Traders have invented different ways by which currencies are speculated, invested, traded in the foreign exchange market. This article will take you through the popular ways you can trade forex. Those popular ways are scalping, day trading, swing, and position trading. The different styles are dependent on the timeframe and length of period you are opening the trade for.
The most short-term form of forex trading is the scalping method. For this method, as a trader, you will need to hold your positions open only for mostly seconds or minutes. Your intention is often to target small intra-daily price movements at most. Also, you are doing this so you can make lots of quick trades with smaller profit margins. Your profits will therefore be accumulated throughout the day as a result of the number of trades that you executed in the particular session.
The scalping method is quite dependent on tight spreads and liquid markets. Therefore, you might be trading major currency pairs such as EUR/USD, GBP/USD, and USD/JPY. The fact is that these currency pairs have lots of liquidity and high trading volumes.
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Ultimately, you will be trading during the busiest time of the day, as this is the time the market is experiencing more trading volumes, and volatility. To avoid a wider spread eating into your potential profits, you will always be on the lookout for the tightest possible spread. This is supposed to address the fact that you enter the market frequently daily.
It can be very stressful and time-consuming to scalp a few pips as many times as possible in a day. Therefore, you will often trade one or two pairs since you have to focus on charts for several hours at a given time.
Day trading is suitable for those who are not comfortable with the intensity of scalp trading or holding overnight positions. With this method, you have to enter and exit your positions on the same day. This will help you remove the risk of any overnight moves. At the end of the day, you’ll likely close your position with either a profit or a loss.
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Day trading is closely related to scalping because you will be getting frequent small gains to build profits. You’ll also need sufficient time to analyze the market and monitor your positions.
As a day trader, you have to pay attention to fundamentals and technical analysis. You’ll do this by using technical indicators such as MACD, the Relative Strength Index, and the Stochastic Oscillator. They will help you to identify trends and market conditions.
As a swing trader, you will not hold your position for less than one day, instead, you’ll do for several days or weeks. This makes it a popular style for those who have other commitments (such as a full-time job) and would like to trade in their leisure time.
However, it is still necessary to dedicate a few hours a day to analyze the markets. As a result of holding your position for several days, you won’t have to capture short-term moves. Neither do you have to constantly watch the charts throughout the day?
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Swing trading will be your best shot at trading if you have other commitments and you would only want to trade during your spare time. Notwithstanding, it’s important that you set aside a few hours to analyze the markets before your next moves.
If you intend to venture into swing trading, you need to learn and master certain strategies. Those trading strategies you need to master are trend-trading, counter-trend, momentum, as well as breakout trading.
As a position trader, your focus is on long-term price movement. You intend to look for potential profits that you can gain from major shifts in prices. Therefore, your trades will span over weeks, months, or years. Using weekly and monthly price charts for your market analysis and evaluation will help. At the same time, you will need a combination of technical indicators and fundamental analysis. It will help you to identify potential entry and exit levels at all times.
Since you are not concerned with minor price fluctuations or pullbacks, your positions do not need to be monitored as other strategies do. Instead, you will need to occasionally monitor your trades to keep an eye on the major trend.