Just as a soldier doesn’t willingly run into battle unarmed, a successful trader shouldn't enter the market without a strategy.
Trading is not a game of chance - if you open positions aimlessly, it’s only a matter of time until your deposit is lost for good. Professional traders know how to plan their strategy, implement it properly, and adjust it to fit current trading conditions. If things take an unexpected turn, then traders will always have a Plan B to fall back on. In this way, a properly planned out Forex trading strategy can prepare traders for whatever the markets have in store for them.
Remember - there’s no Holy Grail trading style that works in every type of market. Traders need to engage with current trends, analyse the markets and constantly improve their skills through practice and experience.
In this article, we’ll look at three popular Forex trading styles used by millions of traders around the world: Scalping, Day Trading and Swing Trading. Each trading style can be differentiated according to the timeframe that it uses. We’ll also highlight the major pros and cons of each style, to help you choose which strategy is best for you.
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Scalping Forex may be one of the more difficult trading styles to master, but it definitely keeps traders on their toes. This trading style involves opening and closing many positions throughout a single trading session, with the aim to generate frequent, smaller profits.
When scalping Forex, traders need to be highly attentive to market movements, pinpointing exactly where they should enter and exit the market. This trading style also requires focus and discipline, as profits are made through quick market movements.
- Pro: Lower-risk - since positions are often smaller and the time spent in the market is shorter, scalpers lessen their risk exposure in the case of a big, adverse market movement occurring.
- Con: High-involvement - Scalp traders need to follow every slight market movement when using this trading style, if they want to earn a significant profit.
Forex Day Trading
A step up from scalpers are the day traders. Adopters of this style will hold their positions open for slightly longer than scalpers, and will usually focus on up to 10 positions throughout the day. Nevertheless, all positions will be closed before midnight, thereby eliminating exposure to overnight market movements caused by breaking news events.
Technical analysis indicators and fundamental analysis indicators are an indispensable tool in day trading, as they allow traders to gain insight into market sentiment and gauge possible future price action.
- Pro: High-Leverage - Trading with leverage allows traders to make larger profits from limited market movements occurring throughout the trading day.
- Con: Changeability - Markets can undergo drastic changes from one day to the next, and traders need to ensure that their day trading strategy is attuned to the current market conditions in order to profit.
Forex Swing Trading
Swing Trading is a longer-term trading style, sitting comfortably between day trading and the ‘buy and hold’ approach. This style requires traders to read price charts and understand the ‘swing point’ patterns they create. Unlike the previous two trading styles mentioned, swing trading involves looking at multi-day charts and keeping positions open overnight, if necessary.
Essentially, swing traders aim to buy the ‘dips’ and sell the ‘rallies’ that appear on trading charts. Traders who prefer a slow and steady profit may opt for this style, opening fewer positions of higher value.
- Pro: Long-term Profit - Keeping positions open for longer may result in bigger price movements, earning you more profit than you would have done in a day.
- Con: Trading psychology - Positions will rise and fall throughout the duration of the trade, and traders may give in to emotions to close a trade too early or leave it open too long. Striking the right balance is key to earning a profit!
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