How To Find Your Forex Trading Style
Finding your forex trading style is a crucial part of learning to trade. If you don’t know what your forex trading style is, you likely haven’t spent enough - or any - time exploring the different types.
Once you find the right trading style for you, you can work on perfecting your forex trading strategy and succeeding your trading goals.
In this article, we’ll look at what exactly a trading style is and how to find the right one for you.
The difference between trading styles and trading strategies
First and foremost, we should point out that there is a difference between ‘trading style’ and ‘trading strategy’. The two terms are not interchangeable!
A trading style refers to the way in which you trade. More specifically, at what velocity you make your trades.
A trading strategy is how you actually pull off your trade, specifically, what you rely on to enter and exit a trade and any other rules you might have.
In most cases, it comes down to what indicators you use.
Different Forex Trading Styles
Deciding what trading style to use should be the first thing any trader should decide. Many novice traders may be ignorant of what a trading style is.
The trading style you choose to use will impact what kind strategies and indicators you can use. Or you may end up using them in a different way depending on your style.
Forex trading styles can be broken down into two types: long term and short term.
Long term trading styles:
Short term trading styles:
Swing traders are kind of like part-time traders.
They usually open one big or medium-sized trade and leave it for a long period of time to accumulate. They may leave this position open for days or weeks.
It should be mentioned that many traders dislike swing trading because with most brokers you need to pay fees for holding a position overnight, which can get expensive.
Swing trading might be seen as a more sensible option for those who want to trade less. Indeed, it’s often said that the best forex traders trade less, not more.
Remember that every time you open a trade you are taking a risk, so the risk should be well calculated.
Day trading is often said to be the opposite of swing trading. Day traders open multiple positions throughout the day and close them at the end of the day.
This trading style requires a lot of dedication and can be very tiresome. You need to be quick to spot opportunities and it can sometimes be hard to find time to go to the bathroom or eat.
While day trading may be seen as riskier, it’s highly popular and day traders have the advantage of compounding their returns, which allows them to earn more.
Position trading is like an extreme version of swing trading. Instead of holding a position for days or weeks, a position trader can hold a position for months or even years.
They don’t care about small market movements, they only care about huge, historic movements.
Such traders don’t need to watch the market much at all, but they really need to believe that the market is going to go up in the long run.
Scalping is like an extreme version of day trading. Scalpers can make up to hundreds of trades in a day.
To them, every single market movement is an opportunity to make money, every movement down is a chance to buy and every movement up is a chance to sell.
Scalping is perhaps the most intense trading style there is but if done well, it can be highly rewarding.
Long term or short term? Which is best?
That’s a super hard question with no clear answer. Why? Because it 100% depends on you and how you feel when you try them.
Sure, you may initially feel that short term or long term is better for you, but when you give it a go you find the opposite to be true.
Either way, by educating yourself on the different forex trading styles, you can get a better idea of what might suit you.
Position trading and swing trading usually require more capital and some traders claim that the ‘real money’ is in these more long-term styles of trading.
However, shorter-term trading styles have the benefit of compounding your earnings much faster which enables you to earn more from trades.
You will come across day traders and swing traders arguing over which is best, but the truth is their arguments are pointless because, in the end, it is all about the trader.
If you have limited time to trade, then longer-term trading would probably be better for you at first.
However, such traders should also spend a good deal of time researching the trade they plan on making.
Longer-term traders must make larger trades to make their strategy worth it. However, this also requires such traders not to worry about the money tied up in the position all the time.
If you are constantly thinking about your trade and what might go wrong, this trading style might not be for you.
You need to be able to put it at the back of your mind and forget about, though you should, of course, check it every now and then.
Not being able to forget about a position may result in you closing it early and missing your target. This might be a sign that swing trading or position trading might not be for you.
Impatient traders with less money to trade and more time will be more suited to day trading.
Some traders also need to feel like they are always working, they need the nine to five routine. For such traders, day trading or scalping may be appealing.
Day trading and scalping can get very intense, which can scare off a lot of traders who don’t want the stress.
Then there are some traders may look at scalping as the ultimate form of trading due to its complexity and the endurance it requires from forex traders.
This isn’t the right way to look at forex trading.
Just because a trading style is seen as more complex doesn’t make it better, in fact, many would argue that a less complex style is better as there are fewer things that could go wrong.
In reality, the best forex trading style is the one that safeguards what you have and makes you more money!
Finding the right forex trading style for you
You should try all the different trading styles at least once. Don’t make too many assumptions about them before you try them and try to remain open-minded.
A trading style that you don’t initially like might actually be better for you. That’s why you shouldn’t judge a book by its cover.
It’s difficult to know how much time to spend on trying new strategies, you should try to spend a few hours a week exploring different styles. If you can, try and fit it into your trading schedule.
Some traders swap from one trading style to another depending on how volatile the market is.
If the market is highly volatile, then day trading or scalping might be more profitable, but in a ranging market where there is limited volatility, a more long-term trading style, such as swing trading or position trading might be best.
By having experience with multiple trading styles, you can continue trading when the market changes. You should, of course, understand that the market works in cycles.