It is through investing that most people are first introduced to the financial markets. In order to build wealth slowly, people invest and they accomplish it through a buy-and-hold approach. They make investments in mutual funds, stock and basket of stocks, and allow price to fluctuate. Generally, investments are held for a long period of time. But trading means frequent selling and buying of stocks, currency pairs, commodities and various other securities. The foreign exchange market can be considered as the largest financial market where people buy and sell currencies. And there are different types of trading styles used. In order to trade in this market, you need to have a and a computer with active internet connection. Some trading styles are discussed in this article. Read on.
1. Position trading
In position trading, the trades can span a period of months to years. This trading style has the longest time frame. In order to make trading decisions, a position trader may use a combination of fundamental and technical analysis. Generally, in favour of identifying and profiting from longer-term trends, short-term price fluctuations are ignored. Position traders may utilise both short and long trading strategies.
2. Swing trading
Positions are held for a period of days or weeks in swing trading style, in order to capture short-term market moves. To determine profitable trade entry and exit points, swing traders rely on price action and technical analysis. They pay little attention to the fundamentals. Trades are “exited” when the trade is stopped out, or when a previously established profit target is reached or after a set amount of time has elapsed. This trading style does not require constant monitoring because of the fact that this trading takes place over a period of days to weeks.
3. Day trading
In day trading, positions are entered and exited on the same day. Unlike position and swing trading, here positions are not hold overnight and trades are generally closed using a stop loss or profit target. Technical analysis is typically used by day traders to find and exploit intraday price fluctuations, tick and/or volume based charting intervals and viewing intraday price charts with minute. In day trading, large price moves are uncommon due to the fact that trades are held for a period of minutes to hours.
4. Scalp trading
An extremely active form of day trading is scalp trading which involves frequent selling and buying throughout the trading session. The smallest intraday price movements are targeted by scalp traders and they rely on very small as well as frequent gains to build profits. In order to manage positions that are generally held for a period of seconds to minutes, stops and profit targets are used.
Now that you know the different trading styles, it will be easy for you to trade in the forex market. Also, before stepping into the forex market, make sure that you research the market and gather all the required information.