Investors approach the forex market differently. Some prefer to trade over a short period of time and pursue small but frequent gains. Others focus on the long-term movement of the forex pairs and aim to bank larger profits.
We all know that there are four major types of forex traders: day trader, swing trader, position trader, and scalper. There are also different trading styles developed by traders who don’t really fit into the major four categories. In this article, we are going to explore the different forex trading styles.
Swing trading sits in the middle of the four main trading styles based on timeframe. Most swing traders keep their positions open for several days to a couple of weeks – short- to medium-term trades – and work on capitalizing the short-term market movements.
As a swing trader, you rely on both fundamental and technical analysis to help you determine positions to open. Trading platforms such as Metatrader 4 and 5 offers timeframes of up to 1 month, so performing even the most complicated technical analysis on forex pairs should be easy.
Many forex trading courses and learning guides also focus on helping you become a more effective swing trader.
Day trading is another popular trading style used by many investors. When you day trade, you review the market on a daily basis and use shorter timeframes to perform technical analysis.
It is also quite common for day traders to take advantage of announcements and reports – such as the Fed’s interest rate update or unemployment rate of different markets – and the market volatility that comes with them. Sudden spikes are where you can make the most money as a day trader.
Since all positions are closed within the same day, day traders tend to use shorter timeframes when reviewing the charts. Timeframes between 15 minutes to 1 hour are best.
Scalping for Small Profits
Not all forex brokers allow scalping, but the reliable ones do and they are attracting more investors to use very short-term strategies to bank smaller profits. Instead of setting the target profit at 20 pips or more, scalpers aim for 5 to 10 pips of profits from positions that stay open for no more than a few minutes.
Scalping is a technique that works particularly well in the forex market, but no matter what kind of trader you are, your understanding of currencies and their relations is of utmost importance. Social traders for example primarily deal with foreign exchange, but there are resources such as guides and tools available for these traders on sites such as InvestinGoal who provide social trading information and tools.
The market can be very volatile at times, presenting plenty of opportunities to earn small profits as the currency pairs move. Naturally, you want a forex broker with small spreads to be able to scalp profitably.
These are the common trading styles you can try when you’re searching for the style that suits you best. You can also try trading over a longer period of time (position trading) or even using multiple pairs and a lot of transactions to hedge your trades and maximize your profits (high-frequency trading). The most important thing is sticking with a style or a strategy that works for you based on your personal preferences and expectations.