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Best Forex Trading System for Beginners

1. Pin Bar Trading Strategy

The pin bar trading strategy is perhaps the best Forex strategy for beginners. This is because it’s a very obvious pattern, making it easy to identify on a chart. It’s also one of the easier strategies to trade.

Notice how the market came into resistance during a rally but was soon able to break through that resistance. One of the basic principles of technical analysis is that former resistance becomes new support. Sure enough the market found support at former resistance and formed a bullish pin bar in the process.

Let’s take a look at a bullish pin bar that formed on the GBPCAD daily chart.

In the chart above, GBPCAD met resistance after an extended move up. Once the market broke through resistance, it found new support and formed two bullish pin bars. Shortly after forming these pin bars, the market continued its rally for an additional 370 pips.

 

2.  Inside Bar Trading Strategy

Another highly-effective Forex trading strategy for beginners is the inside bar strategy. Unlike the pin bar, the inside bar is best traded as a continuation pattern. This means we want to use a pending order to trade a breakout in the direction of the major trend.

Below is an illustration of an inside bar during a rally.

Notice how the bar preceding the inside bar is much larger in size. This bar is called the “mother bar” because it completely engulfs the inside bar. The real magic to this strategy comes after the consolidation period, which is represented by the inside bar, on a break of the mother bar’s range.

Below is an inside bar that formed on the USDJPY daily chart during a strong rally.

Notice how USDJPY was coming off of a very strong rally when it formed the inside bar on the chart above. These are the best inside bars to trade because it shows a true consolidation period which often leads to a continuation of the major trend, which in this case is up.

 

3.  Forex Breakout Strategy

 

The Forex breakout strategy we’re going to discuss here is a great trading strategy for beginners. This strategy is different than most of the conventional breakout strategies out there. Instead of simply trading the actual break of a level, we’re waiting for a pullback and retest before entering.

Another difference here is that we’re only interested in breakouts that occur from a wedge pattern rather than a horizontal level.

Here is an illustration of the Forex breakout strategy.

Notice how the market has worked itself into a terminal wedge, which simply means that the pattern must eventually come to an end. The opportunity to trade this pattern occurs when the market breaks to either side and then retests the level as new support or resistance. In the case of the illustration above, the entry would have come on a retest of support-turned-resistance.

Let’s take a look at the same breakout strategy but this time we’ll apply it to a USDJPY 4 hour chart.

Notice how in the USDJPY 4 hour chart above, the market touched the upper and lower boundaries of the wedge several times before eventually breaking lower. As soon as the 4 hour bar closed below support, we could have looked for an entry on a retest of former support, which came just a few hours later.

Although the pin bar trading strategy is my favorite, I have had some of my largest trades using the Forex breakout strategy above. The market will often react quite aggressively after the breakout occurs, allowing traders to secure a large profit in a relatively short period of time.

(http://dailypriceaction.com/forex-beginners/forex-trading-strategies-for-beginners)


4. Breakout

Markets sometimes range between bands of support and resistance. This is known as consolidation.

A breakout is when the market moves beyond the boundaries of its consolidation, to new highs or lows. When a new trend occurs, a breakout must occur first.

Breakouts are, therefore, seen as potential signals that a new trend has begun.

But the trouble is, not all breakouts result in new trends. In Forex, even such simple strategy must consider risk management. By doing so, you seek to minimize your losses during the trend break-down.

A new high indicates the possibility that an upward trend is beginning, and a new low indicates that a downward trend is beginning. So how can we get a feel for the type of trend we are entering?

The length of the period can help determine the highest high or the lowest low.

A breakout beyond the highest high or lowest low for a longer period suggests a longer trend. A breakout for a short period suggests a short-term trend.

In other words, you can tune a breakout strategy to react more quickly or more slowly to the formation of a trend. Reacting more quickly allows you to ride a trend earlier in the curve but may result in following more shorter-term trends.

