Which Type of Forex Trading Style Is Right for You?
The Importance of Knowing Your Forex Trading Style
Trading the forex market may sound as simple as opening an account with a forex broker and acquiring an internet connection.
But, if you’re going to be a profitable trader, you need to put a lot more thought into it than that.
You may have heard that to make money as a forex investor, you need to have a good trading strategy. In other words, you need a comprehensive trading plan with predetermined goals, market entry and exit points, and risk management measures, among other things.
But we won’t be getting into all that today. Because before you can even think about doing any of that, you need to consider the following:
- The type of person you are
- The amount of time you have to spend trading
- The type of market analysis you prefer to use
So why does all this matter? Well, because your answers to these three questions will determine the type of forex trading style that is right for you.
So let’s jump straight in and unpack what the 3 different types of active FX trading styles entail.
As our Traders Expert glossary defines it, scalping is a short-term live trading strategy that involves opening and closing trade at tiny intervals in order to profit from small movements in price.
In forex trading, this can be highly profitable because currencies experience many price fluctuations in a very short amount of time.
Scalpers place between a dozen to hundreds of trades per day, with trades usually lasting only a few seconds each. The aim behind this strategy is to accumulate lots of small profits from many trades.
So who is this forex trading style ideal for?
Well, to be a successful scalper, you need to enjoy conducting both fundamental analysis and technical analysis.
Staying on top of the news must be something you’re comfortable doing, as scalping opportunities often come from volatility-inducing market events. You should also make sure you have the time to do all of that. You need to be at your desk, watching those charts like a hawk, especially when your trading session is at its most volatile. Otherwise, you won’t be there when the biggest trading opportunities arise.
Scalping is also great for online traders who are comfortable with algorithmic trading. So if you’re a tech-savvy individual who can see yourself using expert advisors or forex robots, scalping may be worth exploring for you.
Oh, and one more thing – to be a successful scalper, you need to be very disciplined and have good trading psychology. The forex and commodity markets are extremely unpredictable, and trades are bound to turn against you.
So if you’re going to choose this fast-paced, volatile, and high-risk trading style, your emotions cannot get the best of you. The only way to be successful when scalping is to adhere to a strict trading plan with stringent risk management measures, as well as firm stop loss and take profit orders.
You know yourself best – if that doesn’t sound like you, then it may be best to steer clear of scalping.
Like scalping, forex day trading is a short-term trading strategy. But unlike its controversial ultra-high risk counterpart, it typically only involves taking one trade at a time, per day, per asset.
Because it’s a short-term trading strategy, like scalping, day trading also aims to take advantage of small price movements, or rather, the short-term intraday price fluctuations you expect to see in an instrument.
Traders start off the day by choosing where they think the price of a currency, index or commodity might go, and they take a trade accordingly. It is then a day trader’s responsibility to monitor the trade and the charts throughout the duration of the trading session, in order to ensure that all is going as planned.
So, who is day trading ideal for?
Well, just like with scalping, day traders need to have the time to always be monitoring that MT4 forex trading platform. Your eyes cannot leave your computer.
If things go awry, you need to be around to do damage control – whether that be by hedging your position or moving your stop loss around.
So, if you don’t have that, then maybe day trading isn’t for you.
But if you’re someone with enough time to dedicate to staying up to date with the fundamentals, and keeping an eye on the technicals, and you have a tamer risk appetite than that of a scalper, day trading can be a great way to make some sustainable, small profits that will grow your forex trading account.
Swing trading is a medium-term forex trading style that takes advantage of short to longer-term trends in the markets.
It involves taking and holding a trade for a much longer period of time than the other 2 trading styles we discussed – so, that could be anywhere from a couple of days to several weeks.
Unlike scalping and day trading, swing trading is much less high maintenance on a daily basis. That means you don’t have to be as hands-on with it throughout the day.
Instead, you can go about your regular life, and just dedicate a couple of hours every night to checking in on your trade and updating yourself on what’s happening in the financial markets.
So who is swing trading ideal for?
Well as you might have guessed – this trading style is highly suited for people who don’t trade full-time. It allows you to sort of clock in and clock out of the markets when it suits you best, provided you’ve done your due diligence to protect yourself from any impending fundamentals.
Your stop-losses can be a little laxer to account for any surprise short-term volatility, but that doesn’t mean your discipline can slack off.
To be a successful swing trader, you need to have resilient trading psychology. It is absolutely imperative that you are strong enough to keep trades open when the markets are going against you.
If you don’t trust your analysis enough to keep the trade open until the trend reverses in your favour, you can end up throwing in the towel too early, and suffering huge losses as a result.
Also, RSIs, moving averages, and support and resistance lines need to become your best friends. So if you don’t like analyzing charts and you’re not a calm, patient person, swing trading might not be for you.
So Which Forex Trading Style is Right for you?
Now that you’re familiar with the ins and outs of the most common forex trading styles out there, which one do you think is right for you?
We’ve been on quite the journey together today. But we hope all of this has shown you that trading is a process that needs to be approached and tweaked in as many ways as possible before it is tailored for your own personality and needs.
There is no one-size-fits-all, especially when it comes to investing. So look within, do your research, and come up with a trading system that works well for you.