If you’re just testing the waters of forex trading, you may be wondering just how these professional traders started their trading. For new forex traders, it’s quite daunting to merely start trading.
So, here’s a quick guide on how you can kick off your trading career. Check it out and use it to start earning from the forex market.
Your Trader Type
It’s very important to know what type of trader you are. The reason is simple. If you know what type of trader you are, you can pour your time, energy, and attention on making the correct strategy that will work for your trading personality.
Some of the questions you need to ask yourself are:
- Why do you want to trade?
- What are your goals?
- What do you already know about forex trading?
- What is your risk tolerance?
- How often will you be able to trade?
- Can you control your emotion and stress easily?
Answering these questions and more will help you get to know just what kind of trader you are.
The Trading Style
Knowing your trading personality is just the first step. After figuring out your trading personality, it’s best to find what trading style will be the best for you.
Answering those questions above provide great insights as to what kind of trading style will be perfect for your personality.
The most common trading styles include:
- Day Trading
- Scalping
- Position Trading
- Swing Trading
Style of Analysis
As you decide which strategy works best for you, you’ll also start seeing the importance of the analysis style you’ll want to use.
There are generally two types of analyses used in the trading market.
Technical Analysis
Technical traders analyze an asset’s price movements with the use of past prices. Basically, they use past data to project future performance.
A very important concept for technical traders is the concept of support and resistance levels. They also mainly use technical indicators that help them with the analysis:
- Fibonacci
- Elliot Wave
- Moving Averages
- Moving Average Convergence Divergence (MACD)
- Average Directional Index
- Pivot Points
- Relative Strength Index
- Stochastics
Fundamental Analysis
Fundamental analysis, on the other hand, searches for the intrinsic value of a financial asset and figure out if it’s overvalued of undervalued. Using that concept, they decide whether to buy or sell the asset.
A fundamental trader will often use news, economic reports, data releases, and similar information to come up with an entry and exit strategy.
Testing the Strategy
Once you’ve come up with a strategy, it’s important to test it in a variety of ways. You want to back-test the strategy as well as forward-test it.
Back-testing means you use the strategy on conditions based on historical data. Forward-testing means the opposite.
If the results are positive or what you expect, then you’ve made a strategy with a good expectancy. Of course, you have to test it repeatedly and with different parameters and variables.
There will always be times when you have to tweak it to fit the market conditions. Testing your strategy is a good way to anticipate such situations and put yourself in a position that protects you from incurring too many losses.