How To Find Your Forex Trading Style
Finding your forex trading style is a crucial part of learning to trade. If you don’t know what your forex trading style is, you likely haven’t spent enough - or any - time exploring the different types.
Once you find the right trading style for you, you can work on perfecting your forex trading strategy and succeeding your trading goals.
In this article, we’ll look at what exactly a trading style is and how to find the right one for you.
The difference between trading styles and trading strategies
First and foremost, we should point out that there is a difference between ‘trading style’ and ‘trading strategy’. The two terms are not interchangeable!
A trading style refers to the way in which you trade. More specifically, at what velocity you make your trades.
A trading strategy is how you actually pull off your trade, specifically, what you rely on to enter and exit a trade and any other rules you might have.
In most cases, it comes down to what indicators you use.
Different Forex Trading Styles
Deciding what trading style to use should be the first thing any trader should decide. Many novice traders may be ignorant of what a trading style is.
The trading style you choose to use will impact what kind strategies and indicators you can use. Or you may end up using them in a different way depending on your style.
Forex trading styles can be broken down into two types: long term and short term.
Long term trading styles:
- Swing trading.
- Position trading.
Short term trading styles:
- Day trading.
Swing traders are kind of like part-time traders.
They usually open one big or medium-sized trade and leave it for a long period of time to accumulate. They may leave this position open for days or weeks.
It should be mentioned that many traders dislike swing trading because with most brokers you need to pay fees for holding a position overnight, which can get expensive.
Swing trading might be seen as a more sensible option for those who want to trade less. Indeed, it’s often said that the best forex traders trade less, not more.
Remember that every time you open a trade you are taking a risk, so the risk should be well calculated.
Day trading is often said to be the opposite of swing trading. Day traders open multiple positions throughout the day and close them at the end of the day.
This trading style requires a lot of dedication and can be very tiresome. You need to be quick to spot opportunities and it can sometimes be hard to find time to go to the bathroom or eat.
While day trading may be seen as riskier, it’s highly popular and day traders have the advantage of compounding their returns, which allows them to earn more.
Position trading is like an extreme version of swing trading. Instead of holding a position for days or weeks, a position trader can hold a position for months or even years.
They don’t care about small market movements, they only care about huge, historic movements.
Such traders don’t need to watch the market much at all, but they really need to believe that the market is going to go up in the long run.
Scalping is like an extreme version of day trading. Scalpers can make up to hundreds of trades in a day.
To them, every single market movement is an opportunity to make money, every movement down is a chance to buy and every movement up is a chance to sell.
Scalping is perhaps the most intense trading style there is but if done well, it can be highly rewarding.
Long term or short term? Which is best?
That’s a super hard question with no clear answer. Why? Because it 100% depends on you and how you feel when you try them.
Sure, you may initially feel that short term or long term is better for you, but when you give it a go you find the opposite to be true.
Either way, by educating yourself on the different forex trading styles, you can get a better idea of what might suit you.
Position trading and swing trading usually require more capital and some traders claim that the ‘real money’ is in these more long-term styles of trading.
However, shorter-term trading styles have the benefit of compounding your earnings much faster which enables you to earn more from trades.
You will come across day traders and swing traders arguing over which is best, but the truth is their arguments are pointless because, in the end, it is all about the trader.
If you have limited time to trade, then longer-term trading would probably be better for you at first.
However, such traders should also spend a good deal of time researching the trade they plan on making.
Longer-term traders must make larger trades to make their strategy worth it. However, this also requires such traders not to worry about the money tied up in the position all the time.
If you are constantly thinking about your trade and what might go wrong, this trading style might not be for you.
You need to be able to put it at the back of your mind and forget about, though you should, of course, check it every now and then.
Not being able to forget about a position may result in you closing it early and missing your target. This might be a sign that swing trading or position trading might not be for you.
Impatient traders with less money to trade and more time will be more suited to day trading.
Some traders also need to feel like they are always working, they need the nine to five routine. For such traders, day trading or scalping may be appealing.
Day trading and scalping can get very intense, which can scare off a lot of traders who don’t want the stress.
Then there are some traders may look at scalping as the ultimate form of trading due to its complexity and the endurance it requires from forex traders.
This isn’t the right way to look at forex trading.
Just because a trading style is seen as more complex doesn’t make it better, in fact, many would argue that a less complex style is better as there are fewer things that could go wrong.
In reality, the best forex trading style is the one that safeguards what you have and makes you more money!
Finding the right forex trading style for you
You should try all the different trading styles at least once. Don’t make too many assumptions about them before you try them and try to remain open-minded.
A trading style that you don’t initially like might actually be better for you. That’s why you shouldn’t judge a book by its cover.
It’s difficult to know how much time to spend on trying new strategies, you should try to spend a few hours a week exploring different styles. If you can, try and fit it into your trading schedule.
Some traders swap from one trading style to another depending on how volatile the market is.
If the market is highly volatile, then day trading or scalping might be more profitable, but in a ranging market where there is limited volatility, a more long-term trading style, such as swing trading or position trading might be best.
By having experience with multiple trading styles, you can continue trading when the market changes. You should, of course, understand that the market works in cycles.
While we’re firm believers that anyone can learn to trade forex, not every trading style suits every trader.
Understanding your trading psychology will help you explore different trading styles more effectively. You’ll be more in touch with how you feel when trying them.
If you have a good idea of your mental state and limits, you will find it easier to identify which trading style suits you best.
For example, if your impatient, day trading might be better or if you don’t react well to stress, then swing trading might be better.
Get a trading journal
We talk a lot about this at Trading Education, but we’ll say it again to make sure you all know! Get yourself a trading journal.
A trading journal is where you keep a record of all your trades and with it, you can see where you need to improve and where you’re doing well.
It’s the only effective way to try new things properly and see if they work for you. It helps you keep track of different methods and should be the centrepiece of your learning journey.
Changing your forex trading style
Be honest with yourself, when a trading style really isn’t working for you, start thinking about different options.
Don’t stick to a trading style that you desire but clearly doesn’t do you any favours.
However, just because a trading style is not working that well when you first try it doesn’t mean that you should quit it, it may just need optimisation and practice.
Constantly changing your trading style will result in losses as you need to keep getting used to new ways of trading. Doing this may result in you giving up trading altogether.
Set yourself a deadline when a trading style isn’t working, at least a month to review why you think it’s not working for you.
If a trading style requires you to make big changes in your life, you need to ask yourself if it’s really worth it. It may have a negative impact.
For beginners taking their first steps into forex trading, it may be worth trying swing or position trading first, but with small amounts.
This way you don’t have to invest so much of your time and resources into forex trading, just in case you decide it isn’t for you. It allows you to tip your toes in slowly and feel the waters.
When you get a bit more experienced, you can branch out and test other styles. If you then feel that day trading or scalping is something you can handle, try to make the switch.
If not, stick you swing trading or position trading.
Listen to other traders when discussing different trading strategies, but don’t blindly follow them. Come to your own conclusions from your own research and testing.
If you remember anything from this article, make it these key points.
- Day trading, swing trading, position trading and scalping are different trading styles. You should try them all at least once.
- Don’t judge trading styles too quickly. You may find that a trading style you thought you’d hate is actually perfect for you.
- Understanding trading psychology can be a big advantage. Specifically, knowing how you react to stress can help you pick the right trading style.
- Be careful about changing your trading style too frequently. This typically will result in losses.
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