Once you get deep enough into forex trading, you will inevitably form your own peculiarities in trading. Your own special ways and habits of trading. Well, in technical terms, these peculiarities of each trader would be called trading style and trading strategy. And yes, they are actually different.
Although many would use them interchangeably, style and strategy in forex trading are two different things. Although we will discuss both of these notions in this article, our main focus will be primarily on trading styles, their different types, and the definition of each one.
What Are Trading Styles in Forex?
The actual peculiarities and preferences that a trader obtains through his or her trading experience make up the trading style of that trader. So, the trading style will actually specify the time intervals at which a trader will open positions in the market and also the period of time throughout which the position will be held open.
Trading style will also encompass other important factors in trading. Such as the amount of money you are willing to trade with in accordance with the amount of money you are willing to potentially lose in the market – which is otherwise known as your risk tolerance.
Furthermore, your trading style will heavily rely upon your own brand of personality as a trader.
So there are a lot of bits and pieces related to any trading style that is closely tied with your own personal characteristics. In spite of all this individuality and uniqueness that is related to any trader’s trading style, there are four major styles that can be found in the forex market.
The four types are as follows:
- Scalp trading
- Swing trading
- Position trading
Let’s take a look at each one and discuss their features.
What Is Day Trading?
The trading style of day trading is by definition a form of trading in which trades are opened and closed within the same day. Day trading is one of the most popular forms of trading. In terms of the time frame, we can actually rank it number 2 short term style. With number 1 going to scalp trading.
So in day trading traders will open and close their positions on the same day. Well, this is not just one position that we are talking about. The trader with this trading style will have the chance to open and close any number of positions during the same day.
The added advantage of day trading is that in a market such as the forex market, you actually get to benefit from even the small volatilities that might only last for a short time.
Plus, because you do not have to hold your position overnight, there is no added cost by the broker for holding your position.
But there is also a catch. Because positions are opened and closed in a short time period, i.e. within only one day, the profits that are obtained are usually small. But if you open and close enough positions, then you can pocket a proper amount of profit.
Furthermore, there are other styles of trading and strategies of trading that execute a trade in only one day. But they ought not be mistaken with day trading. As we will see, other styles such as scalp trading and even swing trading can easily take place in a matter of only one day. But they have other special features that set them apart.
What Is Scalp Trading?
As was mentioned in the last section, scalp trading has the shortest time frame among all trading styles. In this form of trading, you would open and close your position in the shortest time possible, a time period that could only last for a few minutes or even a few seconds.
Because scalp trading takes place so very rapidly, it is known to be the most intense form of trading. This is why only serious and seasoned traders opt to scalp the market.
And because positions are held for the shortest amount of time possible, in scalp trading it is where we would see the lowest amount of profits. But when positions are opened and closed numerous times, the added profits can amount to a reasonable degree of profits.
What Is Swing Trading?
Followed by scalp trading and then day trading, swing trading is the longer term form of trading among all these. In fact, swing trading is considered a medium to long term style.
In this style of trading, traders would hold a position open for a rather long time, that can take from a few days to weeks and even to months.
The most important factors that are important for swing traders are the significant changes that take place in the market and forming swing highs and swing lows.
Traders use these points to enter the market at the most opportune time and benefit from the so-called swings.
What Is Position Trading?
On the fourth place on our list of trading styles based on the time period positions are held open, we have position trading.
Position trading is the longest term form of trading out of all the four types. In this style, positions are held by traders for a very long time that can be weeks to months and even to years.
Position trading can be considered as one of the easiest forms of trading. And a style that includes the least amount of hassle and challenge. Because in this form of trading you do not have to worry about small and short term changes that so often take place in the market.
In fact, precisely because of this characteristic, position trading is often likened to investing. Another similarity would be HODL in the crypto market. Because in that form of trading you merely hold on to your asset in hopes of increased profits.
So with position trading you merely open a position and sit on it until the tides have turned in your favor.
Trading Style VS. Trading Strategy
While trading strategy might be more concerned with defining the big picture outcome of trading, including the general approach and outlook of the trader with regard to the market. Trading strategy is related to lower scope trading practices. Such as the actual tools and techniques used in executing a trade. As such, we also have four different types of trading strategies, namely trend trading, range trading, breakout trading, and reversal trading.
A trading style is the combination of all the personal preferences and peculiarities of a trader. In addition to that, a trading style will also define the general outlook of the trader with regard to the practice of trading in the forex market itself.
As such we have four different types of trading styles. These styles can be ranked from the shortest term to the longest term as to how long a position is kept open in this way: scalp trading, day trading, swing trading, and position trading.