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Back in the day, trading foreign currencies or Forex trading used to be only accessible to a select group of large banks and institutions. Luckily for us, in the late 90s the rise of the Internet allowed online Forex brokers to offer trading accounts to everyday people who wanted to speculate on changes and exchange rates.
Today, all you’ll need to start your Forex trading journey is Internet access, some initial capital, and an account within a reputable Forex brokerage platform. It may sound easy, but Forex trading may not be that easy for just everyone. To understand what makes a pro Forex trader, you’ll first need to understand the main trading styles.
In this article we’ll break these down into 4 categories based on how long trades are held for. Consider taking a look at the exness.com and their calculator if you want to keep your finger on the pulse of all the basics of your trading positions.
Scalping
First, let’s look at scalpers. Due to the very fast nature of this trading method, analysis is usually done on very short time frames, think anywhere between 1-5 minutes. That’s why scalpers often make multiple trades in a day. They buy or sell a currency and then only minutes or seconds later they close that specific trade hoping to make a profit. These trades also have smaller profit targets in terms of points or pips, than longer term trades due to their duration, which is obviously because price doesn’t move that far within short periods of time.
To be a successful scalper you’ll need to be decisive and comfortable in a fast-paced environment as you’ll need to be precise with your entries and exits that affect your overall performance.
Famous scalper to check out: Paul Rotter
Day trading
Day traders open and close their trades on the same day, but don’t hold them overnight. These trades typically last anywhere from 15 minutes to a number of hours. The analysis for these trades is usually done on the 30 min, 1 hour, and 4 hour time frames. These trades have larger targets than when scalping as day traders will look to take advantage of one of the main moves a market makes within that day. As the trades take longer to set up and play out compared to scalping, the frequency of these trades is lower. On average, a day trader takes between 2-10 trades per week risking somewhere between 0.5% - 2%. It might be good practice to have precise entries and exits when day trading to maximize your profitability.
Famous day trader to check out: Timothy Sykes
Swing trading
If scalping or day trading doesn’t sound like your cup of tea, you may be suited to holding your trades for longer periods. Swing trades cover anything longer than a day to a few months or even more in some cases. Analysis for these trades is performed daily, weekly, and monthly. The targets are significantly larger than those targeted by other trading styles. Normally, a swing trader would take somewhere between 2-12 trades per month as they risk a little more on each trade. The entry and exit technique can be less precise as the trade commonly takes place over a much larger price range. Swing trading requires patience and a great deal of confidence to stay calm during market fluctuations.
Famous swing trader to check out: Mark Minervini
Position trading
Finally, we have position trading. Position trading refers to the holding of a certain position over a long-time frame, usually measured in years. Personally, we tend to think of this approach as more of a long-term investment than a trade per se, though technically it is still trading. To reach success in position trading you’ll need patience and the ability to ignore popular opinions, making your own decisions.
Famous position trader to check out: Philip A. Fisher
Mix-and-match approach
If you’re not sure which style is right for you, don’t worry as you don’t have to be defined by one specific trading style. Instead, you can mix-match and evolve your own style throughout your Forex journey. For example, some traders enter the market with a fundamental analysis and exit the trades using technical analysis. It’s a hybrid approach as those traders use 1-hour charts and basic support and resistance lines.
Famous trader that uses mix-and-match method to check out: Dean Hyde
The use of AI in trading
In the realities of a constantly changing world, it is undebatable that AI systems are the key to refining algorithms and building better investment strategies for the stock market trading. Harnessing AI-based tools has enabled traders worldwide to avoid high risk margins that inevitably arise with human-influenced trading and ensure overall success for investment.
AI algorithms have also opened the door to successful and safe trading processes in highly volatile and speculative markets, such as cryptocurrency. One of the best examples of how AI is shaping up the traditional Forex trading industry can be witnessed in the trading of commodities, including food, energy, and precious metals.
The introduction of robotized trading bots, software applications that automate trade operations based on the underlying parameters, was a natural step to the first rule-based AI systems. And although such bots are gradually transforming the markets, they are still held back by their obvious reliance on human intervention. That’s why traders still have to come up with their own trading strategies based on the experience and predictions made by financial market experts. Nevertheless, such trading bots and tools are essential for the modern stock market, as they have ensured that trading is an activity that is no longer the reserve of the wealthy elite making it available to the general public to take advantage.
All Things Considered
Now that you have a clear vision of who can trade Forex and what it takes to become successful, the one thing you do need to always keep in mind with all trading styles is that Forex trading is certainly not a "get-rich-quick" scheme. It takes time and effort to learn the fundamentals, nurture your skills, and build up your experience.
