Trading styles: first thing every trader should know
There are different ways to use the Forex market dynamics to your advantage. They depend mostly on your personality and the core difference is all about timing.
Are you usually rushing from one thing to the next, or do you prefer a more zen-like lifestyle? Are your reactions quick, or doing a double take describes you better? These things matter a lot, as well as your financial goals or your inner response to the success vs. failure.
Here’s the list of common Forex trading styles, and it helps greatly to know where you belong:
- Day trading
- Swing trading
- Week trading
- Position trading
Let’s have a more detailed look at day trading and a specific type of it, called scalping.
Scalping, or how to ride the small market moves
Scalping is a type of a short-term trading, which takes the opportunity of the moment. Those who use it prefer to grab small wins, but do it in a consistent and relatively safe fashion
A scalper will be swiftly going in and out of positions during the day, using the most volatile assets. The positions of a scalper last very little time and bring only tiny portions of profit, but when you add them up – the bottom line could be quite impressive. To quote one successful follower of this style: “Scalping is a chance to earn a million dollars with a million of trades”.
These features will sum up the essence of scalping:
- Only small time frames are used (up to 5 minutes)
- Positions have a short duration
- Each position brings only a minuscule bit of a profit
- Scalpers usually take advantage of insignificant price moves
- Positions are never held open overnight.
So, the scalping strategy basically comes to doing the same thing over and over. Easy on one hand, but you have to concentrate intensely on each tick of the chart, and to think at a really fast pace. If you love too much analysis, that will be counterproductive. In scalping, decisions have to be made in the blink of an eye, especially if the trend started working against you.
When does a scalper step in?
Scalper’s finger is always at the ready to hit the appropriate button, but when is the right moment to open a trade? Here are some clues for you:
price breakouts: “scalp” the market whenever the price escapes a continuation pattern, no matter up or down.
trading the news: open a position when the market makes a fast move – an important news release is a good example.
trend reversals: make your deal if you feel the market is headed for correction.
following the trend: pretty obvious - open your positions in the direction of a trend if you believe it will continue.
Day trading – a more quiet alternative
Suppose you like to strike your balance on a daily basis, but you have a full-time job which does not let you react to the chart movements all day long. In that case, day trading might be the right style for you.
A day trader picks side in the morning, being able to conduct a certain analysis of the market situation. Then they will open one or several positions that will be closed by the end of the trading day. Such positions usually last from 30 minutes to several hours.
Conditions in which day traders operate
Although this style is less speedy and intense than scalping, you still have to dedicate enough time to monitoring economic developments around the world. Just make sure it can fit into your daily routine.
To scalp or not to scalp?
Like everything, day trading in general has its own pros and cons. We have distilled a few:
On the upside:
On the downside:
Ultimately, you have to understand that no two traders are alike. But every good one knows their personal trading strengths and weaknesses. Align your temperament with your time frames and strategies, and you will be on a sure path to success.
Do not miss out on our next course about week trading and position trading - to learn more!