There are four main sorts of forex trading strategies: scalping, day trading, swing trading and position trading. Different trading styles depend upon the timeframe and length of period the trade is open for.
Scalping is the most short-term form of trading. Scalp traders only hold positions open for seconds or minutes at most. These short-lived trades target small intraday price movements. The purpose is to form many quick trades with smaller profit gains, but let profits accumulate throughout the day.
This style of trading requires tight spreads and liquid markets. As a result, scalpers tend to trade major currency pairs only (due to liquidity and high trading volume), like EUR/USD, GBP/USD, and USD/JPY.
- Day trading
Day traders enter and exit their positions on an equivalent day, removing the danger of any large overnight moves. At the top of the day, they close their position with either a profit or a loss. Trades are usually held for a period of minutes or hours, and as a result, require sufficient time to analyse the markets and regularly monitor positions throughout the day. Just like scalp traders, day traders believe frequent small gains to create profits.
Day traders pay particularly close attention to fundamental and technical analysis, using technical indicators like MACD (Moving Average Convergence Divergence), the Relative Strength Index and therefore the Stochastic Oscillator, to help identify trends and market conditions.
- Swing trading
Unlike day traders who hold positions for fewer than at some point, swing traders typically hold positions for several days, although sometimes as long as a couple of weeks. Because positions are held over a period of your time, to capture short-term market moves, traders don’t get to sit constantly monitoring the charts and their trades throughout the day. It is necessary to dedicate a couple of hours each day to analyse the markets.
Swing traders (as well as some day traders) tend to use trading strategies like trend trading, counter-trend trading, momentum and breakout trading.
- Position trading
Position traders are focused on long-term price movement, looking for maximum potential profits to be gained from major shifts in prices. As a result, trades generally span over a period of weeks, months or maybe years. Position traders tend to use weekly and monthly price charts to analyse and evaluate the markets, employing a combination of technical indicators and fundamental analysis to spot potential entry and exit levels.
As position traders aren’t concerned with minor price fluctuations or pullbacks, their positions don’t got to be monitored an equivalent way as other trading strategies, instead occasionally monitoring to keep an eye on the major trend.