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Trading Style: What Type of Forex Trader Are You?

Trading Style: What Type of Forex Trader Are You?

Forex Trading Style

Thousands of new forex traders come online every day in hopes of making a quick fortune trading in the (foreign exchange) forex market. Unluckily, the vast majority of these individuals fail to make a profit. This is due to the fact that, for a forex trader to succeed, it is important to have a trading style that suits both your personality and your trading objectives. By doing so, you’ll be more likely to reap positive results and steer clear of mistakes when trading. 

There is no one-size-fits-all trading style applicable to forex traders. Some forex traders rely heavily on market news and fundamentals, while others use technical analysis indicators. The reason for this is that all of us are different individuals in our views and approaches to various aspects of life, including financial markets. Nevertheless, when it comes to forex trading, it is extremely important to remember that: 

No matter what trading style you choose, make sure that it truly fits your personality! 

To be honest, it’s not easy to find the right trading style and strategy for you when you are starting out as a forex trader. Consequently, it is possible to trade forex and other financial instruments using a variety of forex trading styles. It’s just that developing your own trading system and fully understanding the risks associated with each forex style takes time and patience.  

If you are new to forex, wondering what a trading style is, getting started with forex for beginners, and want to bring your trading skills to the next level, fortunately, now is the perfect time to learn about it and leverage it to your advantage. 

The 4 Most Popular Forex Trading Styles

While there are many different trading strategies and styles that forex traders employ, it is agreeable to state that there is only one common goal that they all aim to achieve, which is to make a significant profit. In the following, we will discuss the different styles of forex trading to help you decide which forex trading style fits your time constraints, profit goals, and personal strengths. 

1. Forex Day Trading — Trading on the same day

Forex day trading is a very popular trading style in which currency pair purchases and sales take place within the same trading day. The strategy typically involves traders making a number of trades a day and closing them at the end of the day without holding positions overnight.

As part of this strategy, day traders will generally aim to turn over a quick number of trades, usually ten to one hundred times their normal transaction size. Essentially, it is done to get as much profit as possible from a relatively small swing in the market. By doing so, the traders who work in proprietary shops in this manner are more likely to use charts that are based on a shorter timeframe, such as one-, five-, or 15-minute periods when they are trading. Furthermore, day traders make their profits by relying on technical trading patterns and volatile currency pairs. 

Tips for Successful Forex Day trading:

If you are among the thousands of traders looking to grab the bull by the horns and earn a living, forex day trading could be an ideal career path for you. Here are some helpful tips for you to excel as a professional. 

Success in forex day trading is fully based on knowledge, research, training, and experience. To be a successful trader, you can’t think like a gambler. Forex day trading is a serious business. Follow these guidelines to make a living from Forex Day Trading efficiently. 

2. Swing Trading — Best trading style for beginners

Beginners may find swing trading to be the most advantageous Forex trading style. In swing trading, traders profit from price swings by using a medium-term trading strategy. This type of trading requires patience to hold trades for several days. A swing trader attempts to predict when and where the price will move next before entering a position. They then ride the assets ups and downs. If the pattern ceases to follow, the position can be closed.

Swing trading is best suited to people with full-time jobs or students with plenty of free time to stay on top of global economic trends. A swing trader can predict whether a particular currency pair will rise or fall in price using fundamental or technical analysis. To be successful in swing trading, you must remain calm and believe in your analyses. 

Top Tips for Forex Swing Trading Strategy:

The following tips will help you succeed as a swing trader as they include effective tips and strategies: 

Swing trading provides frequent trading opportunities and is suited to volatile markets. Having said that, swing trading is not for everyone, so it’s always best to practice on a less-risky cent account first. 

3. Scalping — Holding positions for a short period of time

Forex scalping is the most popular short-term forex trading strategy that involves entering and exiting positions within minutes or seconds. A scalper must carry out hundreds of transactions in order to earn a significant profit on an average trading day because they can only make small profits from each trade. These short-term trades may involve only a few pips, but if not executed carefully, they can result in significant losses.  

In general, Scalpers make small gains on each quick trade and look at charts for time frames ranging from 1 minute to 15 minutes. 