This is very simple, but there is still a major drawback. Namely, new highs may not result in a new uptrend, and new lows may not result in a new downtrend.

So we are going to experience our fair share of false signals.

Using a stop-loss can help alleviate this problem. To keep things really simple, here’s an extremely basic rule for exiting trades. We are going to take a time-based approach. You simply close your position after a certain number of days have elapsed.

This time-based exit side-steps the issue of things becoming tricky when the trend begins to break down. Once you enter a trade, hold it for 80 days and then exit.

Remember, this is a long-term strategy.

If you find these parameters do not yield enough frequent signals, they can be adjusted to whatever suits you best. For example, you can try using hours instead of days for a shorter strategy.  Backtesting your results will give you a feel for the effectiveness of your choices.

5. Moving average crossover

Simple Moving Average (SMA) is a lagging indicator that uses older price data that most strategies and moves more slowly than the current market price.

The longer the period over which the SMA is averaged, the slower it moves. Often, we use a longer SMA in conjunction with a shorter SMA.

For this simple Forex strategy, we are going to use a 25-day moving average as our shorter SMA, and a 200-day moving average for the longer one.

In the chart above, the 25-day moving average is the dotted red line. You can see that it follows the actual price quite closely. The 200-day moving average is the dotted green line.

Notice how it smooths out the price movement?

When the shorter, faster SMA crosses the longer one, it indicates a change in the trend. When the short SMA moves above the longer SMA, it means newer prices are higher than older ones.

This suggests a bullish trend and is our buy signal.

When the short SMA moves below the longer SMA, it suggests a bearish trend and is our sell signal.

Rather than solely being used to generate trading signals, moving averages are often used as confirmations of overall trend. This means we can combine these two strategies by using the confirmatory aspect of our SMA to make our breakout signals more effective.

With this combined strategy, we discard breakout signals that don’t match the overall trend indicated by our moving averages.

Here’s an example. If we get a buy signal from our breakout, we look to see if the short SMA is above the long SMA. If it is, we place our trade.

Otherwise, we sit tight.

6. Carry trade

It’s a type of trade that is widely used by professionals too, so it is not purely a beginner Forex strategy. Best of all, it is easy to implement and understand.

The essence of the carry trade is to profit from the difference in yield between two currencies. To understand the principles involved, let’s first consider someone who physically converts currency.

Imagine a trader borrows a sum of Japanese yen. Because the benchmark Japanese interest rate is extremely low (effectively zero at the time of writing), the cost of holding this debt is negligible.

The trader then exchanges the yen into Canadian dollars and invests the proceeds in a government bond, which yields 0.6%. The interest received on the bond, should exceed the cost of financing the yen debt.

But there is a drawback.

Obviously a currency risk is baked into the trade. If the yen appreciated enough against the Canadian dollar, the trader would end up losing money. The same principles apply when trading FX, but you have the convenience of it all being in one trade.

If you buy a currency pair where the first-named (base) currency has a sufficiently high interest rate, in relation to the second-named (quote) currency, then your account will receive funds from the positive swap rate.

The amount yielded is correlated to the amount of currency commanded, so leverage is an aid if the strategy pays off. As noted earlier, though, there is an inherent risk that you end up on the wrong side of a move in the currency pair.

So it is important to carefully select the right currencies.

Inertia is your friend with this strategy and ideally you are looking for a low volatility FX pair. It’s also important to note that leverage will end up magnifying losses if you get it wrong.

The Japanese yen has long been popular as the funding currency because Japanese rates have been low for so long, and the currency is perceived as stable.

The strategy works well at a time of buoyant risk appetite because people tend to seek out higher-yielding assets. The action of traders implementing the strategy can itself support the strategy because the more people using the strategy, the greater the selling pressure on the funding currency.

This simple Forex strategy has been successful.

But, there’s a current problem. The global low interest environment, has narrowed interest rate differentials. When risk appetite collapsed during the credit crunch, many fingers got burned as funds flowed into the safe haven of the Japanese yen.

