October 27, 2013

Choosing Your FX Rates Trading Style

FX Rates Swing Trading

This article looks at the different FX rates trading styles.

The majority of people are introduced to the forex market via investments.  However, the purpose of investments is to hold a position over a period of time and see a profit build from that; whereas the foreign exchange market is far more varied.

Firstly, trading on the FX rates market involves an actual exchange of currencies instead of stagnation.  The profits are achieved via transactions where one will generally buy low and sell high.  While there are long-term trading styles that see profits develop over time, there are also short-term options.  These include scalping, day and swing trading.  The prolonged trading style is a position trading strategy.

These FX rates trading styles will be discussed below.

The scalping trading style

The scalping trading style is the most active of all the styles mentioned and involves a constant buying and selling of positions.  The scalper will target the smallest market movement and rely on constant, small results to incur profits.  These trades open and close within seconds, which is why this type of trader will hold multiple positions at the same time.  Accuracy is imperative if using a scalping strategy as false data can lead to account depletion in an instant.  This style is not recommended for new traders as one requires constant focus and an ability to make quick trading decisions.

The day trading style

The day trading style sees trades being entered and exited on the same day.  Unlike the swing trader, the day trader will not hold a trade overnight and will close a position if the day is drawing to a close.  This exiting is generally done via a profit target or stop loss.  Day traders hold positions for a timeframe of approximately minutes to hours.  They also make use of leverage in order to increase their buying power.  This style requires dedication and is not recommended for a part-time trader.

The swing trading style

A swing trader hold positions for days or weeks in order to trade on short-term market movements.  This type of strategy requires technical analysis to determine profitable trades, paying little attention to fundamental indicators.  The trades are exited once a pre-determined profit target or stop loss has been met.  This is a time-consuming strategy and is therefore not recommended for part-time traders.  It is also not recommended for those traders who prefer fundamental analysis to technical analysis.

The position FX rates trading style

The position trading style is the long-term trading strategy whereby trades are help for prolonged periods of time.  This time can span from months to years dependent on the trade.  The position trader will use a combination of both technical and fundamental analysis to make their trading decisions, often referring to the weekly and monthly forex charts to predict market movement.  Although position trading is similar to investing, the buy and hold investments involve long trading only, whereas position traders can utilise both long and short trading.  This style can be utilised by both new and experienced traders with all forms of time commitments as it does not require constant monitoring.



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