2 Types Of Forex Traders
Let’s talk about:
- the reversal forex traders
- the breakout forex traders
Reversal Forex Traders
Reversal forex traders go against the crowd:
- They sell when others are buying and buy when others are selling.
What is a Reversal Forex Trader?
A reversal forex trader actively searches for places where the market is likely to reverse i.e change direction. He then ‘lies in wait’ and trades when price reacts in the manner he anticipated.
The analysis can be based off of price action alone, or a combination of indicators.
A reversal trader can go against the trend as well as ride it.
How Reversal Traders Trade Against The Trend
By selling at resistance & buying on support these traders go against the trend.
See an example:
- note the uptrend
- reversal traders will go against the trend by selling at resitance and the price rolls over.
How Reversal Traders Trade With The Trend
Trends are not straight. The market ebbs and flows and creates some pullbacks before continuing in line with the main trend.
Through swing trading, reversal traders aim to enter the market at turning price levels. He will expect the pullback to end and the main trend to continue.
See the image below:
- the major downtrend is characterised by some upswings which represent retracements. These upswings are minor uptrends within the context of the main downtrend.
- The reversal trader will try to catch the downtrend by ‘selling the reversal of the uptrend’. This way the reversal trader goes with the trend
- The opposite would hold true in an uptrend
Breakout Forex Traders
Breakout traders seek to enter a market after price ‘breaks’ out of a trading range. This range will be within the boundaries of support and resistance.
The breakout trader will buy the market when it breaks out of resistance and sells it when it breaks out of support.
Breakout traders keenly watch support and resistance levels and they may enter using pending orders or buy the first candle that closes outside the range. The more cautious type will buy the retest of the broken level.
See the image below:
A trader can employ both tactics depending on the situation in the market. There are no hard and fast rules that state that you should stick to one of these two trading styles.
In fact, if you look at my free signals you will find instances where I am trading reversal and other instances where I am trading breakouts.
You just need time to find yourself as a trader and see what fits you best.
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