Introduction: Overview
Prospective traders in the forex market is usually prompted to determine their trading personality and then trade in a way that complement that personality.
This generalized categorization is then taken further on the basis of which "timeframe" you should "like" and which chart intervals you should use.
- Like "fast and furious", making moolla by the minute -> a Scalper you are!
- 1-2 minute, 5-10 minute, 15 minute at most.
- Like "action" but doesn't sleep well on open positions --> an Day trader you are!
- 5-10 minute, 15-30 minute, 60 minute and 4 hours for (your) "long term" "trend".
- Like "slow motion" but not too slow --> a Swing trader you are!
- 15-30 minute, 60-120-240 minute, day and week for (your) "long term" "trend".
- Like "sleep on the job", but a trader at heart --> a Position trader you are!
- 60-120-240 minute, day to week, monthly for (your) "long term" "trend".
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Introduction: Time
Time is an extremely important aspect of our lives. Time is money. Time should not be wasted. Time has only one version.
More important than what timeframe you might like fit your personality is the question how much time you can afford to spend on trading.
Spend too much time and you are guaranteed to have a bad time.
Spend too little and you will probably not make a success.
The forex market might be open 24 hours a day, five days a week, but what about your family time?
Day trading (intra day open and close of trades and scalping) can be very time intensive, because it is so TIMING DEPENDENT
Do you have the time or can you find the time to trade the style you might prefer, or will you have to adapt in order to integrate trading in your current time schedule?
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Scalper or "Sniper"
| A trading style in which the trader attempts to minimize risk by being the minimum time in the market per trade before scalping a profit.
Trades can be as short as a few seconds or as long as a few minutes.
Scalpers attempt to make many small profitable trades, usually highly leveraged, to make it worth their while. |
Things to know about scalping
- Scalping is mentally very taxing.
- Scalping require many hours of dedicated screen time.
- Most dealing desk brokers discourage or ban scalping.
- Scalpers must be wary not to allow big losing trades.
- Considering the small pip targets scalping costs are high.
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Day Trader or Intraday Trader
| A trading style in which the trader does not keep trades "overnight".
In practice, in the 24 hour open forex market, this usually means "a trading style in which traders doesn't stop before all trades are closed."
Day trading strategies rely on repetitive price action, good risk management and high leverage to compensate for effort. |
Things to know about Intraday trading
- Day trading is emotionally very taxing.
- Due to the tention between theory and practice of repetitive intraday price action.
- Day trading require many hours of dedicated screen time.
- Day trading is very reliant on perfect timing of positions
- Due to the use of leverage and very close stops
- Daytraders must be diligent to maximize their profits.
- Because most daytrading systems rely on positive risk:reward ratios
- Because of potentially high percentage of losses and leverage daytrading costs are high
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Swing Trader
| A trading style in which the trader doesn't mind to keep trades going for multiple days, targeting profits preferably in the hundreds of pips.
Swing trading strategies can be very versatile, based on different types of analysis (technical, fundamental, market sentiment) and is focused on determining and benefitting from short term trend changes. |
Things to know about Swing Trading
- Swing trading can lead to relative long periods of low level stress
- Due to price volatility during open trades.
- Swing trading is not as screen time intensive as day trading or scalping
- Swing trading requires a good understanding of current market drivers / sentiment
- Due to the gap between historical price formations and real-time price developments.
- Swing traders should have enough patience to use the time in the market to enhance profitability.
- Because of relatively fewer trades, you must make the most of them
- Swing traders should use low leverage which means trading costs are relatively low.
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Position Trader
| A trading style in which the trader keeps a position or positions for a medium to long
time period, from several weeks at the short end to several years at the long end.
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Things to know about Position Trading
- Position trading is passive and not very popular amongst individual traders
- Position trading can be done on a very part-time basis.
- Position trading requires a good understanding of forex market fundamentals and inter-market correlations
- Position trading can be used to hedge / enhance trading positions or investments in other markets
- Position traders should use very low leverage which means trading costs are relatively low.
- Position traders should consider the cost of carry as positions are kept for a long time
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Thoughts on the many different Forex Trading Styles
Another Forex Thoughts article by Dirk du Toit
