The kind of trader you become is defined by the kind of trading you do based on what time frames you trade, your trading style, and the duration of your trades in the markets. There’re numerous participants in the forex markets that include Centrals banks, Investment and Commercial banks, institutional traders like hedge funds, and Retail traders who are private individuals like you and I. The style of trading by each of these differs depending on their risk appetite, patience levels, trading plans, strategies and trading goals.

 

 

 

 

Scalpers

These are ‘hit and run’ traders. They’re in the markets for a few seconds to at best a few minutes. They look to take advantage of quick small price fluctuations. Such trading is so intense and requires one to be on the screen the entirety of the period their trade is running to be able to manage it. This is because their trades based on the price reactions in the lower timeframes and so are usually traded with big position sizes, which could be fatal should there be erratic price movements against such positions and so need to be on the screen to manually manage them.

 

Their life is fast-paced seeking to profit from rapid market changes. They look to pile up small cumulative amounts of profits especially during periods of increased market volatility. It is by all accounts very risky, and since it involves tens and sometimes hundreds of trades per day, the pressure is high as usually their losses per trade are bigger than their gains.

 

This is because they are willing to hold onto a losing trader longer just in case it reverses in their direction for them to close it with a small gain. And making up those loses may mean dozens of trades with small gains.

 

The success of this strategy is usually based on the percentage of wins, which has to be significantly higher than that of losses compared to other strategies. Not for the faint hearted by any means trust me. I traded this way at the beginning of my trading career but quickly realized I wasn’t designed for it.

 

Day Trader

This is in ways similar to scalping in the sense that it also involves the opening and closing of positions the same trading day. Trades usually are held for a few minutes to a few hours at the longest. Their trades are executed on the intraday timeframes with the biggest being the hourly. The fact that it involves lower timeframes, setups may occur fairly frequently and so day-traders tend to place

 

This kind of trading is usually preferred by retail traders and as well as institutional traders. Macroeconomic news events and data play a major role in day traders decisions as they seek to profit from short-term volatility as well as secure any profits running prior to news releases to avoid spikes. Technical analysis and price action is also utilized in this kind of trading as traders seek to profit from price reaction at particular market levels.

 

This is one of the styles of trading I use every day in my trading. I share trades I’m looking to trade as and when they appear every day with the members in our Day Trading room. Unlike many day traders, we take a top-down approach when it comes to this style by analyzing price from the perspective of higher timeframes before effecting trades on both the 15mins and hourly timeframes.

 

Swing Trader

This is medium term trading where traders hold trades over a couple of days to a few weeks seeking to take advantage of next big price movements. They mainly use technical analysis to predict next market moves. In this kind of trading, traders rely mainly on price action and market structure.

 

This is our bread and butter when it comes to trading the markets. I love it for its simplicity when it comes to identifying price patterns and market structure. We analyze the monthly charts for our levels, the weekly for direction, the daily for market patterns, and the four hour charts for our entries. All this is done in regard to market structure.

 

We use the technical and fundamental aspects of the markets along with order flow perspective to execute our trades every single day. Our analysis and trades we are considering taking are shared every day as they come with our members in the Swing Trading room.

 

Position Trading

This is also known as long term trading. traders take positions and hold them for several weeks, months, and sometimes years. The basis for this trading is more likely to be fundamental, looking at economic cycles and longer term macroeconomic trends.

 

Deep insight of the fundamentals is necessary, as they are mainly trend followers, and these long terms trends depend on macroeconomic factors. Position traders place more importance on long term performance over short term gains. Technical analysis is used to determine trends.

 

They mainly use the higher timeframes and so their decisions usually pay no regard to short-term price fluctuations though they watch them to help pick trends.

 

Now that you know what type of trader you are or want to become, let’s explore the pros and cons of each to aid your choice of trading style.

 

Scalping:

Pros

• More opportunities to trade given the high number of signals per day.
• Positions being in for just a few seconds can potentially reduce risk of market uncertainties
• Potential to make money very frequently
• Higher probability of reaching profit targets because they are usually small

Cons

• High number of false trading signals
• Price movements may seem more random
• Higher probability of price reaching the stop loss if it is close by
• Transaction costs are a higher percentage of profits and high in general
• Sensitive to latency, slippage, widening spreads and platform instabilities
• More screen time is required to trade and monitor and manage the trades

 

Day Trading:

Pros

• Trading signals and opportunities to trade exist daily
• Low time in market can potentially reduce risk
• Potential to make money daily
• Higher probability of reaching profit targets if placed close by

Cons

• High number of false trading signals
• Higher probability of price reaching the stop loss if it is close by
• Intra-day price movements may see random and hard to read
• Some sensitivity to latency, slippage, widening spreads and platform instabilities
• More screen time required to monitor trades and actively manage them

 

Swing Trading

Pros

• Trading signals and opportunities are more reliable on higher time frames
• High probability to capture long term trends
• Positions can earn interest from the overnight swap
• Only a few minutes are required to monitor and manage trades per day
• Wider stop losses might reduce the probability of getting stopped out
• Transaction fees can be a lower percentage of profits and lower in general

 

Cons

• Fewer trading signals per week reduces the potential to make profits frequently
• More time might be required to recover from losing trades
• More time required to allow trade ideas to playout
• Negative cost of carry from the overnight swap on certain positions
• Patience is needed when price is making corrections against your position
• Wider stop losses are usually required, which could mean smaller deal sizes

 

Position Trading:

Pros

• Trading opportunities are few and apart but could be longer when they playout
• Trading signals are more significant
• Potential to capture significant price trends
• Deals can potentially earn interest from the overnight swap
• Less screen time is required to actively monitor and manage trades
• Transaction fees are relatively insignificant relative to potential profits and in general

 

Cons

• Few good trading opportunities per year
• More time might be required to recover from losing trades
• More time is required to allow trade ideas to unfold
• It’s possible to have a negative cost of carry from the overnight swap
• Must be extremely patient
• Much wider stop losses are required, which could mean smaller deal sizes

 

Godfrey Kakulu

Forex Trading Coach and Mentor

Professional Training and Education in Forex, Cryptocurrencies, Indexes, Commodities and Precious metals

 

 

• Join the best practical trading program you’ll ever find
• Join the thousands in our program learning our strategies to make a living out of the markets