What Type of Forex Trader Am I?
As part of a trading journey, a forex trader will come across many different trading strategies and systems. Today, there are countless ways to trade the forex market – including a manual trading strategy based on technical indicators, or trading using fundamental economic indicators.
You can take trades using a daily or a weekly chart, where you may only take 1 or 2 trades per week – or you can trade off a 1-minute or a 5-minute chart (also known as ‘scalping’) – where you might take as many as 5 or 6 trades in a single hour. Alternatively, you can trade using an automated forex trading system, called a trading robot, or an ‘Expert Advisor’ – whereby by following some simple steps trades are automatically taken directly on your trading account.
Two forex traders could use exactly the same forex system and get drastically different results, as a result of how they used the trading signals, how they entered and exited a trade, and how much risk they took on an individual trade.
One crucial aspect of becoming a successful forex trader is figuring out what sort of trader you are, and what sort of trading strategy you are best suited to.
Know Your Personality – and Trade Forex Accordingly
Everyone has their own unique personality, and whether you like it or not, this personality will have an impact on the type of trader you develop into. As such, it is crucial that you recognize this, as it will make it easier to identify a forex trading strategy that matches your personality profile, which will, in turn, increase the chances of you becoming a successful forex trader.
The ‘Emotional’ Forex Trader
For many forex traders, their emotions take over their rational thought processes. They will place a trade based on a thoroughly back-tested strategy, and on a strict pre-prepared trading plan. However, once they are in the trade, they start to panic – and exit the trade either too late, or too early. Then, they will lose money trading what could have been a perfect trading strategy.
It is a very difficult task to separate the emotions from your trading. If you find that you cannot do this despite your best efforts, then you may need to find an alternative method of trading – either by using a multi-trader platform where you can copy the signals of other traders, or by using an automated trading system such as an EA, which can help you to minimize any emotions that are interfering with your trading.
The ‘Economist’ Forex Trader
If you find yourself constantly reading the financial news, and are more interested in quantitative easing policies and interest rate policies amongst different countries, then you may trade on the basis of ‘fundamental’ indicators as opposed to technical indicators.
Fundamental traders do not use technical indicators or chart patterns to decide whether or not to take a trade. They base their trades on economics, and on the results of various economic news events that occur daily.
The ‘Computer Nerd’ Forex Trader
If you love computer programming and coding and think in a very logical manner, then you may be best suited to automated trading. Many forex traders program their own trading robots (also known as Expert Advisors or ‘EAs’) using the MetaTrader 4 trading platform. Traders who are adept at coding can create their own program according to specific trading rules and back-test them using different trading parameters.
The additional advantage of automated forex trading using an EA is that you can have the EA running 24 hours a day, without any overseeing or emotions – so once your system has been created, you can monitor your trading activities through it and control your results.
Finding a Forex Strategy That Suits Your Lifestyle
In addition to the above, you need to factor in the practicalities of trading forex around your lifestyle. If you live in New York, then do you really want to wake up at 3 am in order to trade a strategy based on the London trading session?
And if you are working full time, then a manual scalping trading strategy is also impractical, as you may not be able to get enough screen time to wait for your trade set-ups.
It is usually recommended that novice forex traders start out trading on a daily or 4-hour chart if they are working or studying full time. This way, they can fulfill their duties at work or school, yet still have enough time to get home and study the charts and implement their trading strategy. After gaining more knowledge and experience, they can proceed with faster and more aggressive trades.
Try Out Different Strategies
The best way for a forex trader such as yourself to find the style of trading that best matches your personality is to test a few different types of strategy, then figure out which one you feel most comfortable with. Once you start to feel comfortable in your trading, it will be easier to monitor your trading activities and potentially have positive results.
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
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P.M. Purple Trading is a trade name owned and operated by L.F. Investment Limited., 11, Louki Akrita, CY-4044 Limassol, Cyprus, a licensed Cyprus Investment Firm regulated by the CySEC lic. no. 271/15.