Forex Trading Basic

Most popular trading strategies : Day Trading, Swing Trading and Position Trading

MACD Indicator Technical Analysis

Most popular trading strategies

There are three Most popular trading strategies for trader’s preferred method and time frame. They are: 1) Day Trading, 2) Swing Trading, and 3) Position Trading. Some common questions to ask of these:

  • Which style of trading do you prefer?
  • Which method is riskier and more rewarding?
  • Which method is more stressful?

Each strategy has its own advantages and disadvantages. We will first provide a description of each one, followed by a list of advantages and disadvantages.

Day Trading (Or Intraday Trading):

All the Day traders typically enter and exit trades in the same trading day. Day Traders are highly interested in quick, small sized profits and plenty of trades per day. They are does not trade the entire day; they are just eager to get profit here and there during different hours in different sessions. They always look for their setup patterns on the smaller time frame charts (1M, 5M, 15M, 30M or H1); with perhaps having a confirmation from larger time frames charts (H4 and D1). In case of money management, they usually have smaller profit targets and stop losses, and thus they can afford to trade with bigger lot sizes. Because of the frequency of trading, day trading needs more time and focus on trading: the day traders are spending a lot of time actively participating in the market, much more so than the other two strategies. Day trading also needs much faster speeds for reading and reacting to rapidly changing market conditions. Accuracy is absolutely vital and just like the nerves of steel.

Advantages

  • Less market exposure
  • Faster profit potential
  • Faster compounding of profits
  • Higher leverage and lot sizing can be used

Disadvantages

  • Spreads have more impact on overall profits.
  • Faster loss potential
  • Faster compounding of losses
  • Time intensive
  • Speed & concentration can make day trading very stressful
  • Real life distractions can be problematic
  • Market cycles that occur on shorter time frames

Swing Trading

Swing trading is basically a short term trend following trading strategy lasting anywhere from 1 to 30 days. That’s why it is also referred as intermediate strategy. Swing traders are looking to initiate a couple trades per week rather than per day. They look for their setup pattern on the hourly charts (H1 and H4), with confirmation from the daily (D1) and weekly chart (W1). In case of exits, the strategy encourages a good risk-reward ratio: for instance, swing traders can attempt a profit target of 300 pips with a 70 pip stop loss. We can place the stops based on the previous swing high or low, or at points of previous support and resistance on an hourly chart. Given that their larger stop loss relative to day traders, swing traders will probably have a chance to trade with smaller lot size to minimize the risk. They don’t need to react quite as fast, but what they need to be is just as much smart, disciplined and focused as they can.

Advantages

  • Decent risk to reward ratio
  • Spreads have less impact on overall profits.
  • Less time intensive
  • You do not have the stress of having to decipher and trade quickly

Disadvantages

  • Greater market exposure: you can wake up with your positions unexpectedly altered.
  • A steep learning curve to swing trade successfully.
  • You still have to devote at least a couple hours per day in analyzing the markets to determine or modify a position.
  • You still need good discipline and emotional fortitude. Often you will see that you exit on a seeming “trend reversal” only to see the market revert to the original direction.

Position Trading

The other name of Position trading is ‘trend trading’, can best be described as a ‘buy and hold trading method. Always remember that, positions can be open for a few days, a few weeks, a few months or longer. Trades are also held during periods of minor retracement with the expectation that they will eventually continue trending in the desired direction. Position traders are looking to initiate a few trades per month rather than per week (swing trading) or day (day trading).  They look for their setup pattern on the larger time frame chart (D1, W1 and M1), with perhaps a best point of entry on the hourly chart. In terms of exits, the style encourages a much larger breadth of pips for profit and stop: position traders would be attempting a profit target of 250-750 pips with a 150 pip stop loss. The stops might be based on the previous swing high or low, or at points of previous support and resistance on daily chart. Given their larger stop loss relative to day traders, position traders would probably trade with much smaller lot size to minimize the risk.

Advantages

  • Best risk rewarding ratio
  • Spreads have very little impact on overall profits.
  • Least time consuming
  • Least stressful

Disadvantages

  • Greatest Market Exposure
  • Smallest potential compounding
  • Your money can be committed to the trade for prolonged periods
  • Traders can become psychologically committed to the trade or trend direction

The Bottom Line: Most popular trading strategies

Neither method is inherently less or more risky, or less or more profitable, but rather the trader or EA determines the risk and profitability. In the hands of good trader, day trading can accumulate and compound profits faster; in the hands of a bad one it can do the opposite. All methods require discipline and emotional fortitude. All systems, in order to be good, need well-defined stops and take profits. All need to have lots of back testing and forward testing.

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Please note that: because of the differences in trading conditions, all the forex strategies can not be applied to all broker platforms. So, Choosing Forex broker is a vital task. We would like to recommend you HYCM Broker. This broker has all the positive trading conditions necessary for any forex strategy to work. Read HYCM Broker Review to learn more.

READ MORE

Chapter 7

Forex Trading Strategies

Lesson 1profitable Forex trading strategies
Lesson 2Most popular trading strategies
Lesson 3Forex Scalping Strategy
Lesson 4Forex Trading Hedging Strategy
Lesson 5Forex Trading Trendline Analysis
Lesson 6Forex Trading Breakout Strategy
Lesson 7Pivot Point Reversal Strategy
Lesson 8Pivot Point Break Out Strategy
Lesson 9News Trading Strategies
Lesson 10Marker Sentiment Analysis
Lesson 11Pivot Points Trading Strategy

Go back to Main Page: Forex Trading For Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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