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Ultimately, there are only 4 strategic approaches to trading the forex market and the key to success is choosing the one the best fits your personality, available time and financial resources.
Scalp trading is an extremely active form of day trading that involves frequent buying and selling throughout the trading session. Scalp traders target the smallest intraday price movements and rely on frequent and very small gains to build profits.
Profit targets and stops are used to manage positions that are generally held for a period of seconds to minutes.
Precision is paramount with this style of trading, and scalping requires constant and alert attention to the markets. Day trading refers to a style of trading in which positions are entered and exited on the same day. Unlike position and swing traders, a day trader does not hold any positions overnight; trades are usually closed using a profit target or stop loss.
Because trades are held for a period of minutes to hours, large price moves are uncommon, and day trading relies on frequent small gains to build profits. To leverage their buying power, day traders usually trade with margin. Day trading is a full-time job since positions have to be constantly monitored and traders need to be made immediately aware of any interruptions to technology for example, a lost Internet connection or a trading platform issue.
Swing trading refers to a style of trading in which positions are held for a period of days or weeks in an attempt to capture short-term market moves. In general, swing traders rely on technical analysis and price action to determine profitable trade entry and exit points, paying little attention to the fundamentals.
Trades are exited when a previously established profit target is reached, when the trade is stopped out moves in the wrong direction or after a set amount of time has elapsed. Because swing trading takes place over a period of days to weeks with an average of one to four days , this trading style does not necessarily require constant monitoring. As such, traders who are unable to monitor their positions throughout each trading session often gravitate toward this popular trading style.
Position trading encompasses the longest trading time frame in which trades span a period of months to years. Position traders may use a combination of technical and fundamental analysis to make trading decisions and often refer to weekly and monthly price charts when evaluating the markets.
Typically, short-term price fluctuations are ignored in favor of identifying and profiting from longer-term trends. Although many traders are a combination of these, they will usually be primarily one type of trader.
One of the most fundamental steps to successful trading in the forex market is to decide which type of trader are you? This article will reveal the only forex strategies that actually work over the long-term.