September 7

4 Effective Forex Trading Strategies for Beginners


You’ve started forex trading and it’s not working but you continue in the hope of earning more someday than what you’ve lost today.

This is the situation of every beginner trader- hoping to make it BIG in forex.

So many renowned and rich traders who started with little have probably inspired you to continue to trade. Their pure will and perseverance motivating you to pursue trading is only the beginning because your skills and strategies of trading will open more opportunities to succeed.

If you want to make it big in forex someday, you must start from the beginning and understand the trade. The only difference between you and a rich trader is how they strategize their trade.

Invest first with learning the trade and its strategies before investing any amount in it.

You shouldn’t be a fool who dives into the forex trading industry risking all that you have. Instead, you should give yourself a goal in trading and a plan to achieve it. Your plan will consist of you budgeting your money for investments and strategizing a method to increase those investments.

Each forex trading strategy applies to your different level, approach, time, and comfort in trading. You can further read the different strategies to see what best suits your style.

[lwptoc min=”2″]

Overbought VS Oversold

Overbought and oversold are two conditions that are essential for every trader before knowing the different applicable strategies in trading.

Essentially, the two conditions are to know when to enter and exit a trade, when to reverse the trade trends, and what positions to take through your strategies. Identifying these conditions can help you manage your trade and the risks involved in it.



Overbought refers to a consistent rise in currency prices without much pullback. In the graph below, it shows an extended move upwards from left to right.

overbought 4 Effective Forex Trading Strategies for Beginners


Oversold refers to the opposite of overbought and is a consistent downward trend of prices also without much pullback. The graph below shows an extended move downwards from left to right.

oversold 4 Effective Forex Trading Strategies for Beginners

To identify both overbought and oversold conditions, commonly used indicators are used.


The 4 Forex Trading Oscillator Indicators 

To understand first why the term is significant to trading, we should understand its definition. Oscillator comes from the word oscillating meaning movement and it is an important indicator used in trading to track the price range whether it is above or below the centerline or acceptable price.

Oscillators are used to help you understand the fluctuations and momentum of price changes and developments. If the price rises, oscillators increase and reach a higher level but if a price falls, oscillators also decrease and reach lower levels. If these extreme levels are met, traders need to revert to the mean but an experienced trader knows that these extreme fluctuations are normal and should be met with ease and proper positioning.

The concept of oscillators dictates that prices that reach resistance and support levels, are within an extreme overbought or oversold threshold and in response will reverse.

The 4 indicators explained below have great benefits that can match different trading strategies used by different traders. If you are looking to find the best indicator for you read on ahead to see what best suits your style of trading.



The Moving Average Convergence/Divergence (MACD) is an indicator that compares and monitors the difference between 2 of the exponential moving averages lines. Graphically, it compares the 26-day and 12-day EMAs on a sub-chart known as the MACD line. Finally, a signal line (9 EMA) is plotted on the drawn graph to help traders identify conditions that are great for buy and sell opportunities.

If the MACD line is above the signal line, traders tend to buy more; if the MACD line is below the signal line, traders tend to sell more. This indicator is most helpful in these terms to create buy and sell opportunities from crossovers and divergence of previous averages.


One of the reasons this indicator also uses EMA is because it a moving average that places importance on the recent data levels of previous prices for analysis. EMAs are also fitting for trending markets like many moving average indicators.


Below is an example of the MACD indicator, wherein the red line is the indicator that shows levels within the boundary of acceptable prices and levels beyond or below that are considered extreme levels. Above the red line are considered overbought, while below the red line are considered oversold.

MACD 4 Effective Forex Trading Strategies for Beginners



Commodity Channel Index or CCI is another indicator that uses the positive and negative value of 100 to identify overbought and oversold levels and pricing. The -100 level indicates an oversold value while the +100 indicates an overbought value.


These 2 levels are considered the extreme levels of a currency price but every trader should understand that these levels are present 80% of the time.


Panic is unnecessary. Instead, patience and strategy to wait for the indicators to move back within the acceptable levels are needed to revert to the direction of the primary trend.


CCI can also be used on multiple time frames for long-term and short-term trading. To establish a dominant trend, a long-term chart can be used, while a short-term chart helps set-up pullbacks and areas for entry. The use of multiple time frames is more common among active traders who can monitor continuously the trade and sometimes can be used for day trading.


