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Differences between the Foreign Exchange Market and Stock Market May 23, 2022
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Trading Methods

Mira Team by Mira Team
July 16, 2020
in Forex School
Reading Time: 3 mins read

Scalping

The scalping is the more aggressive way to trade. It consists to pass a multitude of orders in the day, sell or buy to take advantage of low price differences. The positions are taken on only a few pips. The profit in pips being minimal, scalpers use a high leverage to make their transaction significant. Operations only lenght a few minutes or even seconds. The scalping is highly adapted to the Forex because it is a highly liquid market, with a high speed order execution. Moreover, for most brokers, there is no transaction fee which is a clear advantage over other markets.

It sounds simple like that, but very few people arrive to make money by using this technique. Indeed, even if the risk is reduced because of the rapid exit of position, an important leverage effect can quickly cause you to lose a lot of money.

One of the golden rules of scalpers is the quick cut of their position if the market goes in the wrong side. It does not say that the market will eventually turn around. The loss in number of pips are very limited. As you will understand, this technique requires considerable time because it needs to be continuously present in front of his screen. You need to have price in real time. The graphics used will range from 1 to 5 minutes.

Your profit and loss will be around a ten per trade.

Day trading

Day trading is based on the same principle as scalping. It consists to pass a large number of orders in the day to take advantage of small movements of falling or rising. The goal is to make the most important number of winning trades while minimizing loss on the losing trades. All this is done on a single day. All positions are in fact closed at the end of the trading day. Thus, the investor is not exposed to overnight risk and opening gaps that may occur. You’re completely liquid at the end of the day. Easy, you say surely. So to cool you down a little, be aware that 90% of day traders lose money and among them, many have lost their entire capital.

You should know that, like the scalping, profits in number of pips are not very important. It is counted in a few ten or so. But the most important thing is to be disciplined. You must set targets for profits and loss and stick to it. The type of market best suited to this technique is a volatile market. So you can enjoy rapid movements of the price. As you know, this is not the case with Forex, it is just important leverage available which makes it volatile. Forex also offers the liquidity necessary to practice this method of trading.

Day trading is based mainly on technical analysis. You will need a platform with prices in real time to practice. The graphics used will range from 5 to 30 minutes.

Swing trading

Swing trading is a method of trading based on trends. It involves taking a position at the start of a trend and exit when the movement began to falter before usually make a reversal. You can see in the example below in what this method consist in practice:

The main objective is to avoid suffering the correction movements that occur within a trend. Indeed, as you know, it never goes only up or down. So on a trend, you enjoy only the movements which are in line with the trend. You can see the example below which illustrates my point in an upward trend:

The swing trading doesn’t attach any importance to the length of carry of the trade, only count the maximization of performance. The difficulty of this technique is that you must be able to identify the formation of a turning point to get out at the right time of the trade. During an uptrend, the sell must be done in theory just before the turning point. The length of carry of the trade is therefore unknown unlike day trading. All horizons of carry can be considered depending on the timeframe chosen in your real time chart. Different positions can be taken at different timing. So you can play for example a short-term trend in a long-term trend. So there is no predetermined time scale. Swing trading is conducive to the use of stop loss that let you run your profit while gradually reducing your risk as the trend continues, according to the moves of your stop.

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