Home Beginners Forex Education Forex Trade Types How Many Types of Forex Trading are There?

How Many Types of Forex Trading are There?

97
0

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to determine their next move. Today we are going to present different strategies that you may choose to test yourself and attempt to answer the question of how many types of forex trading there are.

Chart Patterns

Chart patterns, which are said to function similarly to Japanese Candlesticks, can be quite useful in trading stocks due to the focus on traders’ sentiment. What traders get from following patterns is the ease of use and the information where the price might go. Some experts advise caution because patterns are typically noticed by a large number of people all over the world, which causes the big banks to react to such concentration. While traders assume that chart patterns are indicative of the price’s direction, it is actually quite the opposite. This strategy is best used when traders decide to go against the flow, as the big banks will take all the orders and then trigger them and whipsaw the price. Traders will know for sure where the price will go only after this majority of traders exit the trade.

Long-term Fundamental Trading

To trade long-term, traders should focus on the central banks whose usual task is to either tackle slow economic growth (i.e. low GDP and high unemployment) or inflation rate (that banks aim to keep under a certain level year after year). Banks often attempt to overcome these issues through the use of monetary policy tools such as cutting interest rates or introducing quantitative easing. To find a perfect match to pair, traders should track the order of events when predicting price movements. When two different central banks announce certain actions that will cause their respective currencies to move in opposite price directions, there is a higher chance that the pair is going to be stable. It is vital, however, to make timely decisions, so it may be wiser to search for opportunities when the central banks have only recently begun moving in the direction of their policies. Besides, traders should also monitor the news from experts and central banks before and during the trade, without letting their immediate online communities affect their thinking. 

Long Swing Trading

Those who already have full-time jobs, plenty of responsibilities in a day, and lack of time to browse for global economy news may find swing trading their ideal option. This particular forex trading style is utilized by traders who aim to profit from price swings. These traders first identify a potential trend and then hold the trade in question for a minimum of two days to a period of a few weeks. To reap benefits from temporary countertrends, traders strive to buy (go long) at swing lows and sell (go short) at swing highs in an uptrend. Since these trades extend to several days or weeks, the use of larger stop losses is increasingly important to address volatility and individual money management plan. Due to numerous fluctuations, such trades may go against the trader during the holding period, which requires that traders be focused on the result, patient, and emotionally under control. Swing trading can be further divided into four subtypes: reversal, retracement, breakouts, and breakdowns that all refer to different changes in the price direction. 

Support/Resistance Lines

Many traders use these lines that provide information on the market and the price. The highest peak the price reaches before pulling back is called resistance, while the lowest point before going back up is support. Traders see the highest point as the surplus of sellers and the lowest drop as that of buyers. Support and resistance are typically traded when the price bounces, i.e. when the price falls towards support or when the price rises towards resistance. Breaks are also frequently traded, so traders often choose to buy when the price breaks up through resistance or sell when the price breaks down through support. Some professionals claim that drawing up these lines leaves much room for variations and that the same information can be accessed by too vast a number of people. Since this concentrated activity easily draws the attention of big banks, the price is often redirected, directly affecting the support and resistance traders.

Scalping

This strategy is an ideal choice for anyone who loves fast-paced trading, finds looking at charts for several hours to be acceptable, and easily makes fast decisions. This technique aims to acquire small amounts of pips as often as possible during the busiest times in a trading day. As such, traders are focused on particularly short gates between the opening and closing of a trade. Traders find this approach attractive due to the fact that the smaller moves occur more often than the larger ones, allowing traders to go over several hundred trades in one day alone without having to think about them the following day. A vast number of small wins, which are achieved through profiting from quick changes of the bid-ask spreads, may quite easily lead to large gains. Traders’ goal is to take advantage of market volatility in this short span of time, opening a position at the ask/bid price only to close it quickly a few points higher or lower. As this technique truly requires a great degree of intense attention, traders need to consider their own personality types, capabilities, and preferences beforehand. 

Buy and Hold

As the name suggests, this strategy entails that a trader buys a currency and holds it for a period of time. Many professionals regard this approach as dangerous and inapplicable to the forex market despite its popularity. The key argument for this point of view lies in the fact that currencies are vastly different from stocks where this technique is used regularly. Buy-and-hold traders show little interest in short-term price movements, using this strategy as a form of passive investment. The focus of these traders’ attention is the fundamental analysis as opposed to technical charts and indicators. As these types of trades may last for several years, traders do need to make a good selection of currency pairs and even take into consideration various long-term fundamental factors described above. As many sources often leave a disclaimer, stating that traders opting for this strategy are doing so at their own risk, traders are warned that strategies like this one are encumbered with a higher degree of risk than some others If applied to cryptocurrencies.

Trend Trading

This trading style has been recognized by most traders are the most useful in generating positive results. As this is a multiple-term strategy, traders take positions at some point in a chart where the trend in question may last for days, weeks, or months depending on the market conditions. In order to get the best results, traders need to think of their risk-reward ratio and include stop-losses in their trades. This type of trading requires that traders develop good-functioning systems they can rely on that can inform them of upcoming trends and protect their investment. While trend trading may test traders’ patience and emotional preparedness, it is a proven method that experts openly praise. 

Naturally, as there are numerous ways to earn a profit, all traders should ask themselves what tool or style they prefer to focus on. There can still never be two identical approaches to trading even if two traders rely on the same strategy because of individual differences. Nonetheless, regardless of the choice of trading strategy, risk management, money management, and trading psychology are vital for any type of trading to provide benefits. 

LEAVE A REPLY

Please enter your comment!
Please enter your name here