Below shows an example of the CCI indicator is placed.

cci 4 Effective Forex Trading Strategies for Beginners


Stochastic Oscillator

The Stochastic Oscillator is a simple momentum oscillator that uses the reading lines of 20-80. The range 80 above would be considered overbought prices, and the range 20 below would be considered oversold prices. If the trade approaches these extreme ranges, the term bearish signals would mean the readings reach overbought levels and the term bullish signals would mean the readings reach oversold levels. The signals that reach these levels would then expect a change in price momentum in the opposite direction.


In a slow stochastic graph, we can see two lines, the red and blue lines, that represent the moving averages of the constant price changes. If these two lines cross, a momentum shift will change the direction of the asset price.


Below shows an example of a stochastic oscillator that presents both a blue line and a red line. The blue line is the %K line while the red line is the %D line (the moving average of %K), which follows behind the %K line.

stochastic oscillator 4 Effective Forex Trading Strategies for Beginners

It should be noted that the change in direction doesn’t immediately mean that a trader should enter a trade. The reasoning comes from the unpredictable movements of some trades. These trades can either stay overbought or oversold for a longer period then as predicted in the charts. These unpredictable movements can help increase earnings for your trade if handled cautiously.


Below is an example of an asset that is considered overbought but continued to rise afterward.

overbought stochastic 4 Effective Forex Trading Strategies for Beginners

The unpredictability of these assets is present in every trade but shouldn’t be left as a weakness for a trader. Instead, a trader should look out for previous signal trends that are stronger to predict their trade.

To improve your trading skills while using a stochastic graph, you need to improve your detection of these signals through 2 ways:


  1. Identify Crossovers at Extreme Levels

If you can first identify these crossovers at extreme levels, you can assume that the trend will reverse from that point onwards. These extreme crossovers are found above the 80 range for overbought assets and below the 20 range for oversold assets. Once these crossovers are identified within these levels, a potential shift can occur. Crossovers above 80 would potentially shift the trend lower, and crossovers below 20 can spike the trend.


  1. Filter Signals towards Movement of Trend Direction

False sell signals can occur when strong uptrends are present in a stochastic graph from extended periods of extreme levels. Since these strong uptrends can reach new heights and opportunities as a trader it would be a mistake to sell. If you continue with the trend more pips will be available in the direction of the trend.

So if you see a strong uptrend wait for a dip and correction to schedule a buy. The momentum will rise from that point as the stochastic reaches’ oversold levels. This will signal you to buy from this trend.



The Relative Strength Index is an indicator used frequently in trading that uses price momentum similar to a stochastic oscillator. The difference with RSI is that it doesn’t use simple moving averages, therefore canceling the use of crossovers, which is used by stochastic oscillators. Instead, RSI uses a different analytical formula, wherein its ratio is between the average gain and average loss over the last 14 periods.

Even if the methods and formula are different, RSI still has a similar graphic range to identify overbought and oversold assets with the range above 70 considered overbought and range below 30 considered oversold. You can usually trade within these ranges by selling at 70 and buying at 30. RSI and stochastic also have the same terms used as bearish for low levels and bullish for high levels.


If both indicators are similar what should you use?

Both indicators are great indicators that have different advantages that can help you in your trade. Stochastic oscillator would be a better indicator in volatile markets for unpredictable price fluctuations. This indicator also doesn’t rely on trending information to indicate overbought and oversold conditions. Additionally, it can help predict price movements of non-traditional assets that have little connection to previous trend lines.


The RSI, by comparison, would be a better indicator to measure the strength of major currency pairings by monitoring the changes in its closing prices. It connects rising swing lows in an upward trend line or lower swing highs in a downward trend line. The opportunities are increased for traders in this strategy by turning risks into rewards. Since RSI measures the closing prices, its change in a direction whether above or below will result in a high valued price.


The 4 Forex Trading Strategies for Beginners

Channel Strategy

Channel strategy is an easy and powerful trading tool that different types of traders use from those who prefer day trading or swing trading. It simply provides traders with an easy to spot entry and exit trades, as well as controls the risks of unpredictable extremes. Additionally, this strategy helps determine points to place a stop-loss to avoid risks by utilizing a channel, which contains the price action of trade.


What is a Channel?