As scalping traders typically enter and exit trades within a few seconds or minutes, they require super-quick reactions to price movements. The strategy relies primarily on charts with shorter time frames and technical analysis. It is also helpful to use momentum indicators on price charts such as a stochastic oscillator, relative strength index, and moving averages. 

Top tips for Successful Forex Scalping strategy:

The aim of Forex scalping strategies is to gain small gains at the busiest (most liquid) times of the day. Below are some more tips: 

The lives of scalpers are fast-paced. It’s crucial to be observant, instinctive, quick-witted, and stoical under pressure because you’re constantly processing new information. Here are the major trading sessions and the best times to trade forex around the world. 

4. Position Trading — Longest holding among trading styles

Position trading is a popular long-term forex trading style where traders hold positions for long periods of time, usually months or years. It involves identifying a trend over time and following it. Position traders determine their strategies based on more precise fundamental analysis and long-term trends compared to short-term traders.

Position traders have a tendency to not trade actively, and they are frequently surpassed by long-term buy-and-hold investors in terms of holding their positions. Nevertheless, it is crucial for position traders to identify the best entry and exit points and place stop-loss orders when necessary. 

Top tips for Successful Position Trading Strategy:

The concept of position trading sounds simple, but it requires a thorough understanding of the markets as well as detailed fundamental and technical analysis. The following points should be kept in mind: 

Position traders prefer long trades and investments, but if you anticipate that an asset will fall in value over a week, month or year, you may also want to consider opening a short position to profit from the prolonged bearish market sentiment.

Learn top Forex trading techniques for Free!

AximTrade introduces a full-fledged online forex course taught by experienced traders to assist people in becoming familiar with the forex trading market. You should not enter the forex trading market without any prior planning just because you are passionate about it. As with any business endeavor, forex trading requires training as well. Enrolling in AximTrade forex trading course can make trading forex for beginners much easier since it combines both theoretical and practical learning in an effort to improve a trader’s proficiency in the market.

Get equipped with all the knowledge you need to be successful in the global market by taking advantage of the wide range of Forex topics that are available through the AximTrade Forex course facilitated by professionals with years of experience in Forex. This is typically a self-paced course, which allows you to set your own pace based on your schedule. Upon completing the course, there will be a feeling of comfort and readiness within you which will give you the confidence to start putting your knowledge into action by trading in real-time. 

How to perform multiple timeframe analysis

Time frames have a significant impact on traders and their trading styles. Whether you are a day trader, swing trader, scalper or position trader, time frames are always a crucial consideration in any trader’s plan. The multi-timeframe analysis involves analyzing a currency pair across multiple periods of time at the same time in order to identify as many trading opportunities as possible. 

The majority of traders will begin by selecting one longer timeframe and another shorter timeframe. When performing multiple timeframe analyses, traders generally use a ratio of 1:4 or 1:6, where four- or six-hour charts are used as the longer timeframe, and one-hour charts are used as the lower timeframe. Trends can be established using the longer timeframe, while ideal entry points can be identified using the shorter timeframe. For a more granular analysis of market trends, a third, medium-term timeframe can be added. 

For a better understanding of multiple time frame analysis, watch the video below.

You can manage multiple trading positions at the same time using multiple timeframe analysis techniques without putting yourself at risk. Trading indicators can also be used to help you with your trading style if you use them correctly.

Short-term vs Long-term Forex Trading: Which is best?

While forex trading is suitable for long-term as well as short-term trading style, the choice of whether to trade forex long-term or short-term is ultimately yours. In forex, both short-term and long-term trades have pros and cons. It’s important to understand the market and act based on your financial goals if you want to choose which one works best for you.  

For a clearer understanding, short-term trading involves highly fluctuating price movements and makes quick profits, while long-term trading involves more fundamental aspects and makes steady profits over time. Furthermore, short-term Forex trading provides higher winning ratios and higher profitability, whereas long-term forex trading provides a higher compounding effect. 

No matter which style you decide to adopt between the long-term vs short-term trading style, with a disciplined approach, and a consistent style, there are limitless opportunities in the financial markets, and all strategies may be adapted by those with a little common sense and caution.

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