Trading Education

4 Main Trading Strategies

If you’re keen on getting involved into forex trading, you’ve probably been reading up on how to get started. As a result, you no doubt have come across a number of terms relating the strategies adopted by the vast majority of traders. So should you be a swinger, day trader, scalper, news reader – or combination of several? Here is a breakdown of the common strategies so you can assess which one would work best for you.

1. Position trading

With position trading, you take a longer-term approach and can hold a position for weeks to months. Here, you will rely on fundamental analysis such as Gross Domestic Product figures, retail sales and the regular Non-Farms Payroll releases in the US. Technical analysis can also be useful in helping you time your entries into the market.

The advantages of positiontrading are that it’s less time-intensive. It can also be less stressful because short-term price fluctuations have no significance on your position.On the flip side, however, you need an in-depth understanding of market drivers and a larger capital base. The latter is necessitated by a wider stop loss.

4 Main Trading Strategies

2. Swing trading

If you opt for swingtrading, you will hold positions for days to weeks, on one to four-hour time frames, with the aim of making profits from short-term price patterns.

With this strategy, you can make more annual profits because you will get numerous trading opportunities. But on the other hand, you might lose out on big trends. Either way, the goal is to identify a stock that is likely to have some movement and enter a profitable position.

4 Main Trading Strategies

3. Scalping

These are short term trades, where a trader holds a position for a few minutes – and at times – seconds. The goal is to gain a profit by beating the offer/bid spread. This strategy is preferred by many because it offers lots of trading opportunities throughout the day.

Nevertheless, scalping requires you to watch the screen for hours on end keenly and if you have a full-time job, this is often extremely difficult to do. The short timelines also make it more stressful for many. In addition, the number of trades also increase the cost of trading, which eats into your profits.

4 Main Trading Strategies

4. Day trading

Day trading can be described as a slightly faster version of the swing trading strategy, with a trader holding a position for minutes or hours. Typically, trades happen on five to 15-minute timelines.

As a trader, your goal is to capture the most volatile session of your trading platform in order to make a profit. This strategy has no overnight risk as traders exit all positions by the end of the day.

Just like scalping, day trading requires a lot of monitoring, and the short timelines are strenuous. These features make it difficult for one to combine FX trading with another job, which, in turn, brings up the issue of opportunity cost.

4 Main Trading Strategies

Which is the best strategy?

Unfortunately, there’s no simple solution to this question. Different trading personalities work well when paired up with a different sole strategy or a combination of several approaches.

For example, longer-term strategies work great for people with day jobs looking for supplementary income. This is because they do not need a lot of monitoring minute to minute. The reverse is true for shorter term options.

It is therefore essential to review the different features of these strategies to see which best align with your needs.

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Oliver Murphy

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