When trading in Forex market, active trading is the act of buying and selling securities based on short-term movements to profit from the price movements. Active traders, on the other hand, believe that they can profit from short-term movements and capturing the market trend. There are various methods used to accomplish an active-trading strategy, each with appropriate market environments and risks inherent in the strategy. This article introduces four most common types of active trading you can use when trading in Forex market.
No. 1.: Day Trading
Day trading is perhaps the most well known active-trading style. Day trading, as its name implies, is the method of buying and selling securities within the same day. Positions are closed out within the same day they are taken, and no position is held overnight.
No.2. Swing Trading
When a trend breaks, swing traders typically get in the game. At the end of a trend, there is usually some price volatility as the new trend tries to establish itself. Swing traders buy or sell as that price volatility sets in. Swing trades are usually held for more than a day but for a shorter time than trend trades. Swing traders often create a set of trading rules based on technical or fundamental analysis; these trading rules or algorithms are designed to identify when to buy and sell a security.
No.3. Position Trading
Some actually consider position trading to be a buy-and-hold strategy and not active trading. Position trading uses longer term charts – anywhere from daily to monthly – in combination with other methods to determine the trend of the current market direction. This type of trade may last for several days to several weeks and sometimes longer, depending on the trend. Trend traders look for successive higher highs or lower highs to determine the trend of a security. By jumping on and riding the “wave,” trend traders aim to benefit from both the up and downside of market movements.
Scalping is one of the quickest strategies employed by active traders. The strategy generally works by making the spread or buying at the bid price and selling at the ask price to receive the difference between the two price points. Scalpers attempt to hold their positions for a short period, thus decreasing the risk associated with the strategy. Additionally, a scalper does not try to exploit large moves or move high volumes; rather, they try to take advantage of small moves that occur frequently and move smaller volumes more often.
Costs Inherent with Trading Strategies when trading in forex market
Lower commissions and better execution are two elements that improve the profit potential of the strategies. If you wish to implement these strategies successfully, significant hardware and software, as well as real-time market data should be purchased. These costs make successfully implementing and profiting from active trading somewhat prohibitive for the individual trader, although not all together unachievable.