Which trading style is suitable for you and how to minimize risk?

Most traders consider themselves members of one of two major categories: technical traders and

fundamental traders. Experienced traders think of the technical and fundamental aspects of forex

as intertwined. In other words, what you see on the chart (technical) didn’t just appear by chance—it

is there for a reason (fundamental). One type of analysis without another gives limited perspective

and opens windows for unforeseen risks. So one of the goals when looking for a trader is to find one

who takes both these analyses into account.

Fundamental traders use fundamental analysis, which we can loosely describe as the study of

economics (especially interest rates) to trade the Forex market. They believe that currencies will

eventually become stronger or weaker in response to their underlying economic strength or

weakness, and due to changes in interest rates and monetary policy.

In the chart we can see a common situation when a fundamentalist does not take the maximum profit

out of a trade. He had difficulties foreseeing the best time for closing the trade and closed it when it

was not on the highest point. That’s where technical analysis can help as it can predict the price

movement patterns even in small timeframes.

Technical traders focus on technical analysis, which is the study of charts (historic price action)

and indicators, to trade forex. They believe that all of the pertinent information needed to place a

trade is contained within the chart. The greater size and liquidity of the forex market gives technical

analysts a larger sample of information from which to draw. There are many more trades, and much

more money changing hands than in any stock market or futures market. The currency market

contains more data points, making a statistical sampling like technical analysis more accurate.

Long-term movements in the currency market generally correlate with economic cycles. These

economic cycles tend to repeat themselves, and so they can be predicted with a reasonable degree

of accuracy. Repetition is the key, since the entire premise of technical analysis lies in using historical

price movement to predict future price movement.

So when to open and close trades? Forex traders use support and resistance levels to

determine the best location for entry and stop orders.

If the trader goes long (buying a currency with a hope that its rat will rise) on a currency then he tries

to open the position on support (lowest rate) and close the position on resistance (highest point).

Different pattern recognition systems (Fibonacci patterns, moving averages, etc.) used in Technical

analysis help to determine when the rate will hit resistance or support levels. But if a trader solely

relies on technical tools and does not follow the global political/economical events (fundamental

analysis) then he might fail despite all the calculations. So if you are trading on your own or

simply following and copying a trader make sure that both of these analysis types are considered.

So you have learned the basics about copy trading in order to be able to start successful trading.

Now you have to apply and test your knowledge in real life.