Personality and Trading Styles

Personality and Trading Styles

Have you ever noticed how so many of us have these lofty ideas of becoming successful in life within

the first couple of years in a new career? Perhaps it’s because we all know that we were made for

success. This zealous ambition affects all areas of our lives. Forex trading is no different.

Many traders enter the world of forex trading thinking they will hit the jackpot so to speak. The reality

is that all things in life require dedication, hard work, and patience.

Overall, forex trading should be void of any emotions. This is difficult considering that people are

largely emotional beings. Trading psychology is, in itself, a large topic with interesting information. I

want to hone it down to self-awareness. If you know who you are and understand yourself, you are

better able to manage your risk, choose the best trading style, and know when to walk away for a

break.

What is your personality? What trading styles are available?

Know your personality

Forex trading fits two personality extremes: impulsive and conservative. Most people are somewhere

in the middle, either leaning toward a predominantly impulsive nature or a more conservative one.

Before we elaborate on these two personality types, let’s clarify that there is no perfect strategy to

forex trading nor is there a single personality that is ideal for forex. The uniqueness of people is what

makes forex trading thrilling and rewarding. You take your unique character and pair it with a couple

of trading strategies that fit you. Voila! Success (hopefully). 

There is no right or wrong personality or

trading strategy. The successful strategy is the one that fits you, the trader.

With this in mind, let’s explore the impulsive and conservative personality types.

Impulsive

The fickle nature of the forex market plays into the hands of the impulsive trader. This trader can jump

into a trade quickly, gain profit, and jump back out. The thrill of the trade, the quick results, and the

instant gratification all appeal to the impulsive trader.

However, being impulsive does also mean that as a trader you enter and exit trades too early. The

forex market requires traders to judge the entry points and wait for the market to come to that specific

level. The problem with impulsive traders is that they often chase the entry levels, eager to get into

the market.

Are you an impatient trader?

Can you watch a trading strategy run its course?

How impulsive are you in real life?

Scalping, short-term trading, news trading, and breakout trading are the best strategies for those more

impulsive traders. The impulsive trader loves the rush of quick-on-your-feet thinking and reacting.

These strategies allow traders the thrill of quick trading as they experience the high of profits and the

low of losses.

Conservative

Conservative people by nature are tentative and cautious. They do not want to risk too much,

therefore they limit the amount of potential profit they can make in forex trading by not closing trades

at the appropriate time.

Their patience is a credit to them. The forex market requires patience. Patience to ride trends and not

pull out of trades too early. Patience to wait for change and profit. That being said, forex trading is

also about balance. Conservative traders are in danger of being overly cautious thus compromising

their profits.

Ask yourself the following questions to help discern if you are a conservative person:

How much risk are you prepared to take?

Are you naturally tentative and cautious?

Are you a patient person or do you prefer quick results?

Conservative traders will generally find that trend trading, hedge trading, and moving averages

trading are more suited to their personalities. These strategies allow traders to take their time in a

trade, analyze thoroughly, and experience more control over their losses.

Trading styles

Now that we have looked at the two main personality types of forex trading, let’s look at how to

determine your unique trading style. We will explore time frames and types of analysis. I touched on

these areas briefly in the personality types but here I want to expand on them in more detail.

At the end of this section, you should be able to pinpoint a more specific group of forex strategies that

you can explore. If you consider yourself an expert at forex trading, you may find yourself rethinking

your current strategies and what you can change to improve your continued success in the forex

market.

Timeframes

The time frame that suits your personality and trading style will affect the strategy you use and the

currency pairs you buy.

If you prefer to trade over a long period of time, allowing the market to develop over the next few

days, weeks or months, you will probably choose trend trading. You are riding the trend until it turns.

On the other hand, if you are a trader who enjoys short time frames, you’d probably trade on hourly

charts or scalp trading. In this case, you’d make small trades throughout the day. The challenge is

finding the currency pair with the smallest spread so that your trades become profitable at the end of

the day and not a string of losses.

