Most people start their trading career without a clue as to how they are going to decide what, how, or when to trade. Most traders start off with the stock market because that is what they are the most familiar with. They don’t usually start getting interested in markets like commodities of Forex until they are somewhat comfortable with trading stock. Probably they got interested in the stock market because of a conversation they heard at work or school about some stock that’s supposed to take off. Maybe they have a friend who regales them with their tales of how they bought Amazon or Yahoo at some great price and then watched it double or triple in a few months.

So off they go and open an account with a stock broker, thinking that all they have to do is buy the same stocks that Joe Bigmouth up at work is buying and they’ll make a killing. Chances are that Joe Bigmouth has LOST as much or more money on his trades as he’s made, but somehow the stories of his losses never make it to the breakroom. Even worse, maybe they start listening to their broker and following his advice – a sure way to not make consistent money. We can all predict how this story will end: our friend will get creamed by trying to trade the stock tips of others. If our friend is really serious about trading with any chance of success, he needs to have a plan, or at least some guiding principles to go by.

There are four basic concepts that most traders who get serious about their craft will fall into. These concepts are:

· Fundamentals: These traders base their trading decisions on the type of broad-based macroeconomic forces that can make markets move in one direction or another. These types of traders may be right about the general market direction most of the time, but the market usually makes very wide price swings as it goes along. These swings are usually big enough to wipe all but the biggest institutional traders who have very deep pockets and can afford the market swings against their position. The small-time trader usually can’t afford to take the kind of losses that are part of trading strictly fundamental news, and so they either lose their capital and are out of the game, or they must modify their fundamental strategy by incorporating one or more of the other trading concepts into their decision-making.

· Technical traders: These traders make their trading decisions by looking at price charts and interpreting the patterns and indicators on their charts. Their basic belief is that any information you need to know about the market is already factored into the price at any given time. They may use some type of fundamental information to give them a general idea of the direction the market is heading, but they will base all of their entry and exit decisions on how they interpret their price charts.

· Trend-Following or Swing Trading: These traders try to identify major up and down trends in the market, and once they identify a trend that is underway they jump on and try to ride out the trend until it starts reversing. Then they will usually exit their position, wait for the next trend to develop, and jump on board again going the other way.

· Seasonal Traders: These traders like to take advantage of the fact that certain markets tend to go up, down, or do certain types of things at the same time each year. They base their trades on the probability that such things will happen repeatedly and therefore give them the opportunities they seek.

There are other trading approaches to trading, but these are the biggies. Not all of these concepts will work with all markets. The Forex market is commonly perceived to have good opportunities for trend-following traders. Of course each of the concepts tend to overlap each other, but that can usually work out in favor of the trader who is willing to work at learning more than one trading concept. When such a trader sees agreement in two or more areas, he usually will be able to place a profitable trade.

Ted Lewis,
Ted is part of a group of Forex traders
that makes its home at:

http://www.forexprofitmentor.com

Check it out for the latest ideas on how YOU
can trade the Forex for profit!