Lesson 10 – Trading Styles common in Forex
You’ll find three main trading methods broadly speaking for you to choose from when you start trading forex. They, in order of trade length from short to long, are scalping, day trading and swing trading.
There is a fourth form known as position trading, however, this style involves you holding positions for months to years, and therefore this doesn’t really qualify as active trading and this skillset will be covered in our investing course.
With that clarified, let’s go into depth on each of the three main trading methods and explain each one with detail.
Scalping Forex Traders
- Screen time: high
- Trades per day: 50+
Scalping is the most active and fast-paced trading method. The goal of a forex scalper is to take 25-100 small trades and small profits each and every day by taking advantage of tiny market movements.
Usually, a scalper will be in and out a trade within a few seconds to a few minutes,
For this reason, a scalper will spend most of their effort looking at the charts on very short time frames, such as 1, 5 or 15-minute candle charts. Some traders even go smaller.
They are focusing heavily on technical indicators.
To be successful at scalping you’ll need to be able to react quickly to market movements and have high discipline. The skill is knowing when to take profit and when to cut your losses. And definitely not letting your losses run too far into the red.
One small blip in the markets could ruin an entire day of scalping, which can be frustrating. However, if you can maintain high levels of focus over long periods of time, then scalping may be a good option for you.
Day Trading Forex Traders
- Screen Time: Medium
- Trades per day: 1-5
As the name may suggest, day trading is trading with the time horizon being within a day. Usually, the same day and not letting trades run overnight.
Day traders usually spend their time scanning the market for a trade, then set up the position with an in-depth plan of how to act during the trade, including the plan to close the trade before the end of the day.
You won’t need the same level of focus and discipline as a scalper, however, it does require plenty of both.
Usually, day trading is best suited for those of us who don’t like the feeling of keeping a trading position open overnight. That way, you can always get an excellent night of sleep without needing to worry about how your exposure is doing.
If this attracts you, then day trading is likely your best choice.
This is the reason day trading is so popular. You plan patiently, you open positions, and you close them before the workday is done. Then you close your laptop and can disconnect.
Swing Trading Forex Traders
- Screen time: low
- Trades per day: 0-3
Lastly, we have the swing traders. This is similar to day trading in style, however, the trades are usually planned and kept over a longer period of time. With the typically trade length being over 2-7 days, with some trades going over a few weeks.
As you can tell, this is a more hands-off approach, where most of the time is invested in researching and analyzing fundamental while looking for larger market sentiment shifts to trade.
This is best suited for you if you don’t like the idea of staring at the forex charts all day and don’t mind having open positions while out and about.
The markets tend to be very volatile, so a swing trader might find their trades at a loss for the first hours/days of them holding the position, before finally turning into a profit if the core analysis was done well.
This requires a strong mental fortitude and confidence in your analysis to hold out on these trades.
This is also a popular form of trading with retail traders as is does not require too much time to manage actively, however, it does leave traders at risk as markets close over the weekends and whenever they are not currently paying attention to their current positions. As any reopen can produce abrupt price movements that can quickly push your trade into strong profitability or a heavy loss.
The trick here is planning the entire trade including preprogramming a take-profit and a stop-loss to ensure your risk is kept in check.