What kind of forex trader are you? It is a very silly question isn’t it? Nope…not quite…
The answer has nothing to do with:
- being a successful forex trader or how to become a successful forex trader
- being a millionaire forex trader
- nothing to do with being a professional forex trader
- its got nothing to do with if you are losing or winning in forex at the moment.
But it has everything to do with taste…or trading personality as some may call it, or what you like.
You should know what tickles you.
2 Types Of Forex Traders
These two types of traders I’m going to talk about in here are:
- the reversal forex traders &
- the breakout forex traders
When I started trading forex, that was back in 2006-2007 period, I was a newbie. My first live forex trading account, was $3,000.
I don’t remember what kind of trading system I was using. I think I had none or was jumping from one forex trading strategy to the next.
I was buying when I thought the price was going to go up or selling when I thought that the price was going to go down.
It was a crazy kind of way to start trading actually.
But guess what?
I managed to turn this $3,000 into something between $8,000- $9,000 in one month of trading! I can’t remember the exact figure but I was like: ” Did I really do that?”
I said to myself ” Forex Trading Is So Freaking Easy! I’ll be a billionaire in a year!”
It never happened! The next month or two, I wiped out that trading account! I couldn’t believe that I made so much money at that time and lost it quite quickly.
Now, every forex trader at one point in their trading life will gravitate towards a particular type of trading style. For my case, after a while, I figured that I gravitated more toward reversal trading.
Let’s dig a bit deeper into reversal traders and breakout traders..
Forex Trader Type 1: Reversal Trader
The reversal forex trader is a special breed:
- When other traders are buying, he is selling.
- When other traders are selling he is buying.
- When other traders are jumping out, he is jumping in.
Reversal Forex Trader Definition
What is a reversal forex trader? Well, a reversal forex trader is the trader that looks at the market and tries to figure out where price is going to reverse and takes trades based on that analysis.
A reversal forex trader goes against the trend, but this is not always the case as I will explain a bit below.
A reversal forex trader can do this by using price action or using a combination of price action with other forex indicators.
Now, many think that being a reversal forex trader is simply going against the trend.
This is actually half the truth.
A reversal trader can trade against the trend as well as trade with the trend.
If this is getting confusing for you, I will explain…
Trading Against The Trend
How can a reversal forex trader trade against the existing trend? It’s really simple: by buying on support levels and selling on resistance levels.
See chart below:
- note that the trend is down
- reversal traders will go against the trend by buying on support levels and price goes up…happy days!
Trading With The Trend
Reversal traders also can trade with the trend…
How? By swing trading.
If you are a swing trader, you are technically a reversal trader.
What a swing trader does is that he tries to enter the market at price levels where he thinks that price is going to start turning (start reversing).
Nothing can explain this concept a bit more clearly than these two charts below.
Notice on this first chart:
- the trend is down and price forms upswings and downswings as it continues to go further down. Consider upswing and downswings as minor trends within a bigger trend.
- therefore, downswings here are minor trends that go in the same direction as the main trend.
- upswings here are minor trends that go against the main trend.
- a swing trader will attempt to get into sell at these “downswing” points or price levels. The moment he presses the sell button, he actually trades against the minor “upswing trend” but he is anticipating that right around where he sells, the “down swing” trend will start and price starts falling following the main trend.
The second chart below is the same thing…the trend is up:
- in an uptrend, you will see price forms these upswings and downswing as it continues to move up.
- upswings are minor upward price trends that go in the same direction as the main trend.
- downswings are minor downward price trends that go in opposite direction to the major trend.
- trading with the trend involves getting into buy trades on the upswing points or price levels where you think price may start to reverse up and follow the main trend (in this case, uptrend).
That folks, is how you can actually trade against and with the trend at the same time. The only difference is that one is the main trend and the other one is the minor opposite trend.
Forex Trader Type 2: Breakout Trader
A breakout forex trader is also another breed of forex traders. These guys (and girls) love trading breakouts.
Generally, a breakout trader is a trend follower. They want to trade breakouts in the direction of the exiting (or main) trend.
Breakout Trader Definition
These breakout forex traders think differently and opposite to reversal traders:
- When breakout traders are looking to buy, reversal traders are looking to sell.
Whenever you see a support or resistance levels, there are breakout traders there, waiting and watching price to see if it breaks out that support or resistance level.
Some of them will have pending buy stop or sell stop orders waiting to catch those breakouts.
Others will wait for confirmation, for example, wait to see a candlestick close below the support level to take short trade. Or wait for a candlestick to close above the resistance line to take a long trade.
There are few ways breakout traders trade breakouts:
- trade the breakout as it happens, for example, if price crosses the support level by 2 pips, sell.
- or trade the breakout after a candlestick closes below the support line, for example, place a sell stop order 2 pips below the low of that candlestick
- or wait for price to retrace back to the the support level or resistance level and then sell or buy respectively.
Now, I’m not going to go into details on how to do each of these breakout trades because there are breakout forex trading strategies on this forex website that are built on these breakout trading concepts where you can use, so use the search function of this site to find out:
Can A Forex Trader Use Multiple Trading Techniques?
What do you think you are really good at? If you think you are really good at reversal trading, then just stick to reversal trading.
If you are really good at breakout trading, or if that is what you prefer as a forex trader, then just only do breakout trading.
Or if you love both options, nobody is really stopping you from doing that either.
So yes, you can use multiple trading techniques.
I hope this article has made you look into yourself a bit more closely and really ask this questions : What do I like? What tickles me?
We all know that If we like something, you’ll stick to it. If we don’t like it, we will move on. You’ll keep looking until you find something that fits you.
Same thing happens in forex trading.
Every forex trader will at some stage in their life will be looking, searching. But really, you shouldn’t take that long to figure it out.
The following simple questions below will show you what kind of forex trader you are:
- do you like trading breakouts? yes? no?
- do you like trading reversals? yes? no?
- do you like trading smaller/larger time frames? yes? no
- do you like trading price action only ? yes? no?
- do you like using other forex indicators to trade as well? Yes? No.
- do you like to day trade/swing trading? Yes? No?
These are the kinds of questions you need to ask yourself and find out what you like and stick to it and make it work. If something (trading technique, trading timeframe, trading indicator etc, etc…) does not feel right to you, then chances are that’s not going to work for you simply because that does not fit your personality.
So what do you do? Change your techniques, change your plans. Get back to the drawing table.
For me, reversal trading fits my personality.
I do not prefer breakout trading.
Yes, there will be times when I will do breakout trading but that does not happen often. I can write a big post about why I don’t really like trading breakouts but hopefully that will be for another time (or not).
So, what kind of forex trader are you?