Whether you’re interested in starting a career as a forex trader, or just enthusiastic about learning more about forex trading strategies that work, it will greatly benefit you to know the trading type that best suits your personality.
There are many trading styles to choose from, each of which has its own share of pros and cons. Familiarising yourself with the trading styles could give you a competitive edge when setting up, or adjusting your strategy along the way.
What is Forex Trading?
Forex trading refers to the pairing up of two currencies from different countries and effectively bidding them against each other. The key is predicting their behaviour based on market and political volatility, estimating how their prices may subsequently move and change, as well as being confident about when you should buy and sell.
Types of Forex Trading Strategies
Finding the right strategy can make all the difference to your success as a trader. The following are six of the most common trading strategies you could end up adopting, depending on your personality type.
Position Trading
Position traders prefer a long-term trading strategy, keeping a close eye on changes in macroeconomic trends across different economies. Typically offering low levels of leverage, position traders focus on profiting from bigger price movements across a longer span of time. Those with a knack for analysis with an interest in technical indicators are more suited to this trading style. Patience and stamina are a must-have too; this style is not geared towards short-term returns.
Day Trading
A day trader operates with a “day-to-day” mindset. They open and close a position in a specific market within that very session. The result is somewhat limited risk, considering the trader has less exposure to systemic and market fluctuations. It also provides flexibility for traders to branch out and expand their portfolios more effectively than those with longer-term commitments. These traders are quick on their feet and have the ability to make quicker than usual buying and selling decisions. There are even options of weekend day trading. You just have to look for specific markets.
Scalping
Forex scalpers have a goal to turn small profits as frequently as possible, in order to build a capital base for further trading. This type of trading, especially when done within compressed timeframes, usually goes hand-in-hand with the minimisation of capital exposure and systemic risk. These types of traders need to be able to identify positive expectation setups within a live market. Discipline is key.
Reversal Trading
As indicated by its name, reversal trading focuses on the anticipation of a reversal in the price trend. Reversals are not easy to spot, but the rewards can be tremendous when predictions are correct. This strategy is well known to be more complex than some of the others, considering that it carries a relatively high risk. A reversal trader requires access to a lot of tools, like volume and momentum indicators, and also needs to trust their gut when it comes to fast decisions.
Swing Trading
Swing trading lasts anywhere from a single day up to a week. In this strategy, trades are set up according to highs and lows across a longer period of time. It removes risk associated with inconsistent price movements, and avoids setting stop losses, especially during a short-term change in the market. Swing traders need resilience and patience, plus a knack for analytics can be very useful.
Trend Trading
Trend trading involves correctly identifying swings in currency price movements, ultimately choosing to buy and sell based on the positions of the price of the currency within the trend. The strength of the trend is important too. This type of trading is very popular, especially as trends are relatively reliable indicators of how prices are likely to move in future. This style comes equipped with tools aplenty, and those with a keen interest in global current affairs may be well suited to it.
The Best Forex Trading Strategy: Figure Out What Kind of Trader You Are
Now that you know more about some of the different trading strategies out there, it’s time to discover which one is correct for you. The DNA FX quiz — a quiz by DailyFX that was especially designed for this very reason — will help you to discover what kind of trader your are and, in turn, help you to develop your trading style and forex strategy.
Getting going in forex has never been simpler than it is now. Armed with the knowledge of which trading style will suit your personality, you’ll be ready to take a real-time dive into the exciting world of forex.
