All human beings are different, and so are Forex traders. A look through the MetaTrader 4 platform will show you different time frames used by traders. These are the 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, daily, weekly, and monthly time frames.
Different traders use the various time frames listed above according to their preferences and as a result these influence their trading styles. In this article we will explain a variety of trading styles commonly used by traders.
Scalping involves entering and exiting the market in short durations of time. This is where a trader buys and sells currencies and holds them for short time periods before closing them.
Traders applying this style use shorter time frames such as the 1 minute and 5 minutes time frame. The aim of traders with this style is to make small continuous profits which will accumulate to much bigger sums.
This trading style is suitable for traders who are comfortable with fast price movements and can focus on price charts for long hours.
Advantages of Scalping:
- Quick wins from small profits that add up.
Disadvantages of Scalping:
- Huge losses in cases of sudden price movements.
Day trading is where traders buy and sell currencies and close their trades within the day. Traders do not hold their positions overnight. This is one of the most popular trading styles.
Day trading is also a short term trading style. Traders use the minute and hourly time frames.
This trading style is suitable for traders who have time to analyse and execute trades.
Advantages of Day Trading:
- Plenty of trading opportunities to exploit.
- Traders are able to know whether they have made profits or losses on a particular day.
Disadvantages of Day Trading:
- Transaction costs are high because there are more trade opportunities.
- It may be stressful if you don’t have enough free time to monitor the market.
Swing trading is a long term trading style where trades are held for a few days to several weeks. It involves identifying swing highs and swing lows before entering the market. Longer time frames are used in this style.
A swing high is a point (peak) reached before a price decline. Traders at this point look to sell. A swing low, on the other hand, is a point (trough) reached before a rise in price. Traders here look to buy.
This trading style is suitable for traders who don’t have enough time to monitor their trades such as those who have other jobs. It is also suitable if a trader is patient and doesn’t mind taking a few trades.
Advantages of Swing Trading:
- It saves on time for traders who are busy in other activities.
Disadvantages of Swing Trading:
- Traders may be subject to overnight risk.
This is a trading style whose trades may last for weeks, months or even years. The daily, weekly, and monthly time frames are used in this trading style. Fundamental and Technical Analysis is significant when analysing the state of the market.
This trading style is characterised by fewer trades as compared to the other trading styles. Additionally, stop losses set up are huge and traders need to have sufficient capital.
This style is suitable for traders who are extremely patient and who can stay in control even when the market moves against their trading positions.
Advantages of Position Trading:
- Transaction costs are low because of fewer trades.
- Less time is required as constant monitoring is unnecessary.
Disadvantages of Position Trading:
- It requires setting up large stop losses.
- It needs a lot of capital.
Final Thoughts on Trading Styles
Before selecting a trading style, it is imperative for traders to determine the amount of capital they are willing to invest. This is because long time frames require huge amounts of capital while small time frames do not require a lot of capital. Different traders use different trading styles. It is up to the traders to decide which trading styles work for them.