Forex trading, albeit being extremely rewarding, can be a difficult business to venture into.
No matter how good you’re, if you don’t play your cards right, it will be almost impossible to win anything from here. So, to make life easier, it’s a must to have a proper strategy.
So, in order to help you out, we have talked about four different strategies in this article. And, you will also find some explanations related to all of them too.
But before we get into that, let’s get a little bit of information through a chart, first –
|The Period of the Trade
|Not more than a single day
|Around one day or less
|Minutes or seconds
|Short-term (usually lasts a few hours or so)
|More than a week
|Short to medium-term
|Can take years to succeed
Scalping, in essence, is a short-term form of forex trading.
As a scalp trader, you’ll only hold a position open for a few seconds or a minute at most. This, in turn, will help you get a small amount of money, depending on the price movement.
The purpose of this strategy is to make a lot of smaller profits through several quick trades. In some cases, you might also end up losing a part of your investment. But, that’s how it works.
The benefits of this strategy may include the below-mentioned –
- The market risk is pretty low here.
- If you can execute it perfectly, this strategy can be very profitable.
- There’s no need to follow any basic fundamentals.
- It does not get affected much due to the market ups and downs.
- You can automate the process within the infrastructure you are working with.
The cons of scalping are as follows –
- The transaction cost of the participation tends to be pretty high.
- The involvement of a market risk is pretty low.
- You’ll need a lot of concentration and time to execute it perfectly.
Also, you might have to send dozens of targets before you can get any profitable income. So, it may not be your cup of tea if you are trying to get a lot of money at once.
Day trading, on the other hand, is a strategy where a trader might open and close the position within the same day. It would require both fundamental or technical analysis.
This way, you can capitalize on the strategy you’ve made within a short amount of time. And, if you are lucky, you will be able to earn more money than scalping.
The benefits of this form of trading may include the below-mentioned –
- The potential for getting a massive return is quite high in this aspect.
- You will have the flexibility to work from anywhere you want.
- There’s no need to invest for a long time here. So, you can get your earnings quickly.
- You will have complete control over your trades and make decisions on the go.
- You can profit in almost any market, no matter how tumultuous it has been.
There are some additional risks associated with day trading as well, including –
- Indulging in the activity of day trading can be quite stressful.
- It might be riskier to invest money through this strategy in a difficult market.
- The commissions and fees related to this strategy tend to be quite high.
Also like the aforementioned, it can be quite time-consuming too. So, if you want to indulge in it you might have to leave your job or whatever else you are doing right now.
With swing trading, you will need to hold your position for at least one week or more. In this case, your aim will be to profit from price movements in the market during recession.
As a swing trader, you will need to be analytical and find out a segment that can improve by a lot in the next week or so. Then, invest your money when you figure out the right time.
Usually a swing trader will try to capture a price movement between 5% to 10%. After that he or she will move out of the deal and try to go for something else altogether.
The benefits of swing trading may include the following –
- Alongside the higher potential return, the risk of losing money tends to be low here.
- You can hold your position overnight in this regard. Thus, you’ll get the opportunity to change your strategy for the greater good whenever you want.
- The time consumption will be pretty low here, as you are holding onto one position. If you want, you can do it while keeping your job too.
- The level of flexibility is quite high.
- If you get the technical analysis right, you can do anything you want here.
The cons of this strategy are as follows –
- The level of uncertainty of this strategy is still a little higher than usual.
- The profit potential will be high but limited in this aspect.
- You will need a lot of discipline to succeed here.
This type of strategy usually focuses on holding a position in a currency pair for a long time. The overall time period can lie somewhere between several weeks to a few months. If you are going for a more patient approach, you can hold your investment for a year or so as well.
You cannot win anything in position trading by using fundamental analysis at all. Besides, we will also need to learn about technical evaluation as well.
The benefits of this approach may include –
- The stress of changing strategies will be low here, as you are holding the position for a bit more time than usual.
- The overall trading cost will be reduced too as you are not having to change positions.
- You’ll be able to analyze the market more accurately due to using both technical and fundamental analysis.
- It will be easier for you to manage your risks here.
- The profit potential, in this case, will be the largest.
On the other hand, the cons of this method can denote to the following –
- The capital requirement will be quite large here.
- Profit generation will be slow as you’ll be holding the money for some time.
- Market volatility might cause an issue with your strategies.
So, now that you know the types of approaches you can go for, it might be best to get started with your journey of forex trading Chile. If there’s something else you want to know about, we would ask you to comment below.