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PR02 - Know The Different Types Of Trading Styles

"Just as there are different ways to bell a cat, the same goes with forex trading as well. Depending on a number of factors, forex trading is broadly classified into four main trading styles. Traders often make the mistake of thinking if one trading style is better than the other. The fact however is that a trading style simply reflects one’s personality. The risks of losing money is just the same, whether you are scalping or swing trading. At the same time, the potential to make profits is also equally the same. The way you achieve your trading objective of course differs in the style of trading that you choose. Finding a trading style is all about testing them out to see which methods works best for you. The trading strategy also determines your style of trading to a certain extent. In this article, get the basics of the different styles of trading most commonly used in the forex markets."

There are many different styles of trading when it comes the markets. In forex, traders, depending on their level of comfort and risk tolerance typically fall into one of the following types of trading styles.

There is no right way or a wrong way of trading the markets. The trading styles are unique from each other. For example, someone who likes to make a lot of traders is better suited to use a scalping or a day trading style.

Whereas traders who prefer a more slower approach can use swing trading. Below is a summary of the various trading styles you will come across when trading forex.

Scalping profits in the very short term

Scalping is a term given to very short term trading. In this method of trading, the main focus is to scalp the markets for profits. This can happen by traders looking at the very short term time frame such as lower time frames, up to 30 minute chart.

With forex scalping, traders take advantage of the volatility in the markets in the short term. The market volatility can rise during critical events such as important news releases or other such events that are not discounted by the markets.

We should mention that forex scalping is not offered by many forex brokers and you should check with your broker first. Secondly, the spreads tend to widen when there is increased volatility which can easily eat into your profits.

Forex scalping is very fast paced and traders are required to pay extra attention to the markets, which means that you need to be glued to your trading terminal.

Day trading the markets during trading hours

Day trading is the most commonly used style of trading in the forex markets. As the name suggests, day trading is all about trading during the day or during the business hours. With day trading, the main goal is to open and square off your positions by the end of the day.

Think of day trading as how stock markets would work. Traders open and close their positions only during the day. There is no risk left on the table overnight. Traders focus on trading the short term time frames. Day trading can also involve scalping at times.

One of the advantages of day trading is that because there is no open position left in the markets, the risk is lower. But because day trading means trading many times a day, you will be paying more commissions or spreads.

Day trading is usually done on smaller time frames up to a 1-hour chart time frame.

Swing trading the markets for longer term trading

Swing trading is another form of trading that is rather slow. Traders who swing trade keep their positions open overnight. Sometimes, the duration of these trades can span across a week, if not longer.

With swing trading, traders primarily make use of the trend. Trading is done based on the analysis from the 4-hour or the higher time frame charts. The risks and profits are also much higher compared to scalping or day trading.

Swing trading is not suitable for everyone because the trader has to be patient until the objective is reached. But at the same time, you can manage your risk to the point that if the trade works in your favor, you can also start to remove risk from the table.

The downside with swing trading however is that because your positions are left open overnight, they can be subject to wild market swings. Because of this, there is a strong chance that you could be paying the overnight swaps alongside the fees such as commissions or spreads.

Position trading to maximize your profits

Position trading is quite similar to swing trading. The only main difference here is that traders narrow down onto one trading instrument and build up their positions.

Position trading requires a lot of focus and knowledge about the markets. The basic idea is to capitalize on a market when it is trending. It is similar to the buy and hold form of investing that is common to the stock markets.

The goal of such a strategy is to basically make use of position trading to maximize the profits over long periods of times. Thus, instead of looking at two or three currency pairs, position trader focus on such one instrument and build up stake in the instrument and hold their position over months.

In conclusion, depending on your level of experience, your level of risk tolerance and a number of other factors, you can choose one of the above styles of trading the forex markets.

Read 979 times Last modified on Tuesday, 09 July 2019 10:30