As you may already know, the forex market stands out from the rest of the financial markets as it remains open around the clock. You won’t have to worry about the market hours or timing Read More
The forex market gives a great amount of flexibility to accommodate all types of traders and trading styles. Your trading style needs to align with your trading goals while also resonating with your personality as a trader. Whether you want to follow a short-term strategy for quick profits or a long-term strategy for larger gains, the forex market can be an apt place as you get to choose different time frames based on your preference. The rewards and risks of trading have much to do with the timeframe you choose for executing your strategy. So, the length of the timeframe you choose for analysis will determine your trading style along with the duration of your trades. While deciding the time for which a trade will be kept open, you should also consider the margin levels in your account. Because the trade can only be kept open until you have sufficient funds or margin to hold that position, and when there is a margin shortfall, you will get a margin call from the broker. The trade will be automatically closed if you fail to deposit the required funds within time. Now, we will go through the four primary trading styles that are followed in the forex market, and the one you choose to follow will tell you about the duration of your trades and what type of trader you are. Many traders are not open to the idea of keeping their trades open for a longer duration. They just want to make some profit and close the position as soon as they can, and scalping will be the go-to trading style for such traders. As a scalper, you will only be opening trades for a duration of 1 to 5 minutes. The timeframes are exceptionally small, and they make use of minute charts for market analysis. They look for the most minor price movements during the most liquid market hours and execute multiple trades to meet their profit targets. Scalpers trade with the smallest profit target for a single trade as they will only be trying to catch 5 to 10 pips per trade within a short span of time. You can make use of tools like pip calculators to determine the pip value in the base currency of your account, and then you can easily set your profit targets for each position. Scalpers follow a short-term approach and don’t bother to wait for significant changes in prices. They are not concerned about long-term trends; they only care about the small fluctuations tracked by relying on technical analysis. Scalpers mostly look for trading opportunities during the peak market hours such as major sessions and session overlaps, as they need a great amount of liquidity to enter and exit multiple trades with ease. They also prefer to trade major pairs with high trading volume and tight spreads as they need to minimise the trading cost while opening multiple positions for small profits. Forex scalping is also the most aggressive and intense trading style, where your timing and skills determine your wins and losses to make sound trading decisions quickly. Day trading or intraday trading is another popular trading style in the forex market, and it is suitable for those who want to follow a short-term strategy but prefer a less intense trading process without the stress that comes with scalping. In day trading, one can keep the trades open for hours; the only rule you have to follow is to exit the positions before the day ends. Day traders don’t hold any overnight trade positions, and thus, they don’t have to worry about swap rates while trading. They will use hourly charts for technical analysis and attempt to make the most out of a daily trend by constantly monitoring the market. Day trading is just as time-consuming as scalping, but it is a bit slower in pace, making it ideal for those who are not able to catch up with the fast-paced market as a scalper. Day traders also prefer to trade major pairs or liquid minor pairs to take advantage of the high trading volume for swift entry and exit. Day traders also have smaller profit targets, but they are much higher than scalpers, and they enter a lesser number of trades on a daily basis. They also try to make profits from small price fluctuations during the day, but the profit potential of trades will be higher than scalping. However, they have to choose the right margin to avoid losing big in case the market decides to trade against them. For this, a margin calculator would be of great help, as it quickly calculates the margin based on the inputs provided to it. Swing trading is another popular forex trading style, which is neither short-term nor long-term but falls somewhere in the middle, and the duration of trades can be several days to a few weeks, depending on your strategy. Swing traders are more patient than scalpers and day traders as they wait for the prices to take a swing, resulting in significant profits. As a swing trader, you can keep your trade positions open for an extended period of time, and it is the perfect trading style for someone unable to monitor the markets all day long. As a swing trader, you can afford to let your trades run freely after setting a stop loss and take profit order for the position. Swing traders mostly rely on technical analysis to find ideal trade setups. Still, they may also look at fundamentals if they want to assess the market situation on a deeper level. Swing trading is an apt strategy for a beginner as the trading style is more passive, and starting with longer timeframes is a better approach for novice traders. Now, one aspect you will have to pay attention to as a swing trader is the swap rates, which will be applied to your overnight trade positions. But it will still be less if you choose major pairs with low swap rates, and they are also perfect for swing trading. The 4th and last trading style with the longest time frame is position trading, where you can keep the trades for however long you want, ranging from a few months to several years. This is one strategy where fundamental analysis is more important than technical analysis. Long-term market trends cannot be tracked without a good understanding of the fundamental forces driving the currency market. The swap rates of currency pairs will be a key metric in position trading as you will be holding the position for a very long time while being exposed to the overnight risk. The profit target of position trading will be the highest, and the trade size will also be bigger to maximise the profit potential. Many position traders tend to use W1 timeframes for analysis, but it can also be higher for those who open positions for a prolonged period. Macroeconomic factors play an important role in long-term trends; thus, position traders need to consider many aspects while making trading decisions. Position trading allows us to engage in passive trading as we don’t have to monitor the markets for hours as we do in short-term strategies. However, it requires in-depth market knowledge to withstand short-term volatility while targeting bigger gains. With that, you have learned about all the different trading styles you can adopt in the dynamic forex market, and based on this, you can decide the ideal duration for your trades. If you are still in a dilemma about the ideal trading style, I suggest you start with a longer time frame first. Sometimes, the trial and error approach helps us to discover our trading personality. Having said that, you still need to work on your strategy and use various tools to execute it perfectly while trading for real. Types of Traders / Trading Styles – Basics
Wrap Up
How Long Can I Keep A Trade Open In The Forex Market?
As you may already know, the forex market stands out from the rest of the financial markets as it remains open around the clock. You won’t have to worry about the market hours or timing Read More
