What is the easiest Forex strategy?

Before testing your first strategy, it's essential to have a solid understanding of the basics of technical analysis. This includes concepts like trends, candlesticks, and key levels.

Once you feel confident in your skills and want to move on to the next stage of your trading, then it might be a good idea to start with the easiest Forex strategy.  

In this article you will learn the rules of the strategy and most importantly - how to trade it successfully.

What is the easiest Forex strategy? 

The easiest Forex strategy consists of several mandatory components including the basic rules of technical analysis, which are:

• Trend - the current market direction; 
• Support and resistance levels - levels where the price has previously reacted and is expected to react again when tested;  
• Japanese candlesticks - Identifying the right moment to enter a trade by using signals from well-known candlestick patterns. 

In addition to these three simple rules, you shouldn't forget about factors such as proper money management and, last but not least, trading psychology!

When you master all these elements, even the easiest Forex strategy can bring you long-term positive results.  

Identifying the trend

The most important step is to identify the overall market direction. When you trade in the direction of the main trend, you are basically trading together with the market makers. This leads to a win rate.

Let's take the H1 chart of GPB/USD as an example, where we can easily see a clear downtrend.

Once you’ve placed your trendline at the price peaks, begin monitoring for any subsequent bearish movement. Additionally, mark your support and resistance levels, paying close attention to the last level that was broken downward. In the next chapter, you’ll see a precise example of how this would appear on a chart.

Finding the Support and Resistance levels

You’re likely already familiar with the concept that support and resistance levels are positioned below and above the most prominent lows and highs—the ones you notice first when you open the chart.

To follow the easiest Forex strategy step by step and execute it correctly, you must be well-versed in the basics of technical analysis, which we mentioned at the beginning of the article.

The next element of the strategy is to wait for a pullback to the last support level, which is now very likely to act as resistance to the price.

Determining the entry using the Japanese candlesticks

You have already determined the direction of the trend, as well as the key levels on the chart from which you can expect a reaction. The next step is to find the right entry moment. 

To find out the right entry moment, you need to observe the candles that are forming during a re-test of one of those key levels.

There are many types of candlestick formations, but to keep it simple, we will focus on just two of them.

These are:   

• An Engulfing candle - a big candle in the direction of the main trend that completely engulfed the previous candle; 
• Rejection candles with long wicks - these candles signal a potential reversal due to a lack of momentum in price.

These formations indicate the exhaustion of the upward movement and signal a potential reversal in market direction. This is your cue to enter!

The only thing left to do is to set the stop and target levels for your trade.

Important: To calculate the correct Lot size for your trade, you must know how many pips of Stop Loss you need before you enter the trade!

Placing your Stop Loss and Target levels

Trading styles vary depending on the goals a trader sets for themselves. Additionally, based on the time frames you trade, you can focus on short-term or longer-term movements.

Setting a Stop Loss level

"If you're a more aggressive trader and prefer staying active, you can use tighter stops with short-term targets. This approach allows you to exit trades quickly, as even a small price movement can yield good results.

However, if you are looking for longer-term movements and don't have a lot of free time to spend in front of the monitor following price action, then applying more conservative stops is recommended.

By using the aggressive SL option, you're finding better risk-to-reward ratio setups but you will also get stopped out more often. In this case, you should reduce the risk on each entry as you might have to re-enter a few times before the reversal actually happens.

When using the conservative SL option, it’s not essential to pinpoint the exact moment of reversal, as you allow the market more room to move against your position. In other words, the price can move against you and reverse later, aligning with your analysis. In this case, your stop is placed in a safer zone, preventing your trade from being closed prematurely.

Setting a Take Profit level

Even if you catch a move right at the start, before it fully develops, it doesn't guarantee that you'll be able to keep your position open until the end. This is where the psychological aspect of trading comes into play. You need to be well-prepared and disciplined enough to stick to your strategy! 

We recommend that if you choose to use more aggressive stops, you shouldn't aim for very long-term targets. Even experienced traders find it challenging to hold a large move of 100-200 pips with a 10-20 pip stop.  

The example in the next image illustrates a short-term position with a 1:1.3 risk-to-reward ratio, meaning that for a $100 risk, the potential profit is $130.

On the other hand, if your analysis suggests that the market will move in a certain direction for days, weeks, etc., then it is better to use a conservative stop, which will still provide you with a positive risk/reward ratio.

In the following example, you can see the same situation, but with longer-term expectations.

In this case, a stop of 86 pips and a target of 335 pips were used, resulting in a 1:3.9 risk-to-reward ratio. With a $100 risk, the potential profit is $390.

Remember: Target levels are not determined solely based on the risk-to-reward ratio; they are set where there are previous key levels of support or resistance!

Summary

The strategy you learned today is a good start to your trading journey. It is suitable for beginners and it can be tailored depending on the trading style.

Before we end the topic, let's recall what we learned in this article. 

The easiest Forex strategy step by step: 

• Trend - you determine the overall trend direction of the instrument that you will be trading; 
• Key levels - you identify the most obvious levels of support and resistance.; 
• Pullback - you wait for the price to return to a key level which will provide you with a positive risk-to-reward ratio; 
• Entry - you wait for a specific candlestick formation which is your entry signal; 
• Trade parameters - you place your Stop Loss and Take Profit levels; 
• Attention - you enter the trade with the correct lot size but only if you have a positive risk-to-reward ratio setup (above 1:1); 
• Patience - you wait for the market to reach your Stop Loss or Target levels. 

Remember that even the most basic and simplified strategies can bring you great results if implemented correctly!

If you are not yet fully familiar with the basics of technical analysis, then sign up for our free beginner course by clicking the button below.