In forex trading, your success depends on your decision making ability. While you are active in the market, you will have to make key decisions about how to analyse the market, which opportunities to avail, what risk management techniques to use, and when to open and close trades.
While these daily decisions are important, it is also important for you to remember that you came to that stage in your career because you made the right decisions in the initial stages of your career.
In the beginning of your forex trading career, where you are choosing the direction you want to take and the way you want to tread that path, your decisions will have far reaching ramifications.
One of the decisions you will make at this point will be which trading concept to employ. Needless to say, with more information your decision would be more measured and certain.
What Are Trading Concepts?
Trading concepts can also be said to be trading philosophies. They define what you believe about the market and what your beliefs are about the right way to trade in it. You will have to choose a trading concept that suits your personality in the very beginning of your forex trading career.
This is the time when you would be devising your first trading system because defining a trading concept is a core component of the process. The following are the three major trading concepts that you can choose from.
The trading concept that is most lauded and appreciated in the forex trading circles is trend following. There is even the saying ‘trend is your friend’ which many expert traders use while teaching new traders. The concept of trend following is fairly simple.
Herein, a trader has to wait for the right trend to develop in the forex market and then ride that trend to profits. The skill factor with trend following strategies is measuring the trend which involves picking out its starting point and its reversal point so that the market does not dish out anything surprising.
Counter Trend Trading
Counter trend trading can be seen as the opposite of the trend following type of forex trading. However, this does not mean that the trader has to go against the established trend.
Instead, it means that the trader tries to catch short term trend reversals and long term trend reversals to make profits from the forex market. Essentially, the trader either looks for a downtrend, trend retracements, or complete trend reversals in his analysis of the market.
There are also periods in the forex market where there are no strong trends to profit from. These periods usually follow or precede strong uptrends and downtrends which is why they are often also known as periods of consolidation i.e. periods where the market consolidates the big moves it made during the trending periods.
Range trading is distinctly different from other forex trading concepts and strategies. It requires a specific type of mindset from the trader which is based around a lot of patience and discipline.
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