Choosing a forex trading style can be difficult. Here we provide a detailed description of the 4 most common trading styles and the secrets of finding which one is the best for you.

forex trading style

It's normal for new traders to experiment with all trading styles before finding out which fits their lifestyle and funds. But in the end, they will end up with only one or two trading styles that suit them the most. How do we find the right trading style?

Generally, there are four types of trading styles to try. Which are:

  • Swing Trading: Long-term trading style, suitable for intermediate and advanced traders.
  • Scalping: Short-term trading style, best for advanced traders.
  • Day Trading: Short-term trading that is considerably good for beginners.
  • Position Trading: Long-term trading style good for beginner and part-time traders.

Before delving into the secrets of figuring it out, let's learn the differences between the four most common trading styles.

 

Swing Trading

Swing trading is a style where traders hold a trading position for over a few days or even weeks. Usually, they aim for intermediate-term trading opportunities. This differs from long-term trading where traders hold positions for weeks and even months.

Swing traders normally use higher time-frames to determine support, resistance, and trends. They also use 4-hour charts for patterns and entries. However, they might use the 1-hour chart for entries.

There are a few characteristics of Swing Traders:

  1. They use both fundamental and technical analysis.
  2. Swing traders use wider stop losses to provide more space for the price to move up.
  3. They mostly use lower leverage.
  4. They aim for a bigger price target, so they wait longer for trade to develop.

To be a swing trader, you need more funds in your account. This is because you must stay in trades longer and need more margin to do this. 

Pros

  • Longer Time: Swing trading requires longer trading time compared to day trading.
  • Long-term Profits Opportunity: Optimizes the opportunity for long-term profits by capitalizing on substantial market swings.
  • Potential for Substantial Gains: Swing traders aim to catch price swings over several days or weeks, potentially leading to higher profits than day trading.

Cons

  • Overnight and Weekend Risks: Holding positions overnight or during weekends exposes traders to potential gaps due to unforeseen market events.
  • Delayed Results: Gains take longer to materialize than day trading, requiring patience during holding periods.
  • Skill Development Needed: Successful swing trading requires a blend of technical analysis, risk management, and market understanding.

 

Scalping

Traders who use scalping as their go-to forex trading style are called scalpers. This trading style's main goal is to achieve profits from small price changes.

Scalper does this by opening and closing many trades in one trading day. They aim to catch as many small wins as they can.

Due to the nature of their trading style, scalpers often enter and exit the financial market quickly. Usually, it's a matter of a few seconds or minutes with a maximum of few hours. They tend to use higher levels of leverage. 

Scalpers are less likely to suffer margin calls and risk fewer funds per trade. They typically use two indicators: Momentum and S&R or Support and Resistance.

Some examples of Momentum indicators are:

  • MACD (Moving Average Convergence Divergence)
  • Stochastic Oscillator
  • RSI (Relative Strength Index)

While some examples of Support and Resistance are:

These characteristics can determine scalpers:

  1. They use technical indicators to determine trading strategies.
  2. They make decisions on lower time-frames.
  3. They usually wait for support and resistance levels to find setups with the highest probability. 

Pros

  • High-Frequency Trading: Scalping involves numerous trades within a short timeframe, which can lead to a higher cumulative profit.
  • Minimized Overnight Risks: Scalping trades are usually closed before overnight market risks emerge, limiting exposure.
  • Reduced Exposure: Short trade durations mean less exposure to market risks, minimizing the impact of sudden market shifts.

Cons

  • Stressful and Intense: Constant monitoring and quick decision-making can be mentally taxing for traders.
  • Limited Profit per Trade: Profits from each scalping trade are typically small, making it necessary to execute numerous trades for substantial gains.
  • Execution Challenges: Scalping requires precise and rapid execution, which can be challenging due to market volatility.

 

Day Trading

Some traders think day trading is similar to scalping; both trading styles occur within one trading day. Ultimately, their goal is to find the best opportunities of the day.

However, day trading normally opens one setup a day, and not more than a couple of trading per day. Day traders often hold a trade for several hours but not more than one full trading day. 

Day traders use classical indicators such as MACD, RSI, and Price Action. They use candlestick patterns to determine trends and support & resistance. Some traders also use charts and wave patterns to understand the overall price structure.

