Which Trading Strategy is Best for Beginners?

Forex trading for beginners can be confusing as there are a lot of indicators, tools and strategies you have to study and apply carefully. However, there's one significant decision that will make a big difference in your forex trading journey, and that is choosing the right forex trading strategy.

With all kinds of trading strategies available, which is the best one to use for a beginner in forex trading?

 In this Blog, we will be covering the following :

1. What are Trading Strategies?
2. 11 most popular trading strategies that every trader should know
3. Price Action Trading Strategies - Bullish and Bearish
4. Which is the most popular strategy among most traders?

What are Trading Strategies?

A trading strategy is a plan that follows some rules to make profits by selling or buying in the financial market. Whether you trade currencies like AUDUSD and USDJPY or any forex currency pair, a great trading strategy gives your trades organization a systematic approach and helps to manage risk during adverse market conditions.

For beginners in forex trading, pre-defined strategies provide you guidance. Instead of letting your emotions rule your decisions, you place your trades by using proven techniques, enhancing your chances of success.

A good trading strategy is a combination of the following :

• When to enter a trade
• When to exit a trade
• Where to put stop losses
• Where to define trade targets
• Position sizing
• Risk management strategies

11 Trading Strategies That All Traders Should Learn

This is an elementary explanation of the most widespread trading strategies:

1. News Trading Strategy

Ideal for those who would like to capitalize on market movement when there are economic events. While forex is complicated for beginners, it is beneficial to understand how fundamental data affects price.

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2. Trend Trading Strategy

A trader looks for trends in the market and invests in the direction of the trend. It is a great trading strategy for those who can figure out trend momentum and invest in the same direction.
A professional trader usually trade trends by combining Price Action with technical indicators like Supertrend, Parabolic SAR, RSI.

3. Range Trading Strategy

Based on the fact that price oscillates between support and resistance, the forex trading typically starts here since it is easy to identify ranges in less volatile markets.

4. Day Trading Strategy

A trade is opened and closed on the same day of trading. It requires quick decision making. It is not suitable for beginners but highly popular among professional traders.

5. End of Day Trading Strategy

It is suitable for those who wish to analyse the market in the evening and want to carry their trades for the next day.

6. Swing Trading Strategy

It is used to capture short term trends by holding trades for days or weeks. It is one of the best approaches for all types of traders.

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7. Scalping Trading Strategy

It involves execution of a high quantity of trades in one day to capitalize on small price movements. It requires complete focus and speed. Scalping is not for beginners who trade forex.

8. Position Trading Strategy

A medium term method where traders keep their positions for months. It requires good techno funda analysis.

9. Gap Trading Strategy

It involves trading of the price gaps that occur between trading sessions due to news.

10. Algorithmic Trading Strategy

It employs computer programs to execute trades according to preset rules. It requires coding ability.

11. Price Action Trading Strategy

This is where we will concentrate because it is visual, intuitive, and ideal for new forex traders. We are going to discuss Price Action Trading Strategies in detail.

Why focus on Price Action Trading Strategy?

Price Action is all about  observing the market footprints and placing trades based on the direction the price will move. Price Action is usually indicator free. 

Price Action is very useful in forex trading for beginners because:

• You learn to read charts deeply
• It eases decision making
• It works across assets like AUDUSD, USDJPY, Oil and Crypto
• It is very flexible and with little practice it may fit your trading style.

Understanding Momentum Candles and Base Candles

Having a clear knowledge about functioning candles is crucial for beginners in forex trading.

Momentum Candle:

• Body is more than 50% of the whole candle, including the wick
• It reflects strength or weakness in price
• Larger sizes indicate strong momentum (buyers or sellers dominate)

Base Candle:

• The body  is less than 50% of the entire candle, including the wick.
• The color of Base candle doesn’t matter.
• It indicates a convergence or a pause in trends or momentum.
• This is where supply and demand zones are formed
   

It's important to know, practice and visualise these candles to implement our price action based trading strategy.

The Key Strategy – Price Action Patterns

We will now cover four solid price action strategies. These strategies can be used on any time frame, but higher time frames such as H1, H4 or Daily are more suitable for generating accurate signals in forex trading.

Now, we'll discuss the following major price action patterns:

• Rally Base Rally (RBR)
• Drop Base Drop (DBD)
• Drop Base Rally (DBR)
• Rally Base Drop (RBD)

These 4 Price Action methods are excellent ways of finding supply and demand levels.

Rally Base Rally (RBR)

Rally Base Rally is a bullish continuation pattern. Traders tend to open bullish positions when price retraces back to the demand zone.

How to find Rally Base Rally pattern?

• Find a Green Momentum Candle 
• Next candle should be a Base Candle(s)
• Next candle is again a Green Momentum Candle

Why does it matter?

Rally Base Rally shows a zone of demand, i.e., a zone where the buyers struggled, but then regained control again.

 

How to trade Rally Base Rally?

• Buy Entry: When the price returns to the base level
• Stop Loss: Below the base
• Target: 2x to 3x of stop loss size or level of next resistance

Drop Base Drop (DBD)

Drop Base Drop is a bearish continuation pattern. Traders tend to open bearish positions when price retraces back to the supply zone.

How to find Drop Base Drop pattern?

• Find a Red Momentum Candle 
• Next candle should be a Base Candle(s)
• Next candle is again a Red Momentum Candle

Why does it matter?

Drop Base Drop shows a zone of supply, i.e., a zone where the sellers struggled, but then regained control again.

