Different Styles of Forex Trading
Trading the Forex market can be done in varied methods or styles depending on several key factors. For example, a person should use a style that perfectly complements his/her available screen time or risk threshold. Finding and sticking with the most compatible trading style gives you a higher edge of profiting in the Forex market for the long haul. Here are some basic styles novice traders can learn and later modify.
Day Trading
As the term implies, day trading is the act of buying or selling a financial product and closing the position the same day. An advantage of day trading is that it eliminates overnight risk. Day traders usually make two or three trades per day, but may change depending on the setups the market makes available to them. A day trading style is best suited for people who can spend a large amount of time on the screen and be patient to wait for high-quality setups.
Scalping
Scalping involves high-frequency trading with the goal of profiting a few pips with every trade. Most scalpers have a negative risk/reward ratio, meaning they are expecting to lose more money than they stand to profit on one trade. To compensate for this poor risk/reward ratio, scalpers use complex mechanical systems that have the highest possible edge and winning percentage. People who work well under pressure are ideal scalpers. One must be able to make split second decisions, which most likely have substantial impact on their account.
Position Trading
A position trader requires an incredible amount of patience to succeed in the Forex market. The style involves making a trade based on long-term technical and fundamental factors. This means one expects to profit from the position weeks, months, or even years from now. The advantage to position trading is that it greatly reduces broker commissions and it limits losses from overtrading. The right position trader candidate, however, must have monk-like patience to sit on a trade and watch as it turns from profits to losses multiple times. Also, most position trades must be given enough room to move around in, so you must have a well-funded account.
Now that you have a solid foundation of the different styles of Forex trading, sit down and assess your personality. Do you think you'd make a good position trader or scalper? Once you understand which approach works best, start trading with iForex.
Day Trading
As the term implies, day trading is the act of buying or selling a financial product and closing the position the same day. An advantage of day trading is that it eliminates overnight risk. Day traders usually make two or three trades per day, but may change depending on the setups the market makes available to them. A day trading style is best suited for people who can spend a large amount of time on the screen and be patient to wait for high-quality setups.
Scalping
Scalping involves high-frequency trading with the goal of profiting a few pips with every trade. Most scalpers have a negative risk/reward ratio, meaning they are expecting to lose more money than they stand to profit on one trade. To compensate for this poor risk/reward ratio, scalpers use complex mechanical systems that have the highest possible edge and winning percentage. People who work well under pressure are ideal scalpers. One must be able to make split second decisions, which most likely have substantial impact on their account.
Position Trading
A position trader requires an incredible amount of patience to succeed in the Forex market. The style involves making a trade based on long-term technical and fundamental factors. This means one expects to profit from the position weeks, months, or even years from now. The advantage to position trading is that it greatly reduces broker commissions and it limits losses from overtrading. The right position trader candidate, however, must have monk-like patience to sit on a trade and watch as it turns from profits to losses multiple times. Also, most position trades must be given enough room to move around in, so you must have a well-funded account.
Now that you have a solid foundation of the different styles of Forex trading, sit down and assess your personality. Do you think you'd make a good position trader or scalper? Once you understand which approach works best, start trading with iForex.
Ron Raymonds
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