Before you trade on the forex rates market you need to know what your trading style it. You trading style will impact a number of different aspects of trading. It is important that you know what your forex rates trading style is and how it impacts your trading. When you do not know this you may use the wrong strategy on the market which will lead to losses.
The Forex Rates Trading Strategies
The first place new traders look for their forex rates trading style is the trading strategy they are going to use. This is actually incorrect because you should be using your trading style to determine which trading strategy you should use. Of course, you could use the trading strategy to figure out your trading style. However, you have no way of knowing that the trading strategy is the right one for you trading style.
Style and Personality
The first place you need to look when trying to determine your trading style is your personality. You have to consider how patient you are and whether you like quick profits or waiting to see your profits grow. You also need to consider how you cope with pressure and stress. Short-term trading styles offer faster profits, but they come with an increased stress and often increased risks. Long-term trading styles are less pressured, but they require more capital and take longer to realise profits.
Once you know all the parts of your personality that affect trading you should consider the timeframe you are comfortable trading in. This is often linked to your personality, but can also be an independent factor. There are three timeframes that you need to consider and they are long, medium and short. Each of these timeframes requires a different trading strategy and different analysis methods.
The Market Analysis
There are two ways that you can analyse the forex market and this is linked to your trading style. There are many traders who are better at technical analysis and other traders who are better at fundamental analysis. Of course, you also have to consider how your analysis method affects you trading strategy. If you are better with fundamentals then you probably have a long-term trading style. However, if you have a short-term trading style, but are good with fundamentals then you should look at short-term fundamental trading. These strategies will include fundamental trend trading and fundamental scalping.
What About Risk Tolerance?
You also need to think about your risk tolerance when you consider your trading style. There is more to a trading style than the timeframe they work in and the analysis methods they use. The amount of risk you are able and willing to take also plays a part in your trading style. It is recommended that you not be too risky with your trades because of the unpredictable nature of the forex market. Of course, you also have to take into account the innate risks that come with all trading. The risk tolerance you look at should be the amount over and above the risks of trading.