Style

What model fits me finest for foreign currency trading

Finding a trading style that works for you and suits you as a retailer is important when trading any market, not just forex. Success is rarely found in trading by 100% copying what someone else is doing and not going through the process to understand which trading style suits you best. The reason for this is that there are many variables that go into a trading methodology and style, to name a few:

  • How much time do you have to trade on a given day / week / month? And when are you available for trading?

  • How much capital do you have and what is your position on risk?

  • What is your experience and which approach makes sense for you?

  • What markets do you trade in?

  • What are your goals?

  • Where are you in the world and what is the regulation?

The answers to these questions will be different for most traders, and so their style and approach must be different too. If you are trading a style that works for someone who has 2 hours to trade at the beginning of each day and you only have 30 minutes at the end of the day, then the approach probably won’t work for you. If you are trading a style that works for someone who has more than $ 25,000 in their account and you have a lot less than that, then the approach probably won’t work for you. But that doesn’t mean that other approaches may not work for you.

The beauty of trading is that there are so many ways to be profitable. You can combine the variables that work for you in the right way and still find an approach that can work with them. The mistake most forex traders (and traders in general) make is trying to adapt to a style they have learned rather than finding the style that already suits them.

When we speak of “style” when trading, we usually refer to the following:

  • Day trading.

  • Swing trading.

  • Position trading.

  • Invest.

No style is better than the other, no style is “more profitable” than the other, they work for different people based on the lifestyle, capital and personality of each person. It can be helpful to have a brief idea of ​​what the different trading styles can mean:

Different asset classes are better suited to specific styles. Forex is by far the largest asset class in the world – this makes it very diverse and allows us to leverage the moves in small to larger time frames and capitalize on almost any style. It also offers decent leverage, making it easier to trade with smaller accounts, which makes short-term trading more efficient (if you have a profitable strategy, of course!).

However, when thinking of day trading forex, here are some things to keep in mind:

  • There will always be a spread that can be small or large depending on the broker, and it can change depending on what is happening in the market.
    This means that if you are using very small time frames the spread could be detrimental to you as the smallest movement can mean the difference between a profit and a loss for you. This is less true when using larger time frames and therefore longer term styles.

  • Billions of dollars move through the currency markets every day and there are many players – from retail speculators to institutional traders to the governments, corporations and individuals involved in currency transactions. This means that there are many buy and sell orders going through these markets every day for many, many different reasons.
    This can make it harder to get right on smaller moves, and you have less leeway to go wrong.

  • The forex markets are open 5 days a week, so there is little or no risk of overnight gapping.
    This means that unlike stocks for example, you don’t have to get out at the end of the day, so there is nothing in forex mechanics that means you need to be day trading.

Of course there are profitable forex traders who are day trading, but in my experience it can be a little more difficult than having someone swing or position the trade or even invest in the forex markets.

By weighing your availability of time, how often you can act and how strict you can be with your timing, what your goals are and who you are as a person, this should guide you towards the style that works best for you. Then you have to adapt your methodology accordingly, be it through changed time frames, different risk management rules, etc.

Ultimately, it is not the trading style alone that determines the likelihood of success, but how it relates to you as an individual and a trader. Pursuing the style that suits you best, whatever style is most likely to bring you the success you want in your trading.