Day Trading
Trading involves opening and closing positions within the trading day.
It is a popular trading strategy where you buy and sell over a time frame of a single day’s trading with the intention of profiting from small price movements.
Trading is another short-term trading style, but unlike scalping, you are typically only taking one trade a day and closing it out when the day is over.
These traders like picking a side at the beginning of the day, acting on their bias, and then finishing the day with either a profit or a loss.
They DON’T like holding their trades overnight.
Day Trading
You might be a forex day trader if:
You like beginning and ending a trade within one day.
Some things to consider if you decide to day trade:
Stay informed on the latest fundamentals events to help you choose a direction
You will want to keep yourself up-to-date on the latest economic news so that you can make your trading decisions at the beginning of the day.
Do you have time to monitor your trade?
Trend Trading
Trend trading is when you look at a longer time frame chart and determine an overall trend.
Once the overall trend is established, you move to a smaller time frame chart and look for trading opportunities in the direction of that trend.
Using indicators on the shorter time frame chart will give you an idea of when to time your entries. For an example of this style of trading, see Pip Surfer’s world-renowned Cowabunga System.
First, determine what the overall trend is by looking at a longer time frame.
For example, if the price has been rising off a support level or falling off a resistance level, then a trader might choose to buy or sell based on their perception of the market’s direction.
This is known as “trading in a range“, where each time price hits a high, it falls back to the low. And vice versa.
A day trader who is using this strategy and is looking to go long will buy around the low price and sell at the high price.
A day trader who is using this strategy and is looking to go short will sell around the high price and buy at the low price.
Most range traders will use stop losses and limit orders to keep their trading in line with what they perceive to be happening in the market.
A stop loss order is a point at which a position is automatically closed out if the price of the security drops below the trader’s entry point.
A limit order is the automatic closing of a position at the point where the trader perceives a profitable run could end.
Range trading requires enough volatility to keep the price moving for the duration of the day, but not so much volatility that the price breaks out of the range and starts a new trend.
But if the price does break out, there’s a strategy for that as well…
Breakout Trading
Breakout trading is when you look at the range a pair has made during certain hours of the day and then place trades on either side, hoping to catch a breakout in either direction.
This is particularly effective when a pair has been in a tight range because it is usually an indication that the pair is about to make a big move.
Your goal here is to set yourself up so that when the move takes place you are ready to catch the wave!
In breakout trading, you determine a range where support and resistance have been holding strongly.
Once you do, you can set entry points above and below your breakout levels.
As a rule of thumb, you want to target the same amount of pips that makes up your determined range.
Make sure you check out our “Trading Breakouts” lesson so you get this down pat!
News Trading
News trading is one of the most traditional, predominantly short-term focused trading strategies used by day traders.
Someone who is news trading pays less attention to charts and technical analysis. They wait for information to be released that they believe will drive prices in one direction or the other.
This information could be a report releasing economic data, such as unemployment, interest rates, or inflation, or simply breaking news or random presidential tweets.
To do well with news trading, day traders tend to have a solid understanding of the markets in which they’re trading.
They develop the insights to determine how the news will be received by the market in question in terms of the extent to which its price will be affected.
They will be alert to various different news sources at the same time and know when to enter the market.
The drawback of news trading is that events that cause substantial movements in prices are usually rare.
More often than not, the expectations of such events are factored into the price in the run-up to the announcement.
Swing Trading
Daily Swing trading refers to the medium-term trading style that is used by forex traders who try to profit from price swings.
Live Swing traders identify a possible trend and then hold the trade(s) for a period of time, from a minimum of two days to several weeks.
It is ideal for those who can’t monitor their charts throughout the day but can dedicate a couple of hours analyzing the market every night.
The Swing trading is best suited for those who have full-time jobs or school but have enough free time to stay up-to-date with what is going on in the global economy.
Swing trading strategies employ fundamental or technical analysis in order to determine whether or not a particular currency pair might go up or down in price in the near future.
Swing trading attempts to identify “swings” within a medium-term trend and enter only when there seems to be a high probability of winning.
For example, in an uptrend, you aim to buy (go long) at “swing lows.” And conversely, sell (go short) at “swing highs” to take advantage of temporary countertrends.
Because trades last much longer than one day, larger stop losses are required to weather volatility, and a forex trader must adapt that to their money management plan.
You will most likely see trades go against you during the holding time since there can be many fluctuations in the price during the shorter time frames.
It is important that you are able to remain calm during these times and trust in your analysis.
Since trades usually have larger targets, spreads won’t have as much of an impact on your overall profits.
As a result, trading pairs with larger spreads and lower liquidity are acceptable.
Types of Swing Trading
How do you swing trade?
There are several different trading strategies often used by swing traders.
Here are the four most popular: reversal, retracement (or pullback), breakouts, and breakdowns.
Reversal Trading
Reversal relies on a change in price momentum. A reversal is a change in the trend direction of an asset’s price. For example, when an upward trend loses momentum and the price starts to move downwards. A reversal can be positive or negative (or bullish or bearish).
Retracement Trading
Retracement (or pullback) involves looking for a price to temporarily reverse within a larger trend. Price temporarily retraces to an earlier price point and then continues to move in the same direction later.
Reversals are sometimes hard to predict and to tell apart from short-term pullbacks. While a reversal denotes a change in trend, a pullback is a shorter-term “mini reversal” within an existing trend.
Think of a retracement (or pullback) as a “minor countertrend within the major trend”.
If it’s a retracement, price moving in against the primary trend should be temporary and relatively brief.
Reversals always start as potential pullbacks. The challenge is to know whether it is only a pullback or an actual trend reversal
Breakout Trading
Breakout trading is an approach where you take a position on the early side of an UPTREND, and looking for the price to“breakout”. You enter into a position as soon as price breaks a key level of RESISTANCE.
Breakdown Strategy
A breakdown strategy is the opposite of a breakout strategy. You take a position on the early side of a DOWNTREND and looking for price to“breakdown” (also known as a downside breakout).
A support level is a price level that, historically, does not fall below. These “historical” support levels can hold for years.
A resistance level is a price level that, historically, tends not to be able to break. These “historical” resistance levels can also hold for years.
If position traders expect a long-term resistance hold, they can close out their positions before unrealized profits start melting away.
They may also enter long positions at historical support levels if they expect a long-term trend to hold and continue upward at this point.
This strategy requires that traders analyze chart patterns. When analyzing the chart, position traders consider three factors when trying to identify support and resistance levels.
The historic price is the most reliable source when identifying support and resistance. During periods of significant up or down in a market, recurring support and resistance levels are easy to spot.
Previous support and resistance levels can indicate future levels. It is not unusual for a resistance level to become a future support level once it has been broken.
Technical indicators like moving averages and Fibonacci retracement provide dynamic support and resistance levels that move as the price moves.
Pullback Trading
A pullback is a short dip or slight reversal in the prevailing trend.
This strategy is used when there is a brief market dip in a longer-term trend.
Pullback traders aim to capitalize on these pauses in the market.
Trading the Trend Lines Guide
You have a great understanding of fundamentals and have good foresight into how they affect your currency pair in the long run.
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