Choose the right one for you
In simple terms there are four primary approaches to trading in the forex markets, and the choice of which suits you will depend on many things, not least the time you have available, your trading capital, and your own trading personality. Whichever you choose of course will depend on your own personal circumstances, and the time you have to trade, but one approach can be applied to all of them – and that’s trading using volume price analysis.
So, let’s look at each of these in more detail, and how you can tailor your own trading style to match each of these approaches to trading the markets. They are generally described as:
Scalping
Scalping describes the trader who executes multiple trades every day, with positions only held for a few minutes before being closed for a few pips higher or lower. The average pip value of these trades is generally between 5 and 10 pips on average, with traders using both time and tick charts. Tick charts are the choice of the professional trader as they provide a purer form of market data. I call tick data the heartbeat of the market, as it therefore truly represents the balance of supply and demand.
Day trading (sometimes called intraday trading)
Day trading refers to the practice of buying and sellingfinancial instruments within the same trading day such that all positions are usually closed before the market close for the trading day.Traders that participate in day trading are called active traders orday traders. Not widely known, the correct definition of an “intra-day” means the move as measured from the previous close and not just relative to another price traded on the same day.
The art of making money in this time frame is not to worry about the longer term trends so much (though it pays to know what they are), but to focus on trends within that day. To do that you need to know which currencies are showing relative strength or relative weakness for that day. This relative strength and weakness is usually referred to as ‘oversold’ or overbought’. If one currency is ‘oversold’ and another currency is ‘overbought’, there is a very strong likelihood of a reversal in trend. Catching that new trend is the key to making profits for the day trader.The mistake many forex traders make, mainly because they have been told to do this by “so called” expert traders, is that they focus on a handful of fixed time frames, such a the 1 hour chart, or the 5 or 15 minute charts.
Swing Trading
Swing trading is commonly defined as a speculative activity in financial markets whereby instruments such as stocks, indexes, bonds, currencies, or commodities are repeatedly bought or sold at or near the end of up or down price swings caused by price volatility. A swing trading position is typically held longer than a day, but shorter than trend following trades or buy and hold investment strategies that can be held for months or years. Profits are made from trading both sides of the market.
In forex, most retail traders trade as day traders, however some do hold positions for a few days. It is the banks and larger institutions that swing trade as they have far more capital and therefore the ability to hold positions
The term ‘swing’ trading could in theory be applied to any time frame of trading, because ‘swing’ is referring to where there is a turn, or reversal in the market for a period of time. However the term has stuck and is now applied to traders who trade for a few days at a time with each trade.
Trend trading
Trend trading is another misnomer like ‘swing trading’ because in truth every single trade is an attempt to catch a trend for a period of time, juts as any attempt the get the start of a trend is essentially where a swing or reversal occurs. So both terms are a bit misleading. However in the world of trading the term has become synonymous with traders who hold position from days, to week, or even to months.
The terms are used really to indicate what kind of time frames traders are trading.
In reality, all trading is about trying to find the turning points, then getting those turning points confirmed as new trends. Once confirmed we jump on the ‘’trend train’’, before jumping off it again with a profit.