How to trade Drop Base Drop?

• Sell Entry: When the price returns to the base level
• Stop Loss: Above the base
• Target: 2x to 3x of stop loss size or level of next support

Drop Base Rally (DBR)

Drop Base Rally is a bullish reversal pattern.Traders tend to open bullish positions when price retraces back to the demand zone.

How to find Drop Base Rally pattern?

• Find a Red Momentum Candle 
• Next candle should be a Base Candle(s)
• Next candle is a Green Momentum Candle

Why does it matter?

Drop Base Rally shows a zone of demand, i.e., a zone where buyers fought, then regained control.

How to trade Drop Base Rally?

• Buy Entry: When the price returns to the base level
• Stop Loss: Below the base
• Target: 2x to 3x of stop loss size or level of next resistance

Rally Base Drop (RBD)

Rally Base Drop is a bearish reversal pattern.Traders tend to open bearish positions when price retraces back to the supply zone.

How to find Rally Base Drop pattern?

• Find a Green Momentum Candle 
• Next candle should be a Base Candle(s)
• Next candle is a Red Momentum Candle

Why does it matter?

Rally Base Drop shows a zone of supply, i.e., a zone where sellers fought, then regained control.

How to trade Rally Base Drop?

• Sell Entry: When the price returns to the base level
• Stop Loss: Below the base
• Target: 2x to 3x of stop loss size or level of next support

What is the best time frame?

Even though these patterns work on any time frame, beginners in forex trading need to focus on the following time frames :

1. H1 (1 Hour)
2. H4 (4 Hour)
3. D1 (1 Day)

These time frames reduce market noise and allow traders to analyse markets for more accurate setups. Beginners in forex trading should focus on quality trading rather than quantity.

Tools to Use: TradingView

Use TradingView’s charting software for marking supply or demand zones, drawing candles and for setting up alerts. It is user friendly and has all the major currency pairs (such as AUDUSD, USDJPY) and simplifies backtesting.

Use the Rectangle tool to mark areas based on base candles. Use the replay mode to rehearse this trading strategy prior to trading with real money.

Why this Strategy is good for Beginners in Forex Trading

1. Simplicity: No indicators, just price action
2. Clarity: The stop loss, target, and entry are defined clearly
3. Discipline: Compels you to wait for setups 
4. Flexible: Suitable for any pair or market
5. Confidence Building: Makes you feel in control and you are not dependent on indicators

If you actually want to learn forex trading for beginners, learning this price action strategy should be your first preference.

Learn to trade on the basis of advanced price action strategies in forex market by enrolling yourself in best forex trading courses provided by FX Careers #1 Forex Trading Institute in Dubai

Summary of the Strategy

• Momentum Candle: Body > 50% of total candle
• Base Candle: Body < 50% of total candle, can be of any color
• Look for areas between momentum candles to mark your zones
• Deploy Price Action Strategies like RBR, DBD, DBR, and RBD
• Trade on higher time frames for more accuracy
• Place stop loss and targets
• Use TradingView to practice

Frequently Asked Questions (FAQs)

 

What is the best forex trading strategy for beginners?
Price Action Trading Strategy is recommended as the best for forex traders. It considers price action in the context of candlestick patterns, support and resistance, and momentum, but not through the use of complex indicators.

What does a base candle and a momentum candle mean?
A momentum candle is a candle having a body greater than 50% of the total size of the candle, which is a sign of significant price movement. A base candle is a candle having a body less than 50% of the total candle, which is also known as consolidation. Identification of these candles is very important as our price action trading strategy requires the help of momentum and base candles to find price action patterns like Rally Base Rally, Drop Base Drop, Drop Base Rally, Rally Base Drop.

Is it possible to use this price action strategy in any currency pair?
Yes. The strategy works on any of the forex pairs, even the most popular ones like AUDUSD and USDJPY. It can similarly be used on commodities, indices, stocks or crypto with little enhancements. 

What is the best time frame for beginners using this strategy?
Higher time frames such as the H1, H4 or the Daily charts are best suited for beginner forex traders. They filter out noise in the market and provide cleaner signals while using price action strategies.

Do I have to employ any tools for price action trading?
No, the best news regarding the Price Action Trading Strategy is that it does not involve any indicators. All trading decisions come from understanding candlesticks, price patterns, and how the market works, thus making it ideal for forex beginners.

Where do I find Rally Base Rally and Drop Base Drop patterns?
You would want to locate a big price movement, a rest with 1 to 3 small candles, and then a second big price movement in the same direction. Charting softwares like TradingView makes it easier to mark these areas for this strategy.

Is it possible to use this method on smaller time frames like M5 or M15?
You can, but shorter time frames are more noisy in the market. It's preferable for new forex traders to master the strategy on longer time frames first before attempting shorter ones.

How do I manage risk with this plan?
Always place a stop loss just after the base area (above or below, depending on the direction of the trade). Exit can be planned by using a risk to reward ratio of 1:2 or 1:3 to maintain consistency in this trading strategy.

Do I need to pay for a TradingView account to use this strategy?
No. You can access the majority of the features you need for forex trading as a beginner through a free TradingView account. These are charting, drawing tools and replay mode to backtest your trading strategy.

How long will it take to learn this strategy?
It differs from individual to individual, but if practiced regularly and trades are journalised, then most forex trading beginners improve their skills within 1 to 3 months. Practice with demo accounts and TradingView's replay mode to speed up your learning.