With the Fed signalling its intention to tighten monetary policy in the future, we may yet find the carry trade coming back into favour.

(https://admiralmarkets.com/education/articles/forex-strategy/simple-forex-trading-strategies-for-beginners)

 7. K.I.S.S (Keep It Simple Stupid)

The acronym K.I.S.S. stands for Keep It Simple Stupid. This acronym is as applicable to the field of Forex trading as it is to any. ‘Keeping it simple’ in regards to your Forex trading means keeping all aspects of your Forex trading simple, from the way you think about price movement to the way you execute your trades.

How do you “Keep It Simple”?

How does one keep their Forex trading simple? Well, no pun intended…it’s actually pretty simple; STOP looking for the next “perfect” Holy-Grail trading system and START looking at the price bars on your charts. By learning to read price action on a raw, “naked” price chart, you are learning an art and a skill at the same time. The “art” part of the trading equation is what allows some traders to make a full time living in the markets while the masses who are struggling to find the next best indicator system continue to lose money by trying to fit a square peg into a round hole, so to speak.

Learning the art and skill of price pattern recognition will provide you with a perspective and not a system. This market perspective is what would be considered a trading “method”; many people use the terms “method” and “system” synonymously when referring to trading techniques, however, they are really two entirely different things. A trading method provides you with a way to make sense of daily market movement, whether the market is trending or consolidating, where as a trading system is a strict set of rules that allow for little to no degree of human discretion.

How did famous traders like George Soros, Jesse Livermore, and Warren Buffet make their millions (and billions) in the markets? Not through complicated trading software or lagging indicator based trading methods, but through a discretionary market perspective that was developed through an awareness of price dynamics and market conditions in the various markets they traded.

(http://www.learntotradethemarket.com/forex-articles/kiss-keep-it-simple-stupid-forex-trading-method)

It basically means that forex trading systems don’t have to be complicated. You don’t have to have a zillion indicators on your chart. In fact, keeping it simple will give you less of a headache.

The most important thing is discipline. We can’t stress it enough. Well, yes we can.

YOU MUST ALWAYS STICK TO YOUR TRADING SYSTEM RULES!

If you have tested your forex system thoroughly through back testing and by trading it live on a demo for at least 2 months, then you should feel confident enough to know that as long as you follow your rules, you will end up profitable in the long run.

(http://www.babypips.com/school/undergraduate/junior-year/create-your-own-trading-system/the_so_easy-its-ridiculous-system.html)

Clean vs Messy

The purpose of this article is to help you understand that you can use simple price actions setup to successfully trade the forex market. Professional Forex Traders all have one thing in common; they keep their trading as simple as possible because they know that they need a calm and clear mindset to make money in the market. However, most beginning traders, and many experienced but unsuccessful traders, take the complete opposite approach to trading the markets; they make it as complicated as possible.

The K.I.S.S method, as it relates to Forex trading, is built upon an understanding that the best way to navigate the market is by learning to interpret and trade the raw price action signals that form naturally in the market. By trying to force a set of strict indicator based trading rules around the unbounded arena of financial markets, many traders unknowingly make trading infinitely more complicated and difficult than it ever needs to be.

If the power of simplicity in Forex trading was not clear to you yet, analyzing the charts above should make it more than obvious to you. I have seen many beginning and struggling traders try to trade with charts that look like the second one above with all the indicators on it. To be honest, I’ve seen traders trying to trade on charts that actually have more indicators than the example above…believe it or not.

As humans, we seem to have an almost innate tendency to make the easiest part of trading (chart analysis and finding trades) a lot more difficult and complicated than it needs to be. Once you accept the fact that chart analysis does not have to be difficult, it will help you to focus more clearly on the more difficult aspects of trading like remaining disciplined and managing your risk properly. Don’t be like the legions of other traders out there who waste a massive amount of time and money trying to figure out what a mess of different indicators and trading robots are trying to tell them. Learn to analyze the raw price action that the market naturally provides you with and you will be much further along the path to trading success than people trying to trade on charts like the one above.

