Short-term Forex Trading Strategies for Beginners
Trading forex or any other financial market for that matter requires in equal parts, a certain amount fortitude, determination and skill. What strategy you have settled on using, however, needs to align with your individual trading style. Even if you are lucky enough to be given a consistently successful strategy by a professional forex trader, you will soon find that somethingโs amiss. This isnโt because youโve been scammed but rather due to the fact that each traderโs psychology and reasoning is completely different. What may work successfully for someone in the long-term probably wonโt work for you because of your unique personality and rationale.
You can easily memorize an early checkmate strategy from a grandmaster but being able to force it in every game is on an entirely different level. That being said, there are some general rules in online trading that are common between all successful veterans. Most importantly, the guidelines you are going to follow have to match your endgame โ your objective. Is your objective a short term cash grab or a longer-term investment that will accrue compounding returns year over year? Can your attention span handle the lower timeframes, or would you prefer a more laidback, higher-timeframe strategy? Scalping, swing-trading or position trading?
Regardless of what you eventually pick, you need to remember that you need to start thinking about money and risk management before opening a single trade. Trading forex is a capital preservation game. If you manage not to be overcome by greed and be wary of your position sizing and use of leverage, you can be sure that results will come sooner or later.
Scalping
You โve undoubtedly heard of this one already. Itโs quite popular because it might seem like the simplest forex trading method. Simple to grasp but hard to master. Scalpers aim to gain a minimal number of pips, most of the time just enough to beat the spread and then do it again and again until they hit their daily target.
For your average forex trader, a target of 50 pips a day can be more than satisfactory. If you consider that a scalper usually opens more than 10 trades per day – with each one lasting no more than a couple of minutes โ it doesnโt seem too unrealistic of an objective. Normally though, if you are evaluating yourself based on how many pips you win every day, you are trading forex the wrong way. Online trading is extremely inconsistent, and you canโt expect to hit a specific target every day. What you can expect are irrational price moves, high volatility and streaks of losses. Thatโs why your risk exposure and lot size should always remain within reasonable limits. If you are risking 20 pips to gain 100 thatโs great but risking 200 for 200 wonโt have a pleasant outcome for your account.
If you are trading forex as a scalper, you should be on the lookout for brokers that are very competitive with their spread offering. The major pairs obviously are ideal for a scalping-minded strategy since higher liquidity means lower spreads. Also, every forex trader knows that they can find an abundance of liquidity when two markets are open at the same time. As such, trading forex when the European and American sessions overlap is a perfect time for the scalpers. The London session converges with New Yorkโs open between 8 am and 12 pm (Eastern Standard Time).
Finally, scalping may be a low-risk strategy due to the high amount of trades with low-risk exposure, but it requires high attention span and an emotionless trader. Expert advisors or trading robots are very popular with scalpers for this exact reason.
Swing trading
Forex trading is great as a hands-on investment vehicle because of the volatility in the markets. Currency pairs can make moves reaching up to 100 pips in a single day and sometimes even more. Swing traders are aiming to identify when these movements are going to take place so they can profit from them. This strategy can vary from short-term to long-term with traders usually holding their positions from a few hours to a few days.
Swing traders like volatility. They look for trending markets to spot pullbacks and breakouts. There are multiple suitable strategies within the swing-trading category, and you can even find it helpful using charts with either low or high timeframes. It all depends on the individual and his forex trading style.
A popular indicator for swing-trading is the moving averages or MAs. Moving averages help analyze the mean price on the chart for a set period of time. A short and long-term moving average indicator can be placed on the chart to predict where a swing will be established. Where the two lines of the indicators converge – itโs considered an entry signal because it predicts that the price will head towards the point where the two indicators meet.
If you are looking to adopt a swing trading style of forex trading, you need to become familiar with price action. You need to invest a lot of time into reading charts to identify potential opportunities where the price is going to swing but itโs equally important to include strict risk-management rules with your strategy to secure your account. Always try to look at the big picture and donโt try to go against the trend. A wise forex trader never trades against the market.