Analysis

Traders frequently argue over the type of analysis a trader should take. Some advocate for technical

analysis while others insist on fundamental. The fact of the matter is that neither is better than the

other. What you need to be concerned with is using the analysis that works for you.

When deciding on the type of analysis you use, ask yourself if you prefer using news, economic

reports, and other political and financial factors to predict the market. In this case, you might want to

implement fundamental analysis

Perhaps you prefer to stare for hours at charts, looking for common behaviors in the currencies. If this

is you, you will find technical analysis appealing.

Generally speaking, fundamental analysis is best suited to long-term trading strategies, whereas

technical analysis works wonderfully with short-term trading.

The challenge

Although the two personality types discussed above are two extremes, most traders are found

somewhere in the spectrum between these extremes.

Impulsive

Conservative

The question is, where are you?

For those traders who are aware of their personality style, they may start trading with a strategy that

is best suited to them. For a period of time, these traders will probably experience early success.

This is great, until confidence turns into overconfidence. Suddenly the traders experiment with

strategies outside of their personality style. The result can be disappointing.

This is not to say that experimenting with different styles is discouraged. On the contrary, experiment

with various strategies to find those that work for you and the current trends of the market. If you are

going to test a new strategy, do so on a demo account until you are confident that the strategy is worth

your while and effective. In the meantime, stick to the strategies that you know are working well for

you.

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Forex Strategies – Going Further

Forex Strategies – Going Further

Forex strategies. Every trader needs them. The more experienced you are in trading the more diverse

your strategy portfolio will be. Either way, you need at least one forex strategy. The type of strategies

you use will depend largely on your personality. You need to find what works for you. Below are

some more advanced forex strategies, however, the bold and daring beginner traders might want to

explore them on their demo accounts:

Swing trading

Swing trading typically lasts between a couple of days to a week. Sometimes these trading positions

can stay open for a couple weeks although this is not the average. Swing trading is beautifully

balanced between the short trading and long trading strategies of forex.

Because of the time lengths, swing trading is a great strategy for those people who are interested in

forex as a side income or hobby. These people may not have the time to sit throughout the day

studying analysis charts or picking up market trends. Their work, studies, and other priorities are

dominant over forex trading. Swing trading is ideal for these traders.

Swing trading requires a couple of hours studying analysis charts to pick up medium trends in the

market. The key to swing trading is holding firmly to your analysis. Can you persevere through the

dips of the market as you wait for your profit to kick in?

Swing trading focuses on buying currency pairs in the extremes. Ideally, you are looking for those that

have been overbought or oversold. As the market returns to a more balanced state, you cash in your

profits.

When you are swing trading, you’ll be on the lookout for those high volatility and tight spreads.

You’ll be trading anywhere between 50-200 pips per trade.

A deeper look at scalping

Scalping is another form of day trading. It capitalizes on the slightest fluctuations in the forex market.

The difference between scalping and other day trading strategies is found in the amount of time it

takes to enter and exit a trade. When a forex trader implements scalping, they will complete a single

trade within a maximum of five minutes.

Where most forex strategies allow traders to trade a smaller amount of money, scalping requires large

trades to compensate for the small pip fluctuations. In scalping a trade may either lose or profit a

couple of pips; the profits are marginable. The larger the investment the more profitable the positive

pips become.

A scalper will look to make around 200 trades in a day. This is not an exact amount of trades per day,

but my point is that in order to make profits, scalpers need to trade a lot during the course of the day.

This requires intense focus, quick decision making, and dedication. A scalper needs to be able to

devote a large amount of time to trading. If you do not have sufficient time available, scalping may not

be the best strategy for you.

For scalping to be worthwhile, a scalper’s best friend is the stop-loss order. The stop-loss order

helps to keep losses to a bare minimum. To be effective, the stop-loss order should be placed close to

the amount that the currency pair was purchased. For example, you purchase USD/EUR at 1.2543

your stop loss order might be placed at 1.2544 instead of 1.2548. Thus, you will lose one pip in the

event of a loss instead of five pips.

