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Different Forex trading styles: scalping, swing trading, investing

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Human nature defines us as who we are and what we do day after day. How we’re doing things influences the way we interact with other people as well.

The same in Forex trading. Human nature is the reason most of traders fail to make a profit on a constant basis when trading the Forex market.

Patience and discipline are two characteristics of the modern and profitable Forex trader. While everyone is inclined to think they are a given, they are not.

Based on the personality that defines us as traders, but also based on some other factors like the size of a trading account, for example, there are different type of trading styles when approaching the Forex market.

Trading Styles

The defining characteristic that makes the difference between trading styles is related to a trade's time horizon. That is, the period a trade is being kept open.

There are traders that go in and out of a market multiple times in a trading day, some other traders that keep their trades open a longer period and even others that invest in currencies, rather than speculate.

Speculation as an art is defined as the ability to profit from sudden moves in a market and monetize those move into a profit. Well, this is Forex trading!

Scalping

Scalping as a trading style appeals to retail traders. Everyone wants to make a quick profit, if possible with little or no effort.

Retail traders, especially beginners, are mostly using fundamental factors to back the direction of their trades. That is, they look at the economic calendar, pick a news that is marked with the red color as per its importance, and simply wait for the release.

The red color defines an important news and implies market volatility will increase by the time it is released. When that happens, these traders, or scalpers, are simply entering and exiting the market multiple times, for a small distance.

Profit in trading is related to the number of pips one makes, but the value of a pip differs. Volume plays an important role here.

To make sense and logic, scalping involves a bigger volume to be traded if the distance the market should make (or the target for the trade) is smaller. Therefore, we can safely say that scalpers are taking more risk on their hands than other traders with different trading styles.

Scalpers are short-term oriented traders that enter the market multiple times during the trading day with small profits being hunted on every trade. Scalping can be a very profitable strategy if applied correctly, as the sum of those pips can make for big profits in the trading account.

However, the dynamics of the Forex market or the reasons why this market is moving are too complicated for scalping to be the right strategy on a medium to long term. Consequently, in the end, most scalpers will fail and the ones that are still in love with the trading game will move on searching for the right trading style that fits their personality.

Swing Trading

A swing trade can take anywhere between a few hours and a few weeks, and traders that use it are both fundamental and technical ones. That is, both economic news and technical levels are backing the decision to buy or sell a currency pair.

Forex markets spend most of the time in consolidation, and this makes for plenty of opportunities to position on the right side of the market. Technical analysis is giving the direction the market is supposed to move next, while fundamental analysis is giving the reason for the market move.

Based on both, positioning can be done if patience and planning are part of the trading plan. Swing traders are using economic releases as a confirmation of their general idea about the direction of a trade, and they will either add to an already opened position or will enter a trade at that moment.

When compared with scalping, swing trading is a more calculated approach and gives traders more chances to survive in this wild Forex environment. Money management is key to swing trading and the ability to make a buck involves a certain degree of discipline and planning.

Retail traders with a bit of experience in trading the Forex markets are most likely to be swing traders. Factors like positive or negative swaps, changes in monetary policies, etc., are reasons good enough for the traders that fit into this category to enter or exit a trade.

Investing

Despite the general belief, the currency market is offering great investing opportunities. As the name suggests, when investing in something, the time horizon considered for the investment to bear fruits is bigger.

Investors in the Forex market are looking at things like macroeconomics (global trends that influence supply and demand levels and affect the monetary policies of different countries around the world) before deciding to buy or sell a currency pair. Hedge fund managers always have a specific part of their trading account dedicated to currencies.

These managers will have a longer time in mind for the potential profit from a currency move and the reasons for entering a trade are mostly fundamental ones. If investors are using technical analysis, this is coming from the bigger time frames, like the weekly and monthly charts.

The volume of the trades is bigger as well. Investing is very profitable if the right size and volume are used. Timing the entry and exit in a trade is a tricky thing, and often investors are ahead of the curve. This is because they are looking for outside factors that may influence the direction of a trend, or factors that might make a trend reverse and a new one to start.

No matter the trading style, Forex traders have one thing in mind: to make a profit. Their personalities define the trading style and the expectations from any given trade and it is important to remember that there is no right or wrong approach to trading, as long as it is profitable.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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