Trading Strategy Training

Every trader needs to develop his/her own trading strategy. This is important because it forces you to really think about the trade you would like to make. Without a trading strategy you will be just shooting in the dark, and this will make the trading floor more like a casino then a place to make money. Don’t think you can just copy the strategy of some other trader. If there was one Holy Grail, we would probably be all making money now. The first step is to decide what kind of trader you want to be, what kind of trading strategy do you think suits you, and will get you the best results? In general we can separate the forex traders into two groups: the fundamental traders and the technical traders. The first group is looking at the important macro economic numbers and uses those to decide which direction a currency pair is heading. The second group looks at the charts and tries to make predictions based on what he/she sees in those charts.
Another important distinction we can make is between the short-term traders (intraday) and the long-term traders. The first group is trading day by day, and does not care about the direction of the pair a couple of days from now. The second group does not really care about the direction today, but is trying to trade in advance of the future direction.
I will now discuss these four categorizations so that you can decide for yourself what kind of trader you think you are, and create your personal strategy from that.

Step out of the crowd. Develop your personal strategy, don’t blindly follow others

Fundamental Traders
Fundamental traders are looking for reasons why a currency pair moves in a certain way. Quotations are not the result of coincidence, but there is a reason why the pair reached a certain level. Fundamental traders are looking at important macro economic numbers and are closely monitoring statements and speeches by members of the central bank. The fundamentals can give you very
good clues about the direction of a pair in the medium and long term, but you should never rely on those numbers for the short term. You must realize that short term trading is very much about market sentiment, and pushed by large traders. If sentiment on a certain day is bullish, the chances are smaller that some bearish released economic number will push the pair back down. However, in the medium and long term a currency pair will always reflect the state of the underlying fundamentals. A nice quote I would like you to think of when trading fundamentals is the following:

“The market can remain irrational longer than you can remain solvent.” – John Maynard Keynes

Technical Traders
Some technical traders do not mind fundamentals at all, but use technicals instead. They are only trading by what they see in the charts, and even these traders can be highly profitable. Technical traders use a variety of indicators that tell them something about market sentiment, and in which way the market wants the pair to move. For instance, a good trade setup for these traders is when the graph is banging against a strong resistance line. Every time it touches this resistance level, it moves back again a bit before trying
to brake through that resistance again. Once it breaks, a technical trader would love to enter such a trade, because most of the times it will rally for sometime after the break.

Short Term Traders
Short term traders are making money intraday. They start behind their computer in the morning, buy and sell all kind of pairs and try to make money from the movements during the day. They will most likely exit all their positions before leaving the computer. Short term traders will have to know a lot about the technicals, as intraday movements are very much influenced by those. Scalping is an important technique used by short term traders, which means making money from small price movements.

Long Term Traders
Long term traders will care relatively more about the fundamentals. These traders do not look at movements over one day, but will try to predict the price level in weeks or months from now. Because every currency pair in the end will reflect a price that is a result of the fundamentals. And that’s important for long term traders.