Risk management is key to successful scalp trading.

Positional trading

Most forex trading strategies are day trading strategies; meaning, they do not look at the trends of the

market over a lengthy period of time. Where scalping focuses on micro trading and short time frames,

positional trading is focused on a lengthy period of time ranging into months.

Positional trading cannot be implemented without a thorough long-term analysis. As a positional

trader, you need to be aware of the market trends, history, and other analysis.

Positional trading is the direct opposite to scalping. Positional trading requires a smaller investment

than scalping. Usually, traders will not trade more than 2% of their account in a positional trade.

Because you are going to hold the trade for a long time, you will gain a higher pip profit. Traders

usually aim to make a minimum of a couple hundred pips in a positional trade. The larger the pips the

more profit you make.

Rollovers come into play with positional trading due to the time frame of this style of trading. This is

where a loss can easily be incurred. All is not lost. Depending on what your currency pair does, the

rollover could either be positive or negative. In the event of a positive rollover, your profit will be

rewarding.

Irrespective of loss or profit, you should incorporate rollover into your strategy. Try to cover the cost

of the potential rollover in your strategy so that you break even after incurring a loss and negative

rollover. This will require a bit of speculation however, it will help manage your risk.

Positional trading hopes to make a profit at the end of a trade or at the very least to have broken even.

Ideally, you are wanting your trade to ride out the losses into the profits in order to minimize your risk

and losses.

Price action trading

Price action trading is a great strategy for those traders who want a tailor-made strategy and full

control. Unlike other strategies that follow specific rules, price action trading is open to each trader’s

interpretation of the data provided by price action analysis.

How does it work?

If you want the whole truth and nothing but the truth, then price trading is the answer. Because price

action trading tells you what has happened it is void of any futuristic predictions. Price action trading

is honest. It focuses on marrying technical analysis tools with recent price history in order to identify

trends in the forex market.

Price action trading is more adept for short or medium trading than for long-term trading. Although a

large amount of trading strategies including price action trading strategies float around the internet,

the appeal of price action trading lies in the flexibility to create your own portfolio of strategies.

From this portfolio you’ll be able to pick out the best strategy for the current trends you will be

trading on. This will aid you in improving your profitability while reducing your risk and maintaining

a good emotional outlook.

Hedging trading

Hedging is the equivalent of insurance in the world of forex. When a trader implements a hedging

strategy they are looking to reduce risk while securing profits. To do this a trader will make use of

their analysis whether fundamental, technical or both. The analysis will show the trader where the

risk in the market lies, which currency pairs to trade and which currency pair to trade long and short.

In hedging, you are looking for a strong correlation between pairs.

For example, you may decide that the best currency pairs to trade are the USD/EUR and the

GBP/USD. You look at your analysis and decide to go short on USD/EUR and long on GBP/USD.

You’ve decided that based on your analysis that if the GBP/USD turns over a profit but the USD/EUR

renders a loss the difference between the two will still result in an overall profit. At least this is your

logical hypothesis. You implement your trading strategy within your hedge. The market moves

according to your prediction. The EUR drops and the GBP soars. You walk away with some profit.

In the above example, your hedging worked fantastically.

News trading

News trading borders on the lines of gambling since it is highly volatile and erratic. Some traders

love the thrill of watching the market intensely during a significant news release. Intense risk

management and zero emotions are needed for traders to be successful in news trading. Traders who

implement this strategy have balls of steel so to speak.

The challenge with news trading is that no one can predict how the market will react to the news or

event. It becomes a let’s wait and see situation. Only the most daring or most experienced should use

this strategy. That being said, if you want to experiment with it please do so on a demo account.

