Forex Day Trading, Scalping, Swing Trading

Forex day trading, scalping, and swing trading…

To a novice, there is often confusion about the definitions of the various types of forex trading systems and strategies, especially if you’ve heard them mentioned, and haven’t had a chance to find out what they mean.

Here is a glossary of the main types of trading that you may have heard of:

Forex Day Trading

Forex day trading refers to trading where a trade is entered and exited within the one trading day. That is, the position may be held for minutes to hours. Typically, anywhere from the 4 hour or 2 hour down to the 1 or 5 minutely charts are used.

Due to the high liquidity of the forex market, with zero commissions with most market makers (even with small trade sizes), and the use of up to 100 to 1 leverage, forex trading is suited to day trading where you an benefit from intraday moves with even a modest account size . That is, with the movement of the currencies over a day and the leverage involved, profitable trades with good profit-loss ratios can be achieved.

Excellent for those who like to be actively trading over the course of the day. With many systems, you don’t have to be glued to the screen either, as they use price and indicator alerts, and trade time frames which are 2 to 4 hourly, using the shorter time frames to time its entries.

By exiting intraday, that is before 5pm New York time, it means that there are also no rollover fees.

Forex Scalping

Forex scalping is a style of trading where profits are taken after relatively small moves in the market.

What typically happens with this style of trading, is that trading is done over shorter time frames, where smaller profits are taken more frequently. The time that the position is exposed to the market is shorter, thereby reducing the risk of adverse market events causing the price to go against the trade. It is a different strategy to most other forex strategies, but still does require you to analyse the market to ensure that the set up for a trade is present, because you’re wanting to catch a high probability trade, so that the scalp trading is profitable.

This is in contrast to the more traditional approach to trading where the profits are allowed to run, and losses are cut shorter, but where the winning positions do risk giving a portion of the money back to the market before they’re exited, or even turn into losing trades.

Neither one style is necessarily better than the other.

It depends on what kinds of systems you prefer, how much time you have at the screen each day, and of course, whether the system performs well.

Advocates of scalp trading say that scalp trading does not have to be your only style of trading. It is a style of trading that can compliment your other trading stratgies. And it is said that scalp trading works over any market conditions, so this is potentially an advantage over other system that rely on a trending, rather than a choppy market to be reasonably profitable.

As long as scalp trading is profitable, and is profitable with respect to the use of your time (time-effective), then it’s a beneficial skill to have.

Forex Swing Trading

Forex swing trading refers to the style of trading that ranges between day trading and trend following (or trend) trading.

That is, with positions held between one and several days. These systems, being of longer duration than day trading typically capture larger moves in the market, with a larger sized profit per trade. With some of these systems, the stop loss size may be bigger than say a day trading system, to allow the currency room to move in order to make these larger moves. And because the forex market may gap over the weekends, some systems require you to exit positions before the weekend, and to re-enter on Monday to avoid any gapping.

The trading is typically done by assessing charts over longer time frames, than when compared with day trading, so these systems may not need as much time in the day to trade them.

This to some people, is more practical, and is a benefit of systems that hold positions over a few days.

Related topics:

Forex Time Frames: learn about the time frames to trade forex

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