Short vs. Long Term Forex Trading

[Zack Zarr 5]

Short vs. Long Term Forex Trading

 

There are two general styles of forex trading, which are distinguished by their time periods: short term trading (similar to day trading and scalping) and long term trading (similar to swing trading or position trading). For someone new to trading who has only heard about the wall street in the movies or news, the idea of trading most likely is something close to the long term trading style. This style of trading includes buying or selling a security, stock, or a currency pair over a relatively extended period of time. What is a relatively extended period? It depends. For a stock, a swing trade could take a few hours, days and even months. The goal is to benefit from the long-term swings in the price without worrying too much about the noises in the minute charts. A swing trader would open a trade with a defined stop loss appropriate to the trade timeframe. They would perhaps check on the status of the trade once a day and analyze the market sentiment. In the case of a good opportunity, they could add to their position to maximize profit. They would eventually exit the trade once they have made their target profit.

 

In the forex, swing or long term trading could expand from 30 minutes to hours and few days. There is also another category of traders with this style who are “position traders”. They add to their position along the way and watch the market carefully to extend their profit for months or even as long as a year.

 

In contrast to the first style, day trading or short term trading has different implications. A big portion of BearBullTraders community are focused on day trading in stocks and many useful materials could be found in our community online platform.

 

In forex, short term trading has a similar definition. Based on the time of the day, such as London market, New York market or Tokyo market, forex traders choose to trade only in these volatile sessions. They often open and close trades within few minutes (usually less than an hour). A subcategory of the day trading style is “scalping”. Scalpers are those who benefit from any small movement in the price action. They enter and exit a trade within seconds and at most a few minutes. This style of trading requires a large amount of capital or leverage, besides uninterrupted presence in front of the trading station.

 

Both styles of trading have their own pros and cons. I trade both styles and try to post my ideas in the forex trade ideas section of our forum. My personal preference is long term trading because it matches my life style and requires less intense and spread out attention.

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Zack