styles depending on several key factors. For example, a person should use a
style that perfectly complements his/her available screen time or risk
threshold. Finding and sticking with the most compatible trading style gives
you a higher edge of profiting in the Forex market for the long haul. Here are
some basic styles novice traders can learn and later modify.
As the term implies, day trading is the act of buying or selling a financial
product and closing the position the same day. An advantage of day trading is
that it eliminates overnight risk. Day traders usually make two or three trades
per day, but may change depending on the setups the market makes available to
them. A day trading style is best suited for people who can spend a large
amount of time on the screen and be patient to wait for high-quality setups.
Scalping involves high-frequency trading with the goal of profiting a few
pips with every trade. Most scalpers have a negative risk/reward ratio, meaning
they are expecting to lose more money than they stand to profit on one trade.
To compensate for this poor risk/reward ratio, scalpers use complex mechanical
systems that have the highest possible edge and winning percentage. People who
work well under pressure are ideal scalpers. One must be able to make split
second decisions, which most likely have substantial impact on their account.
A position trader requires an incredible amount of patience to succeed in
the Forex market. The style involves making a trade based on long-term
technical and fundamental factors. This means one expects to profit from the
position weeks, months, or even years from now. The advantage to position
trading is that it greatly reduces broker commissions and it limits losses from
overtrading. The right position trader candidate, however, must have monk-like
patience to sit on a trade and watch as it turns from profits to losses
multiple times. Also, most position trades must be given enough room to move
around in, so you must have a well-funded account.
Now that you have a solid foundation of the different styles of Forex trading,
sit down and assess your personality. Do you think you’d make a good position
trader or scalper? Once you understand which approach works best, start trading with iForex.