Characteristics for day traders are:

  1. They wait as the price moves up and down multiple times daily, whether in line or against their position.
  2. Day traders wait for the price to reach major decision spots on the chart. 
  3. They use leverage with lower ratios compared to scalpers.
  4. Day traders usually try not to exit a trade too soon in order to avoid turning the trade into a scalping setup.

Pros

  • Reduced Overnight Risks: Day traders close positions before market close, avoiding overnight risks associated with unexpected news or events.
  • Focused Schedule: Day trading requires concentrated effort during trading hours, allowing traders to have a flexible schedule outside of trading.
  • Lower Transaction Costs: Compared to scalping, day trading involves fewer trades, reducing overall transaction costs.

Cons

  • Emotional Pressure: Short timeframes can lead to impulsive decisions driven by emotions, potentially affecting trading outcomes.
  • Market Volatility Risks: Intraday price swings can result in unexpected losses if not managed effectively.
  • Limited Trend Capture: Day traders might miss out on longer-term trends because they focus on short-term price movements.

 

Position Trading

Besides those three, one more forex trading style is called Position Trading.

Some traders think that Position Trading is just a regular buy-and-hold strategy instead of active trading. However, in the hand of experienced traders, position trading becomes active trading.

This strategy uses longer-term daily, weekly, or even monthly charts. Normally, traders combine this strategy with other methods to determine the market trend. 

Usually, position traders follow the trends to enter the market and get out of their positions when the trend ends.

Now you know the four most common forex trading strategies. The next question is how you can choose the best trading style.

Pros

  • Reduced Stress: Longer timeframes minimize the need for constant monitoring, reducing stress associated with quick decision-making.
  • Capture Long-Term Trends: Position traders have the potential to profit from significant market trends, leading to larger gains.
  • Less Time-Intensive: Position trading involves holding trades for extended periods, allowing for a more relaxed trading schedule.

Cons

  • Delayed Results: Gains or losses take longer to materialize due to the longer holding periods, requiring patience.
  • Overnight Risks: Holding positions overnight exposes traders to the risk of price gaps due to market news or events.
  • Potential for Drawdowns: Longer positions can endure deeper drawdowns during market corrections or reversals.

 

How to Choose the Best Forex Trading Style

Answering these questions can be a little tricky. In the end, it all depends on you as a trader. The best trading style may vary from one trader to another. Their personality, skills, and experience play a bigger role here.

If you want to be a scalper, you need skills to engage with financial markets using the scalping technique. This might need some time to develop.

For beginner traders, day trading and swing trading can be reasonable options. These forex trading styles require less experience and skills
compared to scalping.

However, before deciding which style fits you, answer these questions first.

  1. What are your goals? Are you looking for extra income or do you want to be a full-time trader? 
  2. How much time do you have for entering, managing, and exiting market positions? While swing trading requires less time, day trading and scalping might not. 
  3. Which style makes you feel most comfortable? Do you like fundamental analysis or technical? Do you prefer pattern trading, price action or
    indicators?

If you're still unsure which forex trading style fits you, try to do some of these steps:

  1. Open a separate demo account to try all the trading styles, try to test them for a week or two. 
  2. Write down your impression while using each trading style (what you like about it? What are the disadvantage? What are the problems and solutions? etc). 
  3. Compare the notes you write about them, you can consult someone with more trading experience if you're unsure. 
  4. Evaluate and see how this style is working for you.

Trying these styles by yourself might be the best way to find out what style matches your trading psychology. It can be fun to test different forex trading styles with a demo account to recognize what you like or dislike.

 

After Thought

After learning about all these forex trading styles, you might wonder what style is safer. Or what style brings you more profit? 

In conclusion, deciding which forex trading style is the best is hard. But what you need to do is to find one that fits all your needs and ability. For example, swing trading is good for intermediate and advanced traders because it requires knowledge about where the price is heading. The same reason goes for Scalping, which isn't recommended for beginners.

On the other hand, day trading is considerably good for beginners who want to try trading in a shorter time. Traders can get similar benefits to scalping and avoid the risk of overnight fees.

Position trading is a recommended trading style for part-time traders. It doesn't stress you out because you can keep the position open. That mean your trading analysis will be free from all the noise you get with shorter time frames.

 

Besides these forex trading styles, there is another trading strategy you can try, such as the breakout trading strategy. You can read about it in Breakout Trading Strategy For Forex Traders.