the beginning of a trend. A breakout is when a candle appears after a long period of relative inactivity with a pair. In most cases, the bottom of the candle is the value trending downward and the top of the candle is a new trend upward. The sooner you can identify the breakout, the quicker you can take advantage of it.
One of the ways to see a candle coming is to look for the market to go sideways for a short period of time. This is a point where the market stops declining and the graph suddenly gives what looks like a straight line. More often than not, that straight line is the start of a breakout and your chance to make money.
Trends in the Forex market are what the most experienced traders look for. After a breakout, there is a period where the currency pair will fluctuate in value and the stability of the trend could be in jeopardy. Most traders use time blocks broken down into hours to measure trends because that is a good amount of time for a currency to show whether or not it can sustain its growth.
Why are trends so popular in Forex trading? Because when a trend starts, it gains momentum by more and more traders buying into it. In the stock market, it is often said that you are too late in buying a stock if the stock already has momentum. But in Forex trading, the more momentum a currency pair pick up, the more money you can make.
As part of your Forex trading education, you need to learn how to measure the standard deviation of a trend. In some circles, the formula used to determine the trend is called a Bollinger band [illustrated below]. This is just a fancy term applied to a mathematical formula that determines the average growth in a trend and measures how often the trend falls outside those averages. If the trend consistently falls outside its average growth, then it may be time to sell. But as long as the trend maintains itself, then keep on making money.
One of the best Forex trading strategies for beginners who intend to stick around for a while in the Forex markets is carry trading. When the global economy collapsed in 2008, carry trading fell out of style with Forex traders because the nations of the world were slashing interest rates on their currency. But with the global economy recovering, carry trading is a great way to make money long-term in the Forex markets.
The simplest way to explain carry trading is to talk in terms of a compounding income. Every country's central bank sets an interest rate for that country's currency. The interest rate allows the country's government to try and control inflation and spur economic growth.
With carry trading, you buy currencies with high interest rates and then trade those against currencies with low interest rates. The results will put interest income into your Forex account on a daily basis and help you to create a nice nest egg. This is the same strategy that multi-billion dollar corporations use to protect their profits, so you know that it's a sound strategy to use.
These three Forex trading methods are the three best Forex trading strategies for beginners. Breakouts and trending feed off of each other and give you a chance to understand the charts and numbers you are looking at, while carry trading allows you to create a recurring income based on interest rates. Start practicing your Forex trading strategies and see how much profit you can generate each and every day.
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