For many new traders, developing a trading style that suits their ‘trading personality’ will begin with the decision of whether they want to trade shorter or longer time frames. This will generally be based on how much time each trader has to dedicate to trading forex and also whether a preference for faster, short-term trading is more suitable than looking for longer term opportunities. The most extreme difference between these two forms of trading can be described as scalping (trading using very short chart analysis) and swing trading (trading using longer term chart analysis). Each can be highly profitable but also rely on different styles and methods of trading currency movements.
Scalping in forex
Scalping is the idea of forex trading that most new traders will be familiar with. It is the exciting, high speed day trading that is based on traders taking several rapid trades through the analysis of low timeframes such as 5 minute, 1 minute and tick-charts. These charts show the highly detailed movement of price and require traders to make fast trade entries when a setup becomes apparent. These forex trades can be closed after only a few moments and with a profitable gain of just a handful of pips. This style of trading relies on a high number of successful small trades rather than holding the trade as an investment. As the name suggests, scalping does not try to make the most out of swings in the market price, instead scalpers look to only make a profit from a small part of this and exit the market before the move is over. Although it is perhaps the most attractive and exciting for new traders, scalping can be high-risk and is a method employed by many experienced forex traders.
Swing trading currency movements
Swing trading is for traders who prefer to use fundamental or technical analysis to pinpoint longer-term trading opportunities. The basis of swing trading is that a trade is taken with the view to holding this position for several hours, or perhaps several days or weeks, in order to take advantage of larger movements in price. Unlike scalping, swing traders look to make a large number of pips and typically employ larger stop-losses in order to catch the main swings in the values of currencies. For those who are able to spot the start of a trend, this can be a highly rewarding and profitable style of trading, with the potential to move stop-losses as the trade develops. Also unlike scalping, traders will often wait for confirmation that the swing is over before exiting in an attempt to trade the entire swing and increase the likelihood of maximising pips.
How new traders can approach scalping and swing trading methods
Regardless of the amount of time a new trader has to dedicate to trading, it is often considered best to begin to initially look for swing trading opportunities rather than scalping trades. Scalping involves an intense and confident approach to trading which is exciting but potentially destructive for new forex traders. The temptation to take multiple trades whilst watching every market movement may actually be less rewarding than one, single good swing trade. Swing trading not only reduces that amount of time that a forex trader needs to dedicate to screen-time, but it also helps to develop the skills of risk management alongside the importance of “letting profits run”. Many professional traders see the enhancement of these skills as an excellent foundation for the exciting world of forex scalping.
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