This article looks at the reactive and proactive trading you can do on the forex market.
There are two ways that you can complete fundamental trading on the forex market. These ways are proactively and reactively. It is important that you know what you are going to be doing when you use both of these trading methods. You should also consider the risks that come from trading with the different methods. When you understand the risks you will be able to determine which trading you can handle according to your risk capacity.
Proactive Fundamental Forex Trading
Proactive fundamental trading is actually the way that traders are told not to trade. This is due to the risks that come from the trading that you will be doing. When you trade proactively you are going to place a trade before the forex news is released. There are a number of problems that can come from this that you need to be aware of.
The first problem is that you do not know how the market is going to react to the news. There are many traders who have found that the determined the market will react in one way only for the market to go in a different direction. The second problem is that even if you are trading in the right direction the movements on the market that come after the news is released could trigger your stop orders.
Proactive trading should only be done by traders who have a very high risk capacity. The risks that you take with this trading are often no worth the potential returns that you are able to make. As you risk losing your trading by not completing the analysis fully you need to weigh this against the potential extra profits that you could make.
Reactive Trading on the Forex Market
The more commonly used method of trading is the reactive trading. When you do this you are not going to open a trade before the news is released. You are going to wait for the news to hit the market and then trade according to the movements that you can see. This is the same as waiting for confirmation with your technical trading. There are some fundamental traders who will use technical indicators to determine whether or not they should trade.
The risks that you face with this trading will be lower than the risks that you face with proactive trading. There are some traders who think that reactive trading brings lower profits. However, the fact that you could have your stop loss triggered with your reactive trade could negate the benefits of the proactive trading.
When you use reactive trading you will also be sure that you are trading in the right direction and that you are trading on a viable movement. There are many reactions that do not create a viable movement for you to trade. If you are not trading on the viable movement then you are not going to make a profit on the market or the profit that you make will be too small for the risks that you have taken with the trade.