Each trader is unique and has a different trading style. While some forex traders rely on market news and fundamental factors, others put more emphasis on technical analysis indicators. It is not surprising as we all have different views and approaches to all aspects of life including financial markets and the forex market.
The point is that whilst most traders share the same goals, they achieve these goals using a variety of different forex trading strategies. Trading styles can be molded to fit a trader’s time restrictions, profit goals, and personal strengths.
In this lesson, we will explore the different styles of forex trading and help you decide what is the one forex trading strategy that suits your personality.
There are four main styles of trading:
What generally separates these trading styles is the length of time they hold their trades for.
Let’s take a closer look at each trading style, shall we?
Simply put, scalping is a type of forex trading style in which a forex trader opens and closes positions in very short periods of time with the goal of profiting from minor market fluctuations in currency pairs’ prices. In theory, the scalping strategy has a lower risk when compared to other strategies, partly because forex scalping is characterized as a non-directional strategy and the trader has less exposure to big events.
When scalp trading, you are trying to make a large number of small-profit trades instead of fewer large-profit trades. Therefore, scalp traders use a high leverage ratio and volatile markets for utilizing this trading style.
However, although many traders believe that there are fewer risks involved in scalping, it is a strategy that requires the trader to place multiple trades in one trading day and maintain a high level of concentration. As a matter of fact, it is known as one of the most difficult trading strategies, especially due to the large trading volume made by computer algorithmic platforms and high-frequency trading software that constantly operate in the forex market.
Day trading is a forex trading style that involves the buying and selling of currency pairs within the same trading day. The goal of day traders is to find as many trading opportunities as possible on one trading day and make short-term profits. With this forex trading strategy, the trader has a daily structure and each day is… a new day.
The day trading strategy, also known as intraday trading, is one of the most popular trading strategies to trade forex and other financial assets. The reason is that you can avoid the overnight risk, and therefore, you have more control over your trading account, and your decision-making.
Unlike scalping and day trading, swing trading is a style of trading in which a trader attempts to make profits by holding a position open for several days, usually 2-5 trading days. Swing traders usually use trend trading based on market conditions and industry experts and try to capture wider price fluctuations than day trades.
Once again, swing trading is a popular trading strategy as it does not require effort and a high level of concentration of scalping and intraday trading. Instead, any individual trader can utilize a swing trading strategy by using a basic trading platform and trading tools.
Different from all the above methods, position trading is a long-term trading strategy that involves taking a position and holding it for a long period of time, usually weeks, months, and even years. By nature, position traders are trend followers and try to make decisions by analyzing the broader market picture of a certain asset, sector, or market.
For example, positions trading on the forex market could be in the form of carry trades. This is a popular trading strategy when a trader tries to exploit interest rates differential between two currencies and is usually held for at least several months. Generally, position trades in forex trading are based on fundamental factors such as economic data, rate hikes, carry trade factors, political changes, etc.
In all honesty, finding the right trading strategy and trading style for you is not done in a day. As you can see, there are various forex trading styles you can use when trading CFDs and other financial instruments. So you need time and patience to develop your own trading system and fully understand the risks of each forex trading strategy.
Generally, while swing trading and position trading are more suited for long-term trend investors who rely on fundamental factors, intraday trading and scalping would be the ideal choice for traders who have more time to trade the forex markets and wish to be neutral in their trading direction.
In my view, the most important factor in creating your own forex trading strategy is to apply the trial and error method. After all, you do not really know yourself until you put yourself to the test. That’s the magic of trading.