So, you’ve decided to venture into the world of forex trading. With the right guidance and skillsets, you can minimize risks and make sure that your experience is as smooth as possible.
One of the most crucial factors in determining your success rate in forex trading is your strategy. Are you looking for long-term profits? Maybe you prefer short bursts of smaller, quicker winnings. Either way, let’s explore the four different types of trading.
Scalping Trading Strategy
Scalping is the most popular short-term form of forex trading. This relies on the trader opening positions for a mere matter of minutes, and in some cases, even seconds, to make quick profits at smaller volumes. Scalping requires specific market conditions, ideally, high liquidity and some tight spreads. Therefore, most scalp traders tend to flock towards well established currency pairs such as GBPUSD and EURUSD. The frequency and high trading volume of these pairs makes it ideal for scalp traders to make some profit within minutes.
- Virtually impossible to lose drastically
- No long-term stress, in and out within minutes
- Lots of back and forth between small deals
- Very intense on the short-term
Day Trading Types
The title “day trading” is pretty self-explanatory, this is the strategy used by traders who prefer to operate throughout the entirety of the day, leaving no positions open by the end of it. This is the ideal strategy for traders who want to carefully plan out their day, with no obligation to “get in and leave within minutes” like scalpers do. The obvious advantage to day trading is not leaving anything to chance. Once you’re done with your day, that’s it. We can’t think of a worse way to start your day than by finding out you lost your money while you were asleep! Day trading eliminates that risk.
- You can rest easy during the night with no open positions
- Perfect balance of pace
- You might be forced to close a position overnight even if it means sacrificing some profit
- Profits are not that extraordinary
If you’re looking for a trading strategy that is catered to longer periods of time, swing trading is for you. Swing trading is best employed by traders who cannot, or simply do not want, to spend their whole day keeping track of their positions. Maybe you have a full-time job and have to be away from your screen for a considerable amount of time? Swing traders usually keep open positions for days and even weeks. However, it’s not as simple as opening a position and checking on it weeks later. You still have to commit the time for proper market analysis in order to accommodate unexpected surprises.
- Doesn’t require intense daily monitoring
- Potential of some profitable trends
- Might not appeal to traders who don’t appreciate some level of risk
- Losses could be significant if proper analysis isn’t conducted
For position traders, long-term planning is the name of the game. They prioritize a healthy return of investment through carefully planned out trades that can last up to years. Since there’s no real interest in short-term winnings, a position trader does not have to spend unnecessary time bothered by daily or even weekly fluctuations. Position trading would be the ideal choice for forward thinkers who do not want to micromanage their assets, instead preferring to check in every few weeks or so.
- The least stressful type and the most long-term type
- Plenty of strategies that have already proven successful
- Can be prone to micro-fluctuations that provide sudden losses
- No room at all for short-term profits
Scalp Traders: Short-term winnings, start and conclude a trade within minutes or even seconds.
Day Traders: Short-term winnings, trades can last up to a full day, but leave no unmonitored open positions overnight.
Swing Traders: Medium-term winnings, trades last an average of days/weeks.
Position Trading: Long-term winnings in mind, does not need continuous micromanagement as it can last up to months and even years.
These four different trading styles are all equally useful. The only factor that separates them is the needs of the trader themselves. It’s important to have a clear idea of what you want your desired trading goals to be, and adapt your type of trading accordingly.
Of course, if one method proves to be a hassle, or is perhaps not giving you your desired outcomes, it would be wise to explore another strategy. Just be careful not to fluctuate too frequently and be positive about the different types of trading.
Markets can be ruthlessly volatile, and even the most knowledgeable of experts can be caught off-guard by unexpected fluctuations, regardless of their strategy. We cannot overstate the importance of up-to-date market information. In this industry, information is valuable currency, and if you hope to have more success than most, stay informed of the latest news to be one step ahead.