Forex trading has turned out to be the best choice for most investors lately. The beauty of trading forex is that it can be done anywhere and at any time.
However, what makes it more interesting is the fact that you choose a trading style that suits your needs.
It, therefore, means that you can trade freely according to individual personality, risk tolerance, and knowledge.
Like other financial markets, the forex market can be traded using different trading styles. The following are some of the leading trading styles.
The Main Trading Styles
Depending on the trader’s preference, there’re several trading styles that one can choose. Every style comes with its advantages and disadvantages hence ensure that you choose a style that fits you the best.
Scalping is an extremely rapid trading style whereby scalpers make trades only within a few seconds of the trades in opposite directions.
Scalping is suited to active traders who can make immediate decisions as well as act to the decisions without hesitation. A trader looks to make a profit from minimal changes in the price.
Therefore, it’s practical to say that impatient traders usually make the best scalpers as they expect trades to be profitable instantly, and can make exits when things fall apart.
Scalping requires a lot of focus and concentration with clear exit strategies to avoid significant losses that can wipe out all the profits previously accumulated.
The active market is the best for scalping, and reasonable profit potential when scalping is between 4 to 15 pips.
If you decide to the scalp, here are some of the things you must consider:
- Trade only most liquid pairs
- Trade during the bust times of the day
- Focus on one pair first
- Account for the spread
- Avoid trading around significant news releases
- Have a good money management
Day trading style is usually suitable for those traders who prefer to start and complete their tasks within the same day.
The objective in day trading is to gain some profit of between 15 to 100 pips, and the most fruitful options occur during the US and Euro trading sessions.
In day trading, there’s no holding of trades overnight. The style is best suited for traders with enough time during the day for analyzing, executing, and monitoring a trade.
Day traders use the help of the patterns on charts, resistance, and support indicators to make their trades.
Basically, they favor using technical analysis in conducting trades. Some of the days, trading types include trend trading, countertrend trading, and breakout trading.
Swing trading is for those traders ready to be patient to hold the trades for at least several days at a time.
For instance, if you can’t monitor the charts all day long, but have at least a few hours to analyze the market each night, then swing trading style is the ideal option.
Typically, swing trading keeps a trade open for about 2-5 days while looking for a profit of between 100-250 pips.
Also, swing trading requires a lot of calmness as sometimes trades may go against the trader during holding.
Being a swing trader requires that you be patient, never mind holding a trade for several days, don’t mind large stop losses, be calm, and be willing to take few trades but ensure trades are good setups.
The most extended-term trading style is position trading, whereby the trades last arguably for several months or even several years.
Position trading requires an excellent understanding of the fundamentals and is basically reserved for ultra-patient traders.
The fundamental themes are essential in this category as they are the ones to be focused when analyzing markets.
The time that a position trader can hold the trades is between 5-50 years while looking at a profit potential of between 250 to 1000 pips.
As the name suggests, long-term trading is all about holding an open trade for several months or years to profit from the currency’s trend.
Long-term traders make use of technical as well as fundamental analyses in making their trading decisions. Traders make an average of 10 trades per year.
No matter the trading style you chose, ensure that it’s genuinely the style that suits your personality.
Constant changing of trading styles sometimes can lead to trouble is can be a sure way to making significant losses.
Nevertheless, you should be flexible enough to understand when a particular trading style isn’t working for you.
But you should always remain faithful to your trading style as it will reward your loyalty eventually.