(http://www.learntotradethemarket.com/forex-articles/kiss-keep-it-simple-stupid-forex-trading-method)

 

 

Here’s an example of a short entry order for the “So Easy It’s Ridiculous” system.

So Easy It's Ridiculous System Short Entry Signal

We can see that our criteria is met, as there was a moving average crossover, the Stochastic was showing downward momentum and not yet in oversold territory, and RSI was less than 50.

At this point we would enter short. Now we would record our entry price, our stop loss and exit strategy, and then move the chart forward one candle at a time to see what happens.

As it turns out, the trend was pretty strong and pair dropped almost 800 pips before another crossover was made! Now isn’t that ridiculously easy?

We know you’re probably thinking that this system is too simple to be profitable. Well the truth is that it is simple. You shouldn’t be scared of something that’s simple.

In fact, there is an acronym that you will often see in the trading world called KISS.

It stands for Keep It Simple Stupid!

(http://www.babypips.com/school/undergraduate/junior-year/create-your-own-trading-system/the_so_easy-its-ridiculous-system.html)

 


Conclusions:

If used properly, they can quickly build your trading account into a sizeable amount. The best part is, they are extremely simple to understand and are therefore easy to incorporate into your trading plan.

Here are a few key points from the lesson:

  • The pin bar trading strategy is best traded as a reversal pattern in the direction of the major trend
  • The inside bar trading strategy is best traded as a continuation pattern
  • The Forex breakout strategy should be traded after a break and retest of either support or resistance
  • All you really need to become profitable trading Forex is two or three great trading strategies

(http://dailypriceaction.com/forex-beginners/forex-trading-strategies-for-beginners)

 

Now that you have a basic understanding of the why and the how of the KISS method, you can begin to work on practicing its implementation. Practice trading specific price action strategies combined with support and resistance levels for at least 3 months on a demo account, or until you are consistently profitable, before attempting any of this on a real money account. Keep in mind that trading is inherently risky and this information is for educational purposes only and it is not met as a recommendation to buy or sell any financial instrument. That being said, if you are dead set on becoming a profitable and consistent forex trader, stick with the KISS forex trading method and master the concepts outlined in this article and in my Forex trading course, and you will begin to see that profitable trading does not need to be complicated.

If the power of simplicity in Forex trading was not clear to you yet, analyzing the charts above should make it more than obvious to you. I have seen many beginning and struggling traders try to trade with charts that look like the second one above with all the indicators on it. To be honest, I’ve seen traders trying to trade on charts that actually have more indicators than the example above…believe it or not.

As humans, we seem to have an almost innate tendency to make the easiest part of trading (chart analysis and finding trades) a lot more difficult and complicated than it needs to be. Once you accept the fact that chart analysis does not have to be difficult, it will help you to focus more clearly on the more difficult aspects of trading like remaining disciplined and managing your risk properly. Don’t be like the legions of other traders out there who waste a massive amount of time and money trying to figure out what a mess of different indicators and trading robots are trying to tell them. Learn to analyze the raw price action that the market naturally provides you with and you will be much further along the path to trading success than people trying to trade on charts like the one above.

(http://www.learntotradethemarket.com/forex-articles/kiss-keep-it-simple-stupid-forex-trading-method)

We hope you have found this introductory guide to Forex trading strategies for beginners useful. After all, anyone can follow these guides.

Just bear in mind that the examples we have shared primarily aim to get you thinking about the principles involved. Don’t follow a strategy without first testing it out.

Feel free to put your strategies to the test with our risk-free demo trading account. And don’t forget to regularly check our Education section for more free insights and best practices.

(https://admiralmarkets.com/education/articles/forex-strategy/simple-forex-trading-strategies-for-beginners)