November 17, 2013 in forex Comments Off

By Danielle Franklin

Forex trading brings together a crowd of completely different people diverse professional background, unique personalities, unlike financial and marital status, location, gender, age, political and religious preferences, and finally different trading styles. What are those trading styles? Which one is most profitable? How to figure out which style suits you best?

You can choose to be Scalper, Swing trader or Position trader. To say for sure which one is most profitable is impossible, because most professional traders mix it all up. The trick is to figure out when is the right time to scalp, to swing and when it is the best to run a position.

Lets look at each trading style in details:

1. Scalping

Forex scalping tactic is the combination of high leverage and short term trade. The basic idea behind scalping is to make profits on tiny price movements, sometimes no more than 3 pips. A scalper has to focus on price action, join and get out of trades very quickly, gain each time about 5-10 pips and slowly double or triple the account.

Forex scalping, used correctly, is one of the trading styles with minimum risk involved. If you want to adopt scalping to your trading strategy, here are some things you should consider:

Forex Broker which Supports Scalping

Many forex brokers do not allow scalp trading, since entering and exiting trades causes a broker to lose money. Take an extra time to find out whether your online broker supports scalping.

Strict Exit Strategy (both good and bad trades)

Stick to the plan and be disciplined. Staying in the trade just a little bit more can bring catastrophic results.

High Leverage

Scalper uses higher than normal leverage, however keep in mind that forex market can easily move against you and cause significant account losses.

Automated scalping strategy

Since scalping involves short stays in the market (no longer than several minutes), a lot of scalpers automate their set of rules to ensure the speed and consistency. Some forex trading platforms, such as MetaTrader 4, allow executing your system on every tick.

Support and Resistance Levels

Find support/resistance levels that have worked on several occasions in the past (at new chart highs or lows).

Look for Momentum

Is the price moving strongly towards either support or resistance level? Is there confirmation that the price momentum is about to turn? In order to get a confirmation that the price momentum wont take out support or resistance, use stochastic indicator. Stochastic lines will show you which way the market is trending. To read the hint right and take a trade, look for stochastic lines which cross each other and point either up (showing support has won!) or pointing down (showing resistance has won!).

2. Position Trading

Position trading involves entering a position and holding it for quite a while (days, weeks, months or even years), or until the reason why you entered a trade in the first place (usually based on fundamental analysis) is unchanged.

When position trading, focus on:

Average Trades

Weekly 3-bar pattern is a great strategy for forex position trading, used on daily and weekly frames.

Decisions

Base your trading decision on fundamental data. The basic fundamental analysis includes political and economic changes. Position trader should get information about unemployment forecasts, economic policies, inflation, political principles, and growth rates.

Position Size

A size position in position trading should be rather small, since you have to be able to endure daily price movements. To make this happen, the leverage used in position trading has to be rather small. Since it is possible for a currency pair to jump up and down as much as 3% in just a day, your account will be empty if your leverage preference is more than 1:30.

Trading Frequency

In position trading, the number of trades are kept to minimum. In a way, a long term position can cause a forex trading to lose profitable op