What's Your Trading Style?

One question beginning Forex day traders will face is: What's your trading style? Are you a position trader? Or do you consider yourself a scalper? There are many different types of Forex styles, but in general, they fall into four basic categories. Traders can consider themselves scalpers, day traders, swing traders, or position traders.

Each of these styles will help Forex traders reach specific goals, and each style has a different time commitment. So which one suits your needs best?

If you're just beginning in the Foreign Exchange Market, it's important to carefully consider the different types of Forex styles. It's not to say you can't always change up your style, but it will help you direct your focus as you're just starting out. Here's a look at the four most common types of Forex trading styles:

Scalping

Scalping is a high-speed, quick-profit strategy that requires the trader to open many positions throughout the day with the goal of "scalping" tiny profits off the top of each trade. For example, scalpers tend to open about 5 to 15 trades per day. And their goal is to score 5 to 10 pips of profit off of each trade.

This trading style requires a significant investment of time. The trader must be highly focused on the charts during normal trading hours, and they must be able to control their emotions in each trade. Typically, these traders focus on major pairs with huge liquidity, like EUR/USD, GBP/USD, or USD/JPY. The reason: These pairs have the lowest spreads. Pairs with larger spreads can significantly cut into the scalpers' tiny profit margins.

Scalping is not all great though. One disadvantage of this that during periods of high volatility, say following a major news announcement, the markets can respond quickly. And quickly knock out the scalpers small profits.

Day Trading

Day trading is similar to scalping in that the trader doesn't keep positions open overnight. Instead, day traders open 1 or a couple of different trades throughout the day with the goal of scoring up to 50 pips of profit off of each trade. Some days, the trader may adjust their pip-profit goals if the trend is strong, and others, they may have to take smaller profits to avoid bigger losses.

Analysis is the day trader's most important tool. Day traders combine fundamental and technical analysis to quickly spot micro- and macro-trends, and they enter trades based on this analysis. Typically, day traders aren't required to spend as much time looking at charts throughout the day, but they do need to pay enough attention to the markets to ensure they spot trends and trend reversals as they happen.

Swing Trading

Swing trading occurs on a longer timeframe compared to day trading. In the Forex market, currency pairs tend to fall into fairly specific ranges, between high and low points. Swing traders follow these trends closely, and when they determine an entry point, they typically stay in a trade for up to a week, and in some cases, even longer.

To be a successful swing trader, you must be patient. Sometimes, it can look like the markets are turning against you, but in many cases, the trend continues. Swing traders cannot let these slight fluctuations deter their longer-term goals. Although swing traders don't need to stare at the charts throughout the day, it's important to stay up-to-day on important market news to avoid large fluctuations and unexpected volatility.

Position Trading

Position trading is generally employed by portfolio investors. The reason: Position trading happens over very long periods of time, from months to years, leaving cash tied up in these trades. That's not a luxury many smaller scale investors can take.

Essentially, the position trader thoroughly analyzes current and expected future market factors to determine long-term trends for currency pairs. And because of these longer timeframes, this trading style requires a greater investment of capital to avoid call orders when fluctuations might turn against you.

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