A channel is an area between two parallel trend lines (lines made from occurring price points). These two lines are made from points in the price developments, whether its high or low changing points. They are also known as the resistance level found in the upper trend line and the support level found in the lower trend line. The resistance level connects the high prices and the support level connects the low prices in the chart.


These channels can either be in an upward trend, downward trend, or a straight trend.


An example of this strategy is shown below where the points that are close or touching the resistance level are considered to be high prices, while the points that are close or touching the support level are considered low prices.

LOWER AND UPPER channel 4 Effective Forex Trading Strategies for Beginners

Channel trading is used mostly for short-term and medium-term trading because of the volatility of markets and the channel area can change easily in a week or even an hour. In the chart above you can also easily see the increase of the mean of the resistance level by August 17, which shows that channel strategy is not always sufficient for long-terms.


If you want to use this strategy, I can teach you how to establish easily a channel.


Establishing a Channel in 3 easy steps:

  1. Identify the high and low pivot points of your previous trend line to make as a starting point of the channel.
  2. Match high and low pivot points in the trend line to the starting point. Find as many or close values as you can to support the trend and its effectivity.
  3. Connect the high points to create the resistance level and connect the low points to create the support level. These two parallel lines created are now considered the boundaries of the now created channel.

These channels are useful to help forecast upcoming trends and opportunities to buy and sell, which can last for an hour to a month.


Support and Resistance Strategies:

Earlier I explained the importance of channel strategy, a strategy that can create high and low trend lines. In Fibonacci and pivot strategy, we delve deeper into the relationship of support and resistance strategies in trading.

First, before explaining both strategies, we should look into the difference between both Fibonacci trading and Pivot trading.

  • Pivot trading calculates the average previous high and low points, while Fibonacci trading is based on fixed ratios from the Fibonacci sequence.
  • Pivot trading is based on previous period price extremes, while Fibonacci trading is based on previous waves price extremes.


Fibonacci Trading Strategy

The Fibonacci trading strategy is utilized as an opportunistic support or resistance method. Several traders opt to use this strategy for long-term major decisions for a greater reward in the future. It can also be applied to short-term movements in the chart to find immediate rewards.


The reasoning behind the strategy is directly derived from the Fibonacci Sequence, which is an important mathematical sequence that has a strong relationship with the trading levels and charts. It is a continuous sequence of numbers that are made after the sum of the 2 numbers before them. The numbers from the sequence hold no value to trading but the relationship between the numbers is the key component used.


The relationship between trading and the Fibonacci sequence comes from the Golden Ratio known universally as 1.618 with its inverse as 0.618. This particular number found from the Fibonacci sequence holds importance over two Fibonacci Trading Levels, namely, Fibonacci retracement levels and Fibonacci extension levels.

These two levels are essential since they provide possible turning points in the value of the currency in the trading market.


1. Fibonacci Retracement Levels

Fibonacci retracement levels are strategies placed to support a currency value’s abrupt change and reversal in direction. The Fibonacci sequence relationship with the Fibonacci retracement tool is based on the different Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, and 100%. These retracement levels are then plotted to produce support and resistance levels used for a trader’s price goals.


The two diagrams below also show the interconnected relationship between the Golden ratio of 1.618 and its inverse of .618 or seen as 61.8% and its constituents to the buying pattern and sell pattern of trading markets.

Fibonacci 4 Effective Forex Trading Strategies for Beginners


How to Trade Fibonacci Retracements?

  1. Identify the major moves of price.
  2. Apply indicator from the starting point of the move to finish.


Below shows an example of the different retracement levels reached by the currency’s value over time.

Fibonaci 4 Effective Forex Trading Strategies for Beginners


2. Fibonacci Extension Levels

Fibonacci extensions are used to determine suitable price targets after a current trend has resumed. Similar to Fibonacci retracement levels, it is also used to determine possible support and resistance levels.


The key difference between both is that Fibonacci extensions find possible support and resistance levels that are greater than 100% of the previous price fluctuations. They are used in the opposite direction to Fibonacci retracements.


The relationship now between extensions and the Fibonacci sequence values above 100 rather than below. These values in trading would be 161.8%, 261.8%, and 423.6%. An additional extension level is also used known as 127. 2%, the square root of the golden ratio used in the Fibonacci sequence.


How to Trade Fibonacci Extensions?

