Forex traders use different styles and strategies of forex trading to reap profits in the market. However, not all trading styles suit all types of traders. Hence, the best way to determine the right trading style for one's personality is to experiment.
Popular Forex Trading Styles
Here are some popular forex trading styles:
- Scalping: Suitable for both experienced and novice traders, scalping involves fast and repeated purchase and sale of currencies to make profits. It involves the trader opening and closing positions in a short period, with very small pip movements. As the time span for the transactions is short, scalping does not allow huge losses. So, it is considered a safe forex trading style. Scalping also uses charts in short intraday timeframes, such as one, five and 15 minutes. The profits, although small, are consistent (it is best to accept profits of small pips and limit losses). Scalping is best done during news events, when the market is very active or during market consolidation. Automated forex scalping systems are also available to conduct trades effectively and easily.
- Swing trading: A combination of day trading and trend trading, swing trading tries to predict and benefit from potential gains from a trade unit within a short period of time. It is similar to day trading because transactions may be closed within minutes or hours; similarly, transactions may also last for days, weeks or even months to maximize trend ups and downs (similar to trend trading). Swing trading involves monitoring the progress of a volatile unit until the close of a trading day and closing it when it reaches the maximum gain potential. However, when the unit is less volatile, traders may watch the trend for weeks or months until it is ready to yield the maximum profits. Swing trading decisions are typically affected by market status, be it bear, bull or stagnant.
- Long-term trading: Long-term currency trading involves holding positions for months or years to profit from long-term trends. Trading decisions are made based on fundamental and technical analysis; hence, traders should be knowledgeable in these areas. It may be a difficult type of trade, as it involves riding the ups and down of a trend progression. It may also be less appealing because long-term trends are not established every day.
Traders can determine the right type of forex trading style based on their requirements, personality and goals.
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