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Technical Analysis – From Beginner to Expert

Technical Analysis – From Beginner to Expert

Technical analysis is one form of analysis that traders use to define the strategies they will implement

in their trading experience. The purpose of this type of analysis is to evaluate currency movements by

observing and analyzing data from previous market trends and behaviors. Technical analysts are

always on the lookout for patterns that will help predict price fluctuations and movements within the

current state of the market.

What are some of the foundations that technical analysis is built on?

1. History repeats itself. Technical analysis stands on the premise that previous trend

patterns will repeat themselves.

2. The best way to identify trends is to analyze price movement and the supply or demand

of currencies.

3. Price movements follow a trend. Once a trend is established, the relevant currency will

follow that trend until it shifts.

Within technical analysis, traders make use of several different techniques including support and

resistance, moving averages, Bollinger bands and trends. In this chapter, we will look at the first

three which is believed to be the most popular among forex traders. The idea is to expand on

technical analysis at a deeper level while adding tools to your trader’s toolbars (particularly if you

are a beginner trader).

Support and Resistance

Support and resistance is a common yet highly effective tool in your technical analysis. Most forex

traders and other types of traders implement this tool in their trading including the traders at Wall

Street.

Support acts as a floor to the prices of the currencies you are trading; its job is to slow down prices

from dropping beyond a certain point and hopefully turn the trend back up. Resistance on the other

hand is a price ceiling often preventing prices from continuing upward.

Support is affected when a large demand of currencies occurs. This prevents the price from dropping

further while pushing it into an upward trend. Resistance works in the opposite. When there is a large

supply for currencies the price will bottleneck at the resistance level preventing it from breaking

through.

Below is an example of what support and resistance will look like on your technical analysis charts:

Now that we’ve established the definitions of support and resistance, let’s have a look at three

common ways of identifying support and resistance.

1. Intermediate reversals. Here you look at your charts for past trends and identify those

points where the trends turned (up or down). You then play dot-to-dot by drawing a line

across those common points (top and bottom). The line that you draw shows you where the

estimated support and resistance lies.

2. Round numbers. Psychologically people are drawn to round numbers. When traders see

round numbers they will either assume the price has gotten too expensive and sell or they

will assume the price is cheap and buy. This in turn changes the current trend in the market

and sets a support and resistance level.

3. Moving averages. Moving averages are a good indicator of current trends and levels of

support and resistance. They show the average actions traders have made with certain

currency pairs.

While support and resistance can give you an indicator of when to buy or sell your currencies and

where to place your stop loss order, they are not absolute predictions. Always use them as a guide.

Use them to confirm your other analysis findings or vice versa.

Moving averages

In lay man’s terms, moving averages is the average currency price extended over a certain period of

time such as a few days, weeks, or months. The goal of the moving average is to assist traders in

identifying trends and when to open a trading position.

The challenge with moving averages lies in their lagging nature. This means that they only confirm a

trend once it has already happened. Identifying new trends cannot be done with moving averages

whose job is to confirm a trend not establish one.

This leads to an important point regarding moving averages. Moving averages work best with a

shorter time frame. In a longer time frame moving averages experience a reduction in sensitivity and

accuracy.

Let’s have a look at the two types of moving averages:

1. Simple moving average (SMA). When implementing SMA, you would specify the time

period you want to analyze and you would receive an average for each time frame. SMA

gives equal weight to the periods specified. The main problem with SMA is that it is highly

susceptible to anomalies. Thus if a currency pair is on an uptrend and a news release is made

plunging that currency pair into a negative spiral, your SMA statistics are going to reflect it

instead of registering it as an anomaly.

2. Exponential moving average (EMA). With an EMA, you will specify your time frames

as per usual. The difference comes in the weight on the prices. EMA will provide more

weight to current prices while giving lower weight to the prices that started the analysis.

Thus if an anomaly occurs it will not throw off your averages.

While you can choose one type of moving average over the other, I do suggest using both at the same

time but with different time frames.

One of the most popular ways of reading moving averages is to implement the crossover trading

strategy. The price of your currencies will move from one side to the other ending in the close. This

helps the trader determine their exit and entry points.

