Trading Styles

Trading Styles

Scalper

Scalping is a method of trading that focuses on the smallest movements of a currency pair or market and the exploitation by forex traders of this little move. A forex trader will typically not care about the direction of movement within a market but will trade in a large volume of positions over a noticeably short period of time.

What this does is take advantage of exceedingly small movements that are commonplace on the market all day long. These movements could be as small as just a few pips which would be meaningless to another trader. However, to a trader engaged in forex scalping these small moves of between 5-10 pips can be traded many times within the same day of trading. This volume of trading can help to ensure an increase in the cumulative profit from forex scalping. This is a popular strategy engaged by many full-time traders and in how positions are managed, it is not very dissimilar to day trading.

Forex scalping takes into account the smallest movements in the forex market, and typically over the shortest timeframes available. Usually these time frames are within the 1 minute charting windows. Within such fast-paced time frames, these tiny movements may not even register with standard traders who typically operate over a minimum of 1 hour. The breakneck speed of trading in and out of these tiny windows during a session also requires great patience in forex scalping as well.

Day Trader

A day trader buys and sells currencies  within the same trading day, which means all the positions that he creates are closed on the same trading day. A successful day trader must know which currency pairs to trade in, when to enter a trade and when to exit it. Retail investors have a hard time making money through day trading. The exceedingly small number who do make money consistently devote their days to the practice, and it becomes a full-time job, not merely hasty trading is done between business meetings or at lunch.

Volatility is the name of the day-trading game. To increase profits, many traders use borrowed money to make their trades, a practice known as “buying on margin.” 

Retail day traders are competing with professionals. They’re perfectly outfitted to succeed, and even then, they often fail. Among these pros are high-frequency traders, who are looking to skim pennies or fractions of pennies — the day trader’s profit — off every trade. It’s a crowded field, and the pros love to have inexperienced investors join the fray. 

Swing Trader

At the end of each trading day, the day trader will close all positions, the swing trader may hold for days or even weeks before selling. With more time to increase the price of a stock, there is more chance of profit in swing trading, and risk can be managed through selling techniques, such as stop-loss and stop-limit orders.Most traders fall into the classification of swing traders even though they may not keep positions open for more than a few hours. The main distinguishing feature between swing trading and day trading is the holding position time. For day traders they tend to get in and out of trades within the same day. Conversely, swing traders hold their trades for at least one night.

Day traders have the luxury of setting a few pips from the entry to their stop losses; swing traders must have wide stops to avoid being stopped during periods of price and volatility fluctuations. However, when trades go their way, swing traders have a chance to gain more than day traders do.

Position Trader

Position trading is a common trading strategy where an individual holds a position in a security for an extended period, typically over several months or years. Position traders ignore short-term price movements in favor of pinpointing and profiting from longer-term trends. It is this type of trading that most closely resembles investing, with the crucial difference being that buy-and-hold investors are limited to only going long. 

Out of all the trading strategies, position trading encompasses the most protracted timeframe. Consequently, there is a more significant profit potential – as well as an increased inherent risk.

The advantages of position trading include limited maintenance of positions, capitalizing on more notable trends, and dampening the ‘noise’ of the market. Position trading is the style of trading that is most akin to investing. Position traders are looking to profit from long-term movements. They are consequently more interested in markets with clear trends, as opposed to markets that have a lot of volatility but ultimately trade within a tight price range.

Anton Kovacic
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