Forex Trading Styles
Chapter 8
Every people in the world have his or her own unique personality. Everyone is different, and everyone got his own style. Just like in trading, even if you’re following the same rules as the other guy, your result would still be different from the other. Continue to read to know which forex trading style is suitable for you.
We know how it sounds irrelevant with forex trading. But styles come hand in hand with strategies. Using a strategy that is not suitable for that certain style won’t leave you any profits. This is why it’s important to determine what kind of a trader you are.
Additionally, each trader has his own way on how to achieve his goal. Understanding your mindset and style is an important part of your success.
Trading Styles
What usually separates the styles is the length of time you intend to be part of a trade, the timing of your entry, and the frequency of the trades.
Let’s differentiate each trading style.
Day Trading
Day trading is for traders who prefer starting and completing a task on the same day. If you were building a cabinet in the morning, you wouldn’t go to bed until the cabinet was done, even if that meant staying until 5:00 am. Meaning, day traders don’t like to hold their trades overnight.
In terms of trading, this style refers to trading currency pairs that are entered and exited on the same day. You make returns through means of leveraging bigger amounts of capital to take advantage of highly liquid pairs while they make small price movements. At the end of the day, you finish all your trades with either a profit or loss.
Furthermore, day trading is a short-term method. It requires you to spend a lot of time analyzing the markets and monitoring your trades. In other words, you have to spend a lot of time in front of a screen. That’s why it’s known as the most demanding of all types of styles. And that means you have to devote to forex trading entirely and treating it as your full-time job.
Swing Trading
This trading style is more preferable for patient traders who can keep their trades open for several days. If you don’t want to monitor your trades, then swing trading is for you. However, you still need to dedicate your time to follow and analyze the market every day.
Additionally, swing trading is not for you if you’re too nervous holding a trade while you’re away from your computer. In general, this style requires a larger stop loss than day trading. Meaning, you need to have the ability to keep calm and tranquil when a trade is going against you.
Now, what does a swing trader do? You are literally trading the swing of a chart and hope to grab a big movement. The timeframe for this is entered on the daily chart, and then hold a position for days or even weeks.
People who have a full-time or part-time job but have knowledge of forex trading often prefer swing trading.
Position Trading
Position trading is the longest term of all. It often has trades that could last for years. That said, this is for you only if you’re the most patient and least excitable trader. And another thing, you need to have a good understanding of the fundamental analysis.
Now, because the timeframe of holding positions are long, your stop losses will be very large. And you must ensure that you’re well-capitalized or you will get margin called (see chapter 2).
Also, to become a position trader, what you need is the ability to ignore popular opinion. It’s a guarantee that your trades will go against you at some point, and those will have to hold through both bull and bear markets.
Scalping
If you think all these styles are boring, then maybe scalping is for you. It’s a fast-paced, exciting, hit-and-run trading style that will surely keep you on the edge of your seat.
Basically, a scalper usually holds a trade for a few seconds to a few minutes at the most.
The main goal here is to grab very small amounts of pips as many times as you can throughout the busiest times of the day. That means you must stay glued to your screen like there’s no tomorrow. If you can spend many hours of undivided attention to your trading, this is suited for you.
On the other hand, if you get easily distracted or often find yourself daydreaming (for example, right now), then you can forget about scalping and move on. If you want to be successful, you need focus, concentration, and the ability to monitor and analyze charts.
Additionally, since you’ll use higher leverage, you need to have an effective risk management strategy, especially for leverage.
Lastly, this style doesn’t mean making big wins all the time. Instead, this is for those taking small profits over the course of time to make an overall profit.
The ideal times to trade as a scalper are during the session overlaps. This is from 2:00 am to 4:00 am and from 8:00 am to 12:00 pm EST.
Choosing your Trading Style
When choosing a trading style, you should know when a trading style is not for you. But this also requires the consistency to stick with your style even when it’s not performing well for you.
Moreover, the biggest mistake you can commit is changing trading styles when a problem arises.
What trading style you should choose must base on your personality, skills, and market knowledge. To achieve this, you can use a forex demo account at the beginning. And once you find the right style and become comfortable, stick to it and utilize some strategies for long-term profits.
