Part 5: Don’t Pick Your Trading Style Randomly, Let Your Character Hit The Mark

Introduction to Trading Styles

You have most-likely already tried to find a trading style that would fit your needs the best. This is where your individual character plays an important role. It is also a spot where so many people make a wrong step. Read on not to fall in the same trap.

Different trade styles are applied to different characters. It would be impossible for a non-patient and hyperactive individual to become a successful swing trader, or for a melancholic and patient person to go for scalping as the main trade style. As for myself, I prefer the day trading style, sometimes mixing it up with the other trading methods. Read more about it in ‘The Real Story About Day Trader, Scalper and Position Trader’.

I am about to explain you the basic characteristics of each, most commonly used, Forex trade style and share my insights on each of them. I assume you have already heard for the basic 4 trading styles:

  1. Scalping
  2. Day Trading
  3. Swing Trading
  4. Position Trading

Scalping

Nervous Forex trader

Illustration: Nervous Forex trader while he use scalping strategy on live market.

Scalping implies opening and closing position in extremely short time period. Scalpers normally open and close their positions within a minute. Their short-term goal is to take fewer pips, normally 5-10 per trade. Small number of pips means heavier investments.

It is not uncommon that 1 pips worth $100+ where 10 pips make for a nice trade amounting $1000 in a single minute. Sounds tempting, doesn’t it?

Scalpers normally open between 3-10 positions daily, depending on the circumstances.

Scalper’s profile:

If you are fond of excitements and restless chart examining and indicators observation, if you fancy fast trading with a healthy dose of adrenaline – then scalping is the way to go. Scalpers spend most of the day analyzing the charts, not being concerned for changes in trends. They have steel-thick nerves and they do not look back for the losses, regardless of how big amount.

If you lose your nerves quickly, you can’t bother following the sudden changes in trends at the lower time frames, you don’t like and you don’t want to analyze the graphs for couple of hours without a cigarette break – then you should seek for your perfect trade style in some of the ones below.

Advices for scalper trader

Only trade the most liquid currency pairs – If you opt for EUR/USD, GBP/USD or USD/CHF you will deal with a really low spread, which is really good assuming the price of one pip. If you would take GBP/JPY your spread would be 5 pips at really unpredictable pair, which is a no-no for a scalper.

Choose the right broker – As you will notice, not all the brokers allow scalping. The first step to take is to make a list of all the brokers who do. Check the platform performance speed and finally, choose the broker who offers the lowest spread.

News reports is your biggest enemy – Avoid to trade in the time of important news reports as this is the time when the price enters a high volatility. It is not uncommon that price goes 50-100 pips in the ‘wrong’ directon.

The best time to trade – Working days during the session overlaps are far the best period to trade. These are the most liquid times. This is the time of London and New York’s exchange-market turnaround, 2:00 AM – 4:00 AM.

Day Trading

Day Trader

Illustration: Day Trader in his daily trading routine

Day trader opens 1-3 positions during the whole. Usually, the number of opened position never crosses 1. Day trader’s goal is to profit 20-50 pips per trade. If the trend is strong, this number goes up to 100. With the help of technical analysis and news reports, they seek for the perfect moment for position opening. They normally open charts few times a day to check if there are good opportunities to open new trades or to manage existing ones.

Day trader’s profile

Day traders like to open their positions at the starts of the day to maintain and manage it throughout the rest of the day. They like to get the job done by the end of the day. If you have recognized yourself, and on top of that you fancy technical and fundamental analyses – you might make a successful day trader. This is the most common and the most popular trading style.

Advices for day trader

Follow fundamentals – Stay up-to-date with all the important news reports throughout the day. It would be enough to check the most important ones once a day.

Technical analysis – Learn the basics of technical analysis so you could combine it with fundamental to achieve the maximum results.

Trend is your friend – As a day trader, you open small number of trades on daily basis, thus it is a win-win situation to catch a trend or maybe reveal the trend reversal and use it in your advantage.

Swing Trading

Swing Trading

Illustration: Swing trader calculates risk ratio for future trades.

Unlike previous two styles, swing trading attributes keeping positions opened from few up to 7 days. Swing traders have to be patient and calm individuals who can calmly observe the events takeoff at the stock market. Ideally, swing trader is businessman/businesswoman who spends most of the time at the meetings and traveling.

These people normally have a great insight in economical circumstances which is a great stepping-stone in the stock-trade business.

Swing traders strive to spot the middle trends that last for few days. They normally spend most of the time waiting until they find an opportunity with a great chance of success.

Swing trader’s profile:

Swing traders are patient individuals in the first place. They are not bothered with the trend daily changes. Swing traders love to have their positions opened for few days. They are fond of the large stop loss as well as trade profit. If you have patience, nerves and skills to analyze the market for long enough until the ideal opportunity arises – then you might make yourself a fortune as a swing trader.

This trading style does not require plenty of time spent in front of PC. Analysis is being done slowly, patiently. Once the trade is setup, few minutes daily are sufficient to check the actual circumstances at the market. Swing trading is ideal for individuals with full-time employment who would like to try themselves out in the stock trade business.

Advices for swing trader

Stay informed – Take some time each day to stay up-to-date with the circumstances at the market as well as news reports.

Additional free time – If possible, try to get some free time at the work or business trip to inspect the situation at the stock market.

Position trading

Position Trading

Illustration: Position trader thinking about his trading set-ups on the work.

If you have read entire article, you could have easily made a guess this is the trade style with the longest period of keeping positions open. Position trading is the favorite approach of individuals employed in institutions that have to do anything with financial transactions, bank employees in the first place.

These are the best informed folks and information they gather in their professional environment allow them to keep positions opened few months, sometimes even few years. They are normally well information-fed with the economic cycles at global level and dispose of valuable first-hand info.

As we talk about extremely long term positions, it is normal that price is often going in the opposite direction; hence, stop loss is very large with the position trading.

Position trader’s profile

Position traders love to observe things in long-term, completely ignoring short-run turbulences at the global economy market. They are financially independent and ‘quick money’ does not appear at their to-do list. Moreover, they are invulnerable at brainwash launched by mass media. Instead, they stick to their own beliefs backed up by their long-year experience. Position trader has to have fundamental analysis wrapped around little finger; they are highly self-confident and calm individuals.

In case you do not comprehend fundamentals very well, you are impatient, financially unstable and not so numbed when price is against your position, then you should consider some of three previously introduced Forex strategies.

Advices for swing trader

It would be a little too big bite for me to try to share any valuable advices for swing traders as they are educated, experienced and informed people who have been in the business for at least 10 years.
Annotation

When it comes down to scalper’s or day trader’s exact goals, I gave my very best shots to give you as accurate information as possible. When I first started to trade, there were no such information at Internet, and there is still lack of them, while they could have been very valuable for me as a starter back then. The same stands for the trade length and number of trades at daily basis.

Always stay aware of the fact that rarely anybody is a strict trader type. Vast majority of traders apply a hybrid method assembled of two or more different trading styles.

It often happens that a trader has a number of characteristics of a scalper; he or she opens number of trades throughout the day, more than it is typical for a day trader, but again less than average scalper would do. Moreover, he or she takes more pips than scalper. Therefore it would make a hybrid between a day trader and scalper.

If I am to define myself according to my trading style, then I would make a hybrid between scalper and day trader who is fond of opening positions typical for a day or swing trader.

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