When a crossover crosses below a moving average, the trader knows that a downtrend is occurring

and they should close their trade. If a crossover crosses above a moving average, the trader knowns

that an uptrend has started. This is a good time to open a trade and cash in those profits.

Bollinger bands

Let’s have a quick look at Bollinger bands and how to use them in your forex trading. Bollinger bands

were named after John Bollinger. Their objective is to illustrate the volatility of the market. Is the

market loud or quiet? Highly volatile or stable? The answer to these questions depend on what is

happening in the market.

Bollinger bands are a more illustrative form of support and resistance. Generally speaking, the market

norm is between the two bands, namely the middle. What goes up must come down.

How do you use Bollinger bands?

1. Bollinger squeeze. The Bollinger squeeze helps you identify a breakout. If the bands

narrow together at the top, a breakout is about to happen and the price will continue upward.

The same can be said if the squeeze happens in the opposite direction.

2. Bollinger bounce (What I like to call the Bollinger funnel). When the bands are narrow,

the market is quiet, experiencing very little action or movement. When the bands are further

apart, the market is considered to be loud with a lot of traders buying and/or selling.

Below is an example of a Bollinger band.

As you can see the white bar charts reflect the price and trade movement of the forex market. The blue

lines represent the Bollinger band. In this particular example, the market is quite loud although it

quietens down towards the right side of the chart.

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More on Risk Management

More on Risk Management

Risk management is the foundation of successful forex trading. It goes beyond instinctive thought. It

involves strategy, understanding, and calculations. In this chapter, I am going to explain the risk to

reward ratio and give you a few risk management strategies that are sure to help you gain profit in

your forex trading.

Risk to reward ratio

The forex market is continuously changing. One minute it is going up before suddenly the currency

pair you are trading turns negative and drops. What happened? How do you trade with this volatility?

This is the nature of the forex market.

Calculating your risk to reward ratio will help you to trade within the volatility of the market and still

make a profit. To calculate this ratio, you need to work out how much risk you are prepared to take

for the profit you want. You take your net profit (or potential profit) and divide it by the amount you

are prepared to risk. The result is your ratio.

For example, you are prepared to risk $30 to make a profit of $100. Thus 30/100 = 3.33:1 this is a

profitable ratio.

Risk management strategies

While these strategies may seem more basic than advanced they apply to any trader, beginner or

expert. Risk management strategies focus on keeping your risks to a minimum while you wait for your

profit.

1. Know when to close a trade. Traders make the common mistake of holding onto a trade

too long. This often results from a desire to see their profits meet their expectations. The

forex market does not always meet our expectations. It sometimes comes close. As a trader,

you need to know when to cut your losses and go.

2. Ride the trend. In the world of forex, you often hear the saying The trend is your friend

until it ends. This means that you need to ride a trend until you see it end. This helps traders

to reap the rewards of their hard work.

3. Watch your emotions. When you find yourself getting emotional for any reason, be it an

emotional situation in your personal life, a desire to make back your losses, or the desire to

hold onto your profits, you may want to consider taking a step back to recompose yourself.

Trading with emotions is never successful. Most of the time traders who trade with emotion

incur more losses than profits.

4. Limit your leverage. Yes, as a trader you have access to leverage. This does not mean

that you use large amounts of leverage in your trading. The higher the leverage the more risk

you have. Scalp trading requires a higher leverage than other trading strategies and you need

to be aware of the risk. How much risk are you prepared to take? It only takes a change in the

market trends for you to incur a string of losses or a sudden loss before you have no more

capital to trade.

5. Currency correlation. For traders who are trading frequently or are more advanced,

currency correlation is a great risk management strategy. Currency correlation is all about

finding those currency pairs that follow the same trends. You are looking for pairs that do not

have strong correlations with each other.

Think of currency correlation as a see saw, one currency pair goes down making a loss, but

the other goes up for profit. Thus your loss is neutralized by the profit with the hopes that the

profit exceeds the loss.

