Understanding Different Types of Forex Trading

There are many Different Types of Forex Trading. I have found that the most successful traders stick to a specific type of trading that suits them in terms of personality and the time they will put in front of the computer.  Below are the four main types of trading forex traders do. For the sake of this article, it refers to time frame and time spent in the market.  While the pairs might change, a system generally falls into one of the following categories.  So by understanding the different types of forex trading, you will be better prepared to understand which suits you the best.

400x250 dScalping:

This type of trading involves taking very small amounts of profit from the market, usually during a very short time period.  The goal is simply to grab a gain of a couple to potentially 10 or more pips, and then close the trade.  The bulk of the profits in this type of trading comes from the fact that you can take many positions within the single day or session you are trading within.

One extreme form of this which has become very popularized is called “HFT” or high-frequency trading. This is where a computer algorithm makes the decisions based on some factors in the market with lightning fast execution, both in and out.  Scalping usually appeals to people that need to be constantly engaged in watching the markets because it lends itself to setups only coming for a very short window of opportunity and the requirement to act fast.  Normally the timeframes traded for scalping are the small ones like the 1min and 5min up to 15min charts.

Day-Trading:

Also known as “intra-day trading”.  This simply means that the trader enters and exits the position within the same 24-hour period or session.  These trades can range in time held from a few minutes to several hours depending on the system, market and setup given.  Usually the timeframes can range anywhere from 15-minute setups to 4-hour candle setups.

Traders that day trade are essentially trying to capture some of the days movement, and although the trend is important to understand as the backdrop, it doesn’t dominate the setups, because intra-day moves within a market do not necessarily always follow the trend.

Swing-Trading:

This is a rather broad swath of time coverage.  This type of trading has more to do with the distance covered in the market, rather than time, but I have included it because it is often times outside the scope of day-trading, and doesn’t really qualify as “long-term” trading either.  Swing traders are essentially trying to capture the bigger moves that forex pairs make as they travel from one point to the next major point where price turns.

In a fast moving market, this can occur within a few hours, but often times, great swing trades are made over the course of several days and potentially longer than a week.  The “swings” the market makes determines when to get out, rather than simply trying to exit with a set goal in mind.

Long-Term Trading:

This type of trading is for people who want to gain the maximum return in terms of pips from forex trading.  In this type of trading, it is less about precise points of entry, and more about the macro moves of the market.  Long-term trading favors people who understand the market fundamentals well, because over time, forex markets tend to follow those very fundamentals.  Trades can be held for weeks and sometimes months, and traded from higher timeframes like the daily, weekly or even monthly charts.  The goal is to eliminate the “noise” in the market by giving the pair time to move over a longer period of time.

Understanding Different Types of Forex Trading

So those are essentially the 4 major types of forex trading done.  This article should help you understand different types of forex trading, and potentially how it might fit your personality.  If one chooses a system and style that fits their time allowance as well as how “engaged” they need to be, they usually will have better outcomes.  Short-term trading might be too stressful for some, and long-term trading might be too boring for others.  So understanding different types of forex trading is important to your own trading success.

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