Beginner Forex traders do not need complex trading strategies. If they don’t have time to develop their own, they can get a ton of beginner friendly Forex trading strategies by simply performing a Google search. In this post, We will find out how to use one of the best strategies that a Forex beginner can start using on a Demo account right away. Forget about everything that may distract you and get a pen and a piece of paper where you’re going to write down short notes.
One of the Best Beginner Friendly Forex Trading Strategies
To avoid getting confused, beginner traders should use simple strategies. The strategy explained below relies only on Support and Resistance Zones.
Breakout Forex Strategy
To trade this strategy, You need to determine when a consolidation period is coming to an end and when the market direction is changing. Once you identify consolidation, wait for the market to break the Support and Resistance Zones. But be careful not to be cheated by a fake breakout.
What Is a Fake Breakout in Forex Trading?
A Fake Breakout is when the price breaks either the Resistance or Support level, but instead of continuing with the direction of the breakout, it retraces back into the consolidation zone. As a rule of thumb, do not be in a hurry to place trades but instead wait for the price to continue consolidating within the rectangle box.
The market spends most of its time moving randomly without sticking to one confirmed direction. That is why there are a lot of fake breakouts in a Forex chart.
With a breakout Forex strategy, you can catch a powerful trend early if you have good timing skills.
How to Trade Breakout Forex Strategy
Begin your analysis by Identifying the consolidation zone.
Change your chart to a Line chart, then draw a rectangle box containing all the price movements. Note that a line chart is used to locate the best Support and Resistance Zones.
The Market must be stuck between Support and Resistance for a while. Sometimes, the price tests the Resistance line before it bounces back towards the Support level. The reverse is true when price tests Support level. Be keen once the price breaks either the Support or Resistance level. Do not enter trade yet because that is a Fake Break Out.
Entry and Exit Points
- Wait for the Price to form a false break out and bounce back into the consolidation box.
- Watch as the Price moves within the rectangular box for a while.
- Once it breaks out of the box for a second time, do not open a position immediately but wait for a candlestick formation to confirm that the trend that is about to begin is valid.
- If the second Breakout is downwards, confirm that the formed candlestick is a Strong Bearish Candlestick. The opposite is valid if the second Breakout is upwards.
- In a downtrend, Place Sell Stop Order a few pips below the Strong Bearish Candlestick, while in an uptrend, place a Buy Stop Order a few pips above the strong Bullish Candlestick.
Where to place Stop Loss
Get the number of pips between the Resistance Level and the Support Level. For instance, if you drew a Support Level at 1.1800 and Resistance Level at 1.1820, the pips between these two levels are 20.
You realize that 20 pips are the width of the consolidation box. Divide it by two, then add the result to Support Level—for example, 20/2=10. If we add 10 to our Support Level, we get 1.1810 as our Stop Loss.
If the Stop Order you placed is triggered and Price moves back into the consolidation box, you will only be taken out of the trade if Price extends, breaks the Support Level then travels ten pips or more beyond.
Where to place Take Profit
Set your Take Profit a few pips near the next zone. Price tends to consolidate and retrace to where it was after reaching the next zone. That said, you need to understand how to identify a zone.
Zones are imaginary lines that price finds hard to break. If the price breaks beyond them, the Market will continue moving in that direction until it reaches another zone. One of the reasons why most traders fail in the Forex business is that they don’t know how to identify zones.
If you are disciplined, this simple but powerful trading strategy will help you make your first dollars in the Forex market.
No strategy is better than the other because strategies are just tools traders use to scoop money out of the charts. If there was one better than other strategies, all traders could use it. No Forex trader could be losing money in the Market. It is important to find a strategy that aligns with your personality and then stick to it.
Conclusion
What works for one trader may not work for another. That’s the hard truth. So do not rush into trading on a live account using a new strategy you learn from another trader. Verify if the trading system works first by backtesting and forward testing.
