For new forex traders, it is important to realize that there are many trading styles that the trader can adopt while trading in the forex market to reach their financial goals. The different types of trading styles are scalping, day trading, position trading, swing trading, and long-term trading. In this article, we have attempted to give a brief description of each of these trading styles that can be adopted.
Trading Style #1: Scalping
In the scalping trading style, the trader tries to make a profit on extremely small changes in price and therefore requires rapid buying and selling of currency pairs in quick succession. In this style, the trader should have in place a clear exit strategy which otherwise will allow a single big loss can wipe out the sum total of all the small gains that have been made. The best opportunities for scalping present themselves when the market is active (for e.g., when there are news events happening). The typical profit potential for a scalp trade is from 4 to 15 pips.
It should be clearly understood that scalping is not an easy technique to master for beginner traders. For a professional scalper, the trading platform used should be a specific one (Currenex) or the trader should be working with a broker that allows scalping trading. Scalp arrangements are found only in smaller time gap intraday charts (1, min, 5 min, and 15 min, etc.).
Trading Style #2: Day Trading
A day trade is so called because the trade position is closed on the same day that it was opened. Usually, the objective for a day trader is a jump of 15 to 100 pips. Day trading options that are most fruitful generally occur during US and Euro trading Sessions.
Day trading arrangements can be found in intraday charts with timeframes such as 15 min, 30 min, 60 min and 240 min. A majority of traders that trade currencies online are known to use day trading techniques. They take the help of patterns on charts, and support and resistance indicators. In short, they favor the use of technical analysis to conduct their trades.
Traders who use this technique target income from multiple trades that they close in a day. They hold the trades for a few minutes to a few hours, but never on an overnight basis. They are seen to open and close at least 5 trades in a day (on average).
Trading Style #3: Swing Trading
A swing trade is different from that of a day trade on the length of the time frame in which the trade is kept open. Swing traders typically keep the trade open for a period of 2 to 5 days and look for a profit of between 100 and 250 pips.
Swing trades are conducted with the help of daily charts and swing traders seek the help of technical analysis and tools such as support and resistance levels, indicators, and chart patterns to conduct their trades.
Swing trading is very common in the forex market. Swing traders target 30 to 50 percent annual returns. These traders target weekly to monthly income from the trades. They end up doing 5 to 15 trades per month.
Trading Style #4: Position Trading
There is a major difference between position and swing trade in that position traders keep the trade open for longer periods than swing trade holders. Position traders hold their positions in the market open for a time period typical between 5 and 50 days. They are on the lookout for a profit potential from 250 to 1000 pips.
Traders that use position trading take the help of charts (daily, weekly and monthly). They are also known to use both technical and fundamental analysis to carry out their trades. A position trader will trade between 2 to 7 times in a month on average or between 6 and 21 times in a quarter, on average. The return they target is about 10 to 30 percent on an annual basis.
Trading Style #5: Long-term Trading
Once again, long-term trading is so called because of the time period for which the trade is held open. A long-term currency trader holds the trade position open for many months, sometimes years, to profit from the long-term trend of the currency. Such traders are seen to use both technical and fundamental analyses to help them with their trading decisions. The average number of trades per year of a long-term trader is about 10 trades a year.
As a new currency trader, if your question is ‘which is the best trading style’, the answer is simple. The best trading styles for traders would be the one in which they are comfortable with and can spend the time for. Day traders and scalpers are required to spend a considerable amount of time trading and this may be difficult for those that hold a regular eight hour job.
The biggest mistakes are often committed by those traders that are not yet got comfortable with any of the styles of trading. When traders are able to spot as to which style of trading suits them best, then they never look back and go on to making profits.
What is common for all styles is the fact that the traders that make money using currency trading are the ones that have a strong sense of money management. They also need to have a considerable trade size for ultimate success.
For any trader the following are true: to become successful, the trader needs a methodology, time is required and most importantly, the trader has to be patient. The trader has to accommodate the fact that markets change all the time.
Whether the trader uses fundamental analysis for long-term trading or technical analysis for short-term trading, any trading style can be used in the forex market. However, for the trader, it is always most comfortable when he/she uses the trading style that best suits their personality to succeed in their venture.