If you're keen on
getting involved in forex trading, you've probably been reading up on how to
get started in FX.
As a result,
you'll no doubt have come across a number of terms relating the strategies
adopted by the vast majority of traders.
So should you be
a swinger, day trader, scalper, new reader - or combination of several?
Here is a
breakdown of the common strategies so you can assess which one would work best
for you.
1. Position trading
With position
trading, you take a longer-term approach and can hold a position for weeks to
months. Here, you will rely on fundamental analysis such as Gross Domestic
Product figures , retail sales and the regular Non-Farms Payroll releases in
the US. Technical analysis can also be useful in helping you time your entries
into the market.
The advantages of
position trading are that it's less time-intensive. It can also be less
stressful because short-term price fluctuations have no significance on your
position.
On the flip side,
however, you need an in-depth understanding of market drivers and a larger
capital base. The latter is necessitated by a wider stop loss.
2. Swing trading
If you opt for
swing trading, you will hold positions for days to weeks, on one to four-hour
time frames, with the aim of making profits from short-term price patterns.
With this
strategy, you can make more annual profits because you will get numerous
trading opportunities. But on the other hand, you might lose out on big trends.
Swing traders can
choose to go for sedentary stocks or more volatile ones depending on their
trading personality. Either way, the goal is to identify a stock that is likely
to have some movement and enter a profitable position.
Forex Academy
provides excellent insights on swing trading that prove useful to new and
seasoned traders.
3. Scalping
These are short
term trades, where a trader holds a position for a few minutes - and at times -
seconds. The goal is to gain a profit by beating the offer/bid spread.
This strategy is
preferred by many because it offers lots of trading opportunities throughout
the day.
Nevertheless,
scalping requires you to watch the screen for hours on end keenly and if you
have a full-time job, this is often extremely difficult to do. The short
timelines also make it more stressful for many.
In addition, the
number of trades also increase the cost of trading, which eats into your
profits.
4. Day trading
Day trading can
be described as a slightly faster version of the swing trading strategy, with a
trader holding a position for minutes or hours. Typically, trades happen on
five to 15-minute timelines.
As a trader, your
goal is to capture the most volatile session of your trading platform in order
to make a profit. This strategy has no overnight risk as traders exit all
positions by the end of the day.
Just like
scalping, day trading requires a lot of monitoring, and the short timelines are
strenuous. These features make it difficult for one to combine FX trading with
another job, which, in turn, brings up the issue of opportunity cost.
Which is the best strategy?
Unfortunately, there's
no simple solution to this question. Different trading personalities work
well when paired up with a different sole strategy or a combination of several
approaches.
For example,
longer-term strategies work great for people with day jobs looking for
supplementary income. This is because they do not need a lot of monitoring
minute to minute. The reverse is true for shorter term options.
It is therefore
essential to review the different features of these strategies to see which
best align with your needs.
Hello Trader, My name is Ankush. On the blog "AM Trading Tips" contains Indicators and Trading Systems for Forex and Binary options. With a variety of trading (Forex and Binary indicators,trading strategies for different trading styles,and also Expert Advisors) that can be absolutely free
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