Trading Techniques for the Forex Trader
Trading can be divided into two general categories; those who trade for the short term, and those who trade for the long term. Both types require different kinds of trading techniques, as what works for one might not work for the other, and vice versa. Active trading is the act of buying and selling based on short term movements and enjoying the profits and benefits of short term stock charts. The buy and hold technique would suit the long-term trader, as it requires a mentality that demands patience. There are various trading techniques that would benefit each type of trader, each with the appropriate market environments and risks to keep in mind. Keep reading to know more about the four common trading techniques!
Day trading is the most popular active trading technique, often used synonymously with the term “trading” in general. As implied by its name, day trading is the technique of buying and selling securities on the same day. Positions are closed out on the day they are taken, and no one waits overnight to see what tomorrow may bring. Day trading was traditionally a professional trading technique utilized by specialists, but with the rise of e-trading, many novice traders have taken a liking to it as well.
Some mistakenly take position trading as a buy and hold technique rather than active trading. However, when advanced traders give their hand at it, position trading may become a form of active trading. The position trading technique uses short to longer term charts, anywhere from daily to monthly, and combines it with other methods to decide what the current market direction trends are. This could take anywhere between a few days to a few weeks, and sometimes even longer.
The trend trading technique relies heavily on looking for higher and lower highs to determine what the current trends are, and traders ride the waves until they believe they break. Using this technique is less efficient during times of high market volatility.
While position trading tries its best to utilize market trend waves, the swing trading techniques comes into play after the trends break. Price volatility sets in after trends are done with, and while swing trades are usually held for more than a day, they still end up being held for less time than a position trade would. Swing traders apply the trading technique by basing themselves on technical and fundamental analysis, learning to identify when to buy and when to sell.
Active traders new to the scene are quick to adopt the scalping trading technique. Scalping includes exploitations of various price gaps caused by bid/ask spreads and order flows. Traders apply this technique by making the spread or buying at the bid price and selling at the ask price to achieve the difference between the two price points. Scalping is meant for the short term, and as such, the traders who make use of this technique are often in a hurry to reduce the risk associated with it. The profits are relatively small, causing scalpers to look for liquid markets to increase the frequency of their trades.
These are the four popular trading techniques. All that’s left is for you to fund your account now and start trading forex on GSI Markets!