You can trade the markets in a variety of different ways, this is just one of the reasons why trading Forex is so popular. As we are all different our trading style may also differ from others. When we refer to a trading style we are talking about how often you place a trade and also the duration of that trade.
There are four main types of trading style, understanding these different trading styles will greatly improve your trading. In this article we will be looking at the four types in more detail, try to identify which one you are..
Your trading style will be greatly dependent upon you as a person, for e.g. If you are able to spend several hours in front of the screen, then you will be able to take a large number of short-term trades. However, if you are a rather busy person and you can only spend say 1 hour per day on viewing/researching the markets, then you nay be more suited to taking a few longer term trades.
Your personality also plays a huge part; for e.g. if you are a risk taker and enjoy the thrill of trading, then you will be more suited to a short term trading style. If you are a more reserved person i.e. you are more calm and patient, then the longer term trading style (often referred to as investing) will be more your cup of tea!
With that info in mind, let’s take a look at the four main types of Trading Style:
Timeframe: Long Term
Holding Period: Weeks/Months/Years
Trading Activity: Low
Position Trading refers to holding a trade for a longer period of time such as weeks, months or even years! Doing so, means that a Positional Trader is more interested in the wider picture, as they are hoping for a longer term profit. This means that they do very deep study/research before taking any trades.
Typically a Position Trader will risk far more per Trade than others, this is because they are aiming for a much greater profit over a longer period of time. When holding a trade for such a long period of time it is almost inevitable that the market will move against you at some point for a long period of time, be it a few days even weeks, during this period you must have enough resolve to remain calm and patient and stick to your Trading Plan.
Timeframe: Medium Term
Holding Period: Days to Weeks
Trading Activity: Medium
Swing Traders aim to try to take advantage of medium term market moves, they may hold a position for a few days or sometimes a few weeks. This however is very heavy Swing Trading, typically most Swing Traders will hold a position for a day or so.
This style of Trading is ideal for those who may be working a job but still desire to trade, this is because the Swing Trader does not have to stay glued to the screen for the duration of the trade, to check every single move. Rather they can go about their normal day to day lives, and check the charts perhaps only once or twice a day. Both types of Market Analysis are carried out (i.e. Technical and Fundamental), especially when establishing what the next few days have in store.
Timeframe: Short term
Holding Period: Intraday
Trading Activity: High
Day Traders do precisely that, they open and close their trades within the same day. It involves opening and closing multiple trades within the same day and position are generally not held overnight. They watch the markets fairly closely throughout the whole day, waiting to pounce on a great trading opportunity.
Trading in this manner tends to be quite fast-paced, as the trader needs to analyse the chart, check for news events, check prices etc. all in a short space of time. This type of trader will have the time to freely check the charts throughout the day, looking for good trading opportunities mainly from Technical Analysis, also keeping an eye on the Fundamental side of things is just as important.
Timeframe: Very short term
Holding Period: Seconds to Minutes
Trading Activity: Very high
Scalping is when you trade very short term, so short in fact that we’re talking anything from a few seconds to just a few minutes. Scalpers can take many small trades throughout the day (sometimes hundreds), aiming to make many small profitable trades taking just a few pips on each trade.
Scalping is extremely fast-paced and can be highly stressful, it’s essentially Day Trading but much shorter trades. You must be very disciplined and have a keen eye, especially during faster moving markets. No single trade is going to be particularly special, rather it’s all about taking many small trades in a single day.
Which one are you?
So now that we’ve taken the time to look at each Trading Style, the big question is ‘Which one are you?’ Remember, each style is suited to different personalities. For some, you need to be very patient and calm, whilst others you must be quick to think and disciplined. It also depends on the amount of time you can dedicate to trading Forex. Understand how you trade and your attitudes to risk, stick with it to see how it goes and then adapt/change as you need.