Forex Trading Strategies – What Type of Trader Are You?

Forex trading strategies vary from trader to trader depending on what kind of trader he is. So if you’re planning to get into this lucrative market, you’ll first need to consider what type of trader you are. Only then can you plan out your trading strategy.

Currency traders are of many types – scalpers and swing traders for example but here we’re going to consider two basic types- those who use technical analysis -charts and indicators, and those who rely on fundamental analysis – relying on news releases and economic reports.

Both types of forex trader have the same objective – determining the likely direction of currency prices, but differ in the tools they use.

In a sense they’re looking at the same thing in different ways. Fundamental traders focus on the cause of market movement, namely economic news and other information that affects the value of a currency. Technical traders look at the result of these factors – how the market reacts to the new information. The difference is really a matter of emphasis and tools.

Let’s take a closer look at these two approaches.

Technical traders maintain that all available information about the movements of a currency pair is revealed there on the chart. They gaze at candlestick patterns or bar charts and look for trends, they look at indicators and oscillators that measure market momentum and strength.

Fundamental traders insist that charts and indicators can only tell you what the market has done, not what it will do. For them, the future direction of the market hinges on the news being released today. So they scan the economic data released daily and pore over the pronouncements of central bankers.

So which approach is best for you?

The simple answer is both are necessary.

If you’re a technical trader, incorporating fundamental analysis into your trading strategy will make you a more complete and successful trader. When you’re indicators start to move and hint at a new trend about to begin, your knowledge of how to trade the news will tell you why. Armed with this insight, you’ll know whether or not to enter the trade and such matters as the optimum size for your stop loss.

And if you already incorporate fundamental analysis into your trading, using technical analysis can show you how the news is affecting the market.

Many technical traders worry that they need advanced degrees in economics to make sense of the the pronouncements of central banks. But the fact is you just need a working knowledge of a handful of economic indicators and news reports and, most importantly, how to trade on them.

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