The forex market offers many ways to become successful in trading, but to take advantage of these opportunities, you must first understand your strengths and weaknesses. Most traders are taught that there is only one “right way of trading”. As an adult, you are very unlikely or difficult to change your way, right? On the other hand, markets are dynamic, changing over time. Therefore, it is much easier to find trading techniques and trading strategies that fit your personality rather than trying to adjust to the ideas of other people’s trading techniques.
Before we continue, do you like fishing or motorcycle racing (although just watching)? Yes, this question is important. This is a question of trading with trends and trading with counter-trends.
Fishing takes time, methodology and most importantly is patience. Like trend traders, those who are fishing will throw their bait hooks over and over before they get the fish on their bait. While the motor racer, on the other hand, is looking for a speed sensation with a very specific goal – to the finish line. Well, the activity you love shows a hobby for one sure trading style compared to other trading styles. Short-term traders or long-term traders?
Are you more comfortable trading short term or long term? Generally, traders who like to use trend-based trading will trade longer. While traders looking for opportunities in a reversal of market sentiment will usually trade in a much shorter time.
Usually, the shortest most effective timeframe for trading in the forex market is on a 1-hour graph (H1) with an average RRR of at least 30 points. For example, the EUR / USD pair, which is the most liquid financial instrument in the world and usually traded with 3 bid / ask bid spreads. A trader with 10 points and 10 points stops should get 13 points (10 points + 3 points spread) and stops after the price moves only 7 points (10 points – 3 points spread). After hundreds of trades, this negative tendency in the RRR equation makes it very difficult to make a profit in that short timeframe.
Once you have determined the timeframe that works best for you, the next question you should ask yourself is this: what kind of analysis should or will you use to make the right trading setup? No significant problem other than a debate between fundamental analysts and technical analysts.
Fundamentalists (a term for fundamental analysts) ridicule the technical analyst’s attempts to predict future price movements simply by looking at the current price action on the chart. News, economic reports and monetary officials comments are fundamentalist fundamental tools. Technical Analysts, on their part, ignore most of the fundamental data because it is so unconvincing and contradictory, believing that material news will be reflected in the price action of a pair and will therefore provide an objective guide to future price movements.
Then which one is correct? No one. Trading with technical or fundamental will be the same. A fundamentalist can talk anything about global demand for oil so that it will push crude oil prices to $ 40 / barrel and bring the Canadian dollar to the US dollar. But if they choose to short USD / CAD at an oversold level and there is a divergence on momentum on the chart, then they will likely lose money during trading. Even if their analysis is ultimately true. Conversely, a technical analyst can also short with Fibonacci, but if there is economic news that shocks the market so as to push prices up, then the short position will be like a bush after an elephant rampage when traders try to close their position (panic) ignoring the various levels of resistance.
Generally, fundamental data tend to have a stronger impact on long-term trading, while technical will be more important to consider in short-term trading. In the long term, currency prices will respond to major economic events such as GDP growth, interest rates and current accounts.
Collaboration from both, Fundamental and Technical, will be a great weapon for traders to become successful in forex trading.