For beginner traders, it’s important to start with simple and basic strategies. They can provide a strong foundation for understanding the market and developing trading skills. In this article, Headway experts share three basic strategies that beginners can consider.
📈 Trend following strategy
At the core of this strategy lies your skill of trend identification. To identify the trend, you can use technical analysis tools such as Moving Averages.
For example, if the price is consistently making higher highs and higher lows, it indicates an uptrend, and if it’s making lower highs and lower lows, it indicates a downtrend.
Once you find the trend, look for entry points that align with the trend. For instance, in an uptrend, consider buying on pullbacks or breakouts above resistance levels. In a downtrend, look for selling opportunities on bounces or breakouts below support levels.
Then you can place a Stop-Loss order below the recent swing low in an uptrend and above the recent swing high in a downtrend. It will help to protect against significant losses if the trend reverses.
Here you can also determine your profit target based on your risk-reward ratio or use trailing stops to capture profits as the trade moves in your favor.
🔋 Support and resistance strategy
With this strategy, you exercise your skills of identifying support and resistance in the charts.
Support levels are areas where buying pressure is expected to outweigh selling pressure, causing the price to bounce. Resistance levels, on the other hand, are areas where selling pressure is expected to outweigh buying pressure, leading to a potential reversal.
The key rule here is to buy at support and sell at resistance. Look for opportunities to buy near support levels or when the price shows signs of bouncing. Similarly, consider selling near resistance levels or when the price shows signs of reversal.
When you are confident about future price movements, place a Stop-Loss order to limit potential losses:
- below the support level when buying,
- or above the resistance level when selling.
Together with SL, set profit targets based on previous price swings. Or you could use trailing stops to capture profits as the price continues to move in your favor.
💪 Breakout strategy
A breakout occurs when the price breaks above resistance or below support, indicating a potential strong move in the breakout direction. This strategy may require a higher skill from a beginner trader.
Place entry orders slightly above the resistance level for a bullish breakout or below the support level for a bearish breakout. This allows you to enter the trade once the breakout occurs.
Remember to set a Stop-Loss order on the opposite side of the breakout level to protect against false breakouts or reversals. Determine your profit target based on the size of the breakout or use trailing stops to lock in profits as the price continues to move in your favor.
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