Another correlation tip is to look for correlation on times. You want your currency pairs to

correlate on the exact time.

6. Practice. Practice reading the market. Practice self-discipline. Practice your trading

strategies. The more you practice the more you understand and the more experienced you

become.

7. Keep learning. Research all the time. Keep up to date with economic and political news.

Research more into your analysis and trading strategies. Learn more about yourself.

Throughout your trading journey, have an attitude of a protégé learning from the master. This

attitude of desiring understanding and knowledge will go a long way in helping you become

the best possible trader you can be.

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Overview of Forex

What is forex?

At some point in our lives, we have heard the term forex at least once. Forex is also known as foreign

exchange. We use forex when we trade currencies, buy stocks, or exchange one currency for the other.

The forex market also called Fx market or Foreign exchange currency market, has been open since the

1990s, making it a central point for people and businesses of all sizes to participate in forex trading.

As a result, the forex market has become one of the most lucrative financial investments in the world.

It sees a turnover of approximately $3 billion per day.

The forex market is open 24/5 with centers located around the world including Hong Kong, Paris,

Sydney, New York, and more. As the day ends in the Western hemisphere it begins in the Eastern

hemisphere. Traders can enjoy the rush of forex trading at all hours of the day or night.

Forex trading focuses on the trading of foreign currencies, specifically the major currencies such as

US dollar (USD), the Euro (EUR), British pound (GBP), Japanese Yen (JYP), Australian Dollar

(AUD), Swiss Franc (CHF). These currencies are grouped into currency pairs. Traders trade with

currency pairs selling one pair for another; thus, riding the market highs and lows in order to gain a

profit.

To help you identify currency pairs, see the below table for easy reference:

Major Forex Pairs Nicknames

NZD/USD Kiwi

USD/JPY Dollar Yen

GBP/USD Sterling or Cable

EUR/USD Euro

USD/CAD Dollar Canada or Loonie

AUD/USD Aussie Dollar

USD/CHF Swissy

How to trade forex

Forex trading revolves around currency speculation, which currency is doing better than the other

currencies. Traders watch the forex market for trends, highs, and lows. They strategize, analyze, and

gather information to make an educated guess on what currency to buy or sell at a specific point in

time. The manage their risk and rein in their emotions. Successful forex trading is all about careful

logical and composed trading.

Benefits of forex

You may be wondering what are the benefits to trading forex. As with all investment options, forex

trading comes with its pros and cons. Let’s look at some of the benefits to forex trading:

1. High liquidity – The forex market consists of many traders, trading on the market at any

hour of the day. This means that when you want to buy or sell currency, you always have

someone who wants to either sell or buy your currency pair. You are never stuck with stock

that you don’t want.

2. Flexibility – Traders can trade around the clock on the global forex market. Regardless of

whether you are a part-time trader or a full-time trader, you can set your trading hours to suit

you.

3. Trading on margin – This is all about leverage. A trader would invest a small amount of

money, say $1,000, and receive an amount of $100,000 to trade with. The margin ration is

now 1:100. The idea is to trade larger sums of money at a minimum risk. As a forex trader

you can invest a smaller amount of money ($200, for example) into trading than stocks

because of the margin amounts available.

4. Free resources – Most forex trading platforms allow new traders and experts to trade

with a demo account. This is great for trying out new strategies or tweaking existing

strategies before entering the live forex market. You can also access many websites that

provide articles, ebooks, and online courses for free on forex trading. Let’s not forget that

some of these trading platforms also provide an option to chat live with a consultant or forex

trader.

5. Forex trading tools – Forex platforms do take advantage of the latest technological

advances by providing their users with relatively new platforms, software and other tools to

assist traders with their trading.

6. Take on students – A professional forex trader finds themselves in a position to become

account managers of other traders accounts and assist beginner traders.

These are just some of the benefits to trading forex. As you can see, forex is definitely an intriguing

option to grow your investment funds.

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