  1. Find the dominant trend.
  2. Monitor the reversal of the market against the trend and then the market reversal following the dominant trend.
  3. Use the extension ratios of the previous reversal trend movement. Use first the previous low to high in an uptrend and vice versa for the downtrend.
  4. Parallel lines are then drawn for resistance and support levels in the chart.
  5. These lines will then become the basis of profit when trading.

Below shows a Fibonacci Extension in a trading chart.

fibonacci extension 4 Effective Forex Trading Strategies for Beginners

Multiple Fibonacci extensions can occur from different lows in an uptrend and different highs in a downtrend. These many levels can become significant and used with Fibonacci retracement levels for greater price movements.


Pivot Strategy

The pivot strategy is a technical analysis indicator that uses pivot points, which are widely known in different markets from Forex markets, equities, and commodities. They can be used hourly, daily, weekly, and monthly but is not suitable for longer-terms because of the volatility of the market.


Pivot points itself is defined as the average of the high, low, and closing prices from previous price trading. It is the point of potential support or resistance where the price can change its direction of trade.


This strategy uses these calculated pivot points to analyze current and upcoming support and resistance levels. These levels are then used to identify entry and exit points for traders to stop losses and to earn a profit. Several traders use this strategy because it is easy to handle since its basis is from previous limits unless extreme forces act upon the pricing of the market.


When trading with pivot points, it’s important to remember the following:

  • A term used for a price above pivot is called bullish bias
  • A term used for a price below pivot is called bearish bias
  • The extended use of pivot points increases effectivity due to larger data accumulated.
  • Support and resistance levels are extensions of the pivot point for additional price levels.

Below shows the graph with pivot points in place.

pivot points 4 Effective Forex Trading Strategies for Beginners


How to Trade using Pivot Strategy?

The pivot strategy can be used in trade as key support and resistance points. You can use these levels as opportunities for possible breakout trades or turning points.

You can trade using 2 Pivot Trading methods:

  1. Pivot Point Swing Trading

This method is looking to buy or sell from the pivot, support, or resistance levels. This method uses a weekly to the monthly time frame for those who prefer medium to long-term trades.


In the graph below, you need to wait when the price moves lower into the pivot point to buy and then continue to support it until it moves back into resistance levels 1 and 2.

pivot 1 4 Effective Forex Trading Strategies for Beginners

  1. Pivot Point Breakout Strategy

In fast-moving markets, this strategy can be effectively used as traders try to look for breaks in support or resistance levels to enter the market.


In the graph below it shows a fast-moving market, so use a fast breakout of the resistance level and continue to the upwards levels 2 and 3.

pivot 2 4 Effective Forex Trading Strategies for Beginners

Reversal Patterns Strategy

This strategy is used to identify a change in trend and then earn from the new change of trend. It defies most trading logic by aiming to trade against the trend.

The two most critical indicators for reverse are the price and volume of the trade. These primary points help identify the accumulation and distribution of the trade.  The momentum of the trade can also further help predict a reversal and can be beneficial.

In using this strategy, you should find probable pullbacks and forecast their strength. To ace, these probabilities knowledge in the markets will greatly help in discovering them as well as experience in using the strategy.

It can be utilized for long-term and short-term trading for both Day Trading and Swing Trading.

Below shows an example of a reversal pattern strategy. In the direction of the black line, an ideal buy would be placed and in the direction of the red line, you can take your profit and place a buy stop order.

reversal 4 Effective Forex Trading Strategies for Beginners


Is it important to trade with a trading strategy and to have proper money management?

A trading strategy is a major foundation used for all types of traders. It helps even beginners understand the ins-and-outs of trading by having a system show them directly the meaning of all the different trends and points.

We utilize these different strategies because we know that we can’t always constantly monitor the trade so we have strategies in place to help us evaluate them and make more informed decisions through them.

The money that you’ve invested in trading would be a degree safer if you had the tools and strategies set-up to manage them. This said,

Proper money management is your key to earning big and losing less.

Earlier, I stated in the introduction that you need to know how to budget your money for investments and how to strategize its use. Hopefully, after reading this whole article you understand that there are so many ways to strategize using your investment, and it’s just up to you to choose from them.

Your money will be in your hands and all choices thereon will either break or make your trading experience so manage your money properly.

But don’t forget that trading includes risks and you should always steer clear from them by knowing those trading risks and by following your trading plan and trading strategy.

So, good luck and stay safe in trading!



You may also like

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Get in touch

0 of 350