24. Forex Trading Styles
There are variety of trading styles available in Forex. Each individual trader is different from another one. We all have our own uniqueness in trading style. Some traders are interested in making money faster, some like to look for an income on a long term basis. Each trader’s personality is different and depending on his taste he chooses his trading style. In this article we are going to touch upon different trading styles in Forex.
Scalping involves frequent buying and selling throughout the day. This is short term trading style, where you need to pay close attention throughout the trading hours. Scalpers trade on small amount of price movements or pips many times during the busy hours to make small profits which then build up to big gain in the long run. In this style of forex trading, position is held for very few seconds or minutes. Scalp trading is suited for those who have enough time to spend during the busiest trading hours with full concentration by keeping a close look at the charts all the time. So, if you are interested in short term trades and you can spend hours of trading without losing attention you can take up Scalping.
Day trading is similar to Scalping in that it is also suitable for short term traders. But with day trading as the name suggests traders take a position and close it by the end of the day. So, you are doing only one trade in a day. The traders who don’t want to wait overnight do day trading and they like closing off their day by realizing their profit or loss. For day trading you need to have enough and resources available throughout the day to analyse and monitor the market. For example if you lose your internet access you will be in trouble. There are three subtypes of day trading:
- Trend trading
Trading by looking at the trend is called trend trading. First you look at longer time frame to determine the overall trend. Then you look at the smaller time frame and look for market movements in the same direction. Using indicators you can get to know when to take a position.
- Countertrend trading
Countertrend trading is also about determining the overall trend and then trading against it. But then, wait for the reversals to take positions. Intention is to make use of the reversals.
Countertrend trading is a bit risky and may result in huge losses. But in case it works out in your favour, it can give you huge profits.
- Breakout Trading
After a range is made by a currency pair, place orders on either side to benefit from market movement on either direction of the trend. This is called breakout trading. For this you have to first determine a range made by the support and resistance levels. Entry orders are then placed above and below these levels to benefit out of the breakout in either direction.
This is the type of trading which lasts for several months or even years. Since the position is held for several months or years, the fundamental factors play a major role in the price movement. So it is required that traders who choose this style of trading are well aware of fundamental analysis and techniques. So it is important that as a trader you understand how economic factors impact the price of currency. These kinds of trades are associated with huge swings and you should be ready to bear the loss by keeping yourself calm. This trading style is more suited for those who are patient and like to stay calm.
This style of trading involves gaining profit from short to medium term swings in trend. Swing trading is generally long term trading style in which trades last for several hours, days, weeks or even months. If you are ok with holding your days for several days you can go ahead with swing trading style. These traders need not pay much attention towards fundamental factors. This style of trading does not require continuous monitoring. But you should be able to spend time looking at the market may be overnights.
Which is your style of trading? You need to consider various factors before choosing your trading style. Your risk capital, amount of time you can dedicate, personality, trading experience are some of these factors which should be considered.
There is no clear cut categorization of the trading styles. As mentioned in the beginning each individual has his or her own personality and choices. The style of trading you choose to do completely depends on you. You can do trading in any fashion you want. If you want to mix trading styles you can do that as well. It is completely your choice. For example there are traders who do day trading with swing trading mixed into it.