If you have traveled abroad and needed to exchange one currency for another one, you will be surprised to hear that you have made a Forex transaction. Forex is an abbreviation of Foreign Exchange. The Forex market keeps on gaining traction and currently, it is the largest and most liquid market in the world. You might be interested to learn that the Forex market has been functioning ever since the 1990s, but only institutional clients were accepted back then.
Currently, the situation is completely different with over 10 million Forex traders all over the world. Forex trading exploded in popularity due to its volatility and ease of access. Nowadays, everybody who owns a computer, laptop, smartphone, or tablet can trade on the Forex market. If you are eyeing the opportunity to earn some extra money by trading currencies, you might find this article useful.
Forex Trading Basics
As we already explained, Forex trading is the process of buying and selling two currencies, which are referred to as currency pairs. According to TradingPedia.com, there are three types of currency pairs, and more precisely major, minor, and exotic. The major currency pairs include some of the most popular currencies traded against the US dollar (e.g. EUR/USD). The minor currency pairs do not include the US dollar and are also referred to as cross-currency pairs (e.g. EUR/GBP). The exotic currency pairs include a major currency traded against the currency of a developing economy (e.g. GBP/ZAR).
Generally speaking, the Forex market is based on the idea to trade one currency for another one. In other words, you always have two currencies. The currency you are buying is called base currency and the currency you are selling when trading a forex pair is referred to as a quote currency.
To successfully trade on the Forex market, you should understand which factors are affecting the market. When it comes to Forex trading, we can safely say that the central banks and the economies of the different countries are the ones that control the price movements of the currencies.
Proven Forex Trading Strategies for Beginners
Before we continue with outlining some proven Forex trading strategies, we would like to mention that beginners are strongly advised to avoid CFD trading as these are complex and risky leveraged instruments that can boost your profits, but also magnify your losses if the market moves against you.
We must inform our readers that there is no universal strategy that will guarantee you success. Traders should craft their own personal strategies that will fit their goals and budget. In the end, your strategy should cover the following criteria - reliability, simplicity, higher time frames, and profitability.
What is more, traders should avoid getting overwhelmed by emotions caused by significant losses or winnings. In that way, you will be able to keep your losses under control. In the lines below, we will discuss some Forex trading strategies that are suitable for beginners based on the information provided by TradingPedia's strategies guide:
Pin Bar Trading Strategy
Interestingly enough, the name of this strategy comes from the “Pinocchio bar” and it works with high accuracy in various timeframes. This strategy is based on predicting the price of a certain currency pair based on the movement of price, ignoring the indicators from the charts. Generally speaking, a pin bar is a single candlestick that has a long tail and a small body (usually, the tail is at least two times longer than the body).
It is important to explain that the body of the pin bar represents the area between the opening and the closing price, which remains almost equal. There are two types of pin bars, and more precisely bullish and bearish, depending on which is the higher price - the opening (bearish) or the closing (bullish). A
Inside Bar Trading Strategy
Many industry insiders consider this strategy to be one of the best as it features small stop losses and thus, it provides a nice risk-reward ratio. To make it clearer, we need to explain what an inside bar is. The inside bar is smaller but it is still within the high to low range of the prior bar. The bar that stands before the inside bar is referred to as “the mother bar”. In a nutshell, these inside bars appear after a strong move in the market and present a period of consolidation.
In a trending market, inside bars can be traded in or against the direction of the trend. Traders who use this strategy usually place the stop loss at the far end of the mother bar or halfway of it.
Forex Breakout Strategy
The Forex breakout strategy can be subdivided into 4 categories, including support, resistance, breakout, and retest. Before we continue, we would like to explain that under breakout we mean any price movement that goes outside a specific support or resistance area. When using such a strategy, the stop loss is typically placed above or below the breakout candle. It is crucial to mention that such breakouts usually mark the beginning of a future volatility increase, price swings, and price trends.
Before you enter a trade, you need to notice when the price breakout is out of the range. A confirmation of the breakout is your green light that signals you can initiate a trade.