indeed the elusive factor that courts the relentless determination of its seekers. A lot
of traders – both new and not so new – seek the perfect formula that is capable of
predicting with 100% accuracy the future price movements. Want to know where it
lies? It only exists in the creative part of the mind – together with fairies and gnomes.
There is no perfect formula or strategy that can achieve that unrealistic goal
because people who are involved in the financial markets evolve with changing
market circumstances, even though certain old habits die hard. Despite the nonexistence
of the magic formula, there are certainly high probability ways of trading
the forex market. While the bulk of this book is focused on the Method part, you
need to combine Method with both Money and Mind in order to attain success in
the trading business.
The old question: technicals or fundamentals?
There are generally three broad categories of forex traders pertaining to what they
base their trading decisions on:
1. the technical trader,
2. the fundamental trader,
3. the trader who combines both technicals and fundamentals.
Each type of trader has a distinctively different way of interpreting the currency
market based on his or her own opinions.
Technical trading
A technical trader believes that historical data has a big role in the forecasting of
future price action, and is thus devoted to currency price chart analysis, making use
of various charting tools such as support and resistance levels, trendlines and a
myriad of chart indicators to understand past price behaviour so as to predict what
the market will do next.
Most forex traders employ some kind of technical analysis to help them make
trading decisions. In fact, technical analysis of the forex market is so prevalent
among market players that self-fulfilling prophecies often occur at price levels
where people’s responses become quite predictable; that is, you will know if most
players will buy or sell at those levels due to their historical significance. Technical
traders assume that everything that is to be known about the market has already
been factored into the current price.
Fundamentals trading
The second category is the fundamental trader who weighs and analyzes the various
economic news and information relating to the country of a particular currency in
order to come up with a fair evaluation of the value of that currency relative to
another. Fundamental traders believe that the exchange rate of currencies are
largely driven by economic and geopolitical conditions, aside from central bank
interventions, and will keep track of economic data such as trade balances,
inflation, Gross Domestic Product (GDP), unemployment rates, interest rates and
so on. They are also concerned about what policymakers have to say regarding the
monetary policy of the country, and will keep on top of these when speeches
are scheduled.
Combing technicals and fundamentals
Since there are advantages of analyzing the forex market from these two different
fields, it would be too restrictive to just side with one area and ignore the other. The
most effective traders tend to make trading decisions based on a combination of
both technical and fundamental factors in order to get a feel of the overall market
sentiment, and then decide to either trade that sentiment or to trade against it taking
a contrarian approach.
The strategies taught in this book must always be combined with the prevailing
market sentiment, which is influenced mainly by fundamentals.
Method is malleable
I believe that an important factor of trading success lies in the matching of Method
with the trader’s own personality and trading style. Some strategies may work well
for some traders, but may not have the same results for others over a period of time.
This may seem puzzling for some people who are wondering that if something
works for someone, then it should work for other people as well. In trading, there
are so many other factors specific to each trader that can influence the overall
trading performance – his or her emotions, psychology, trading time frame, money
management rules, lifestyle, trading capital and so on.
The strategies included in this book are open to customisation according to your
own personal preference. While most of the strategies are meant for day or swing
trading, you have the freedom to adjust certain parameters to suit your own trading
time frame and/or other preferences.
Source:7 Winning Strategies for Trading Forex: Real and Actionable Techniques for Profiting from the Currency Markets
