There are a lot of different trading strategies in the currency market, stock shares market, indices and commodities trading market. What kind of strategy trader should choose with opening of trading account with a forex broker?
Generally speaking, there are following strategies: scalping, intraday trading, a medium-term trade and long-term trading. Let us consider in detail the advantages and disadvantages of these trading strategies.
Scalping is when a trader makes a very short time bargains. They may be from several seconds to several minutes, the trader passes with small market price movements in several points, and takes little income. The advantages of this kind of speculation is immediately obvious result of the transaction and the profit on your trading account, you can make a lot of deals in various trading instruments, and not wait for further developments and the global direction of the trend, make trading in your spare time, not waiting for the long time in front of a computer monitor with trading terminal. Disadvantages of scalping are: small profit on each trade, you need to make too many trades, always be on the alert, and you should keep the quotes. After two years of scalping, trader accumulated nervous tension and fatigue, full of apathy and stress.
Intraday trading is the most common type of financial transaction. The trader is in a transaction from a few minutes to several hours and closes all open positions at the end of the day. The advantage of this type of trading is that the exchange trade participant takes considerable profit, not so much following the constant changes in market quotations, and closing the position at the end of the day, does not take the risk of possible rate changes at the opening of the market on the next day. Also during night we can have economic news or unpredictable world events can happen that could significantly change the schedule of rates and open market with a gap in a negative direction for the trader. Disadvantages of intraday trading are that the trader does not take the full profit out of the trend, and takes only a part of the profits that could be earned, because trends usually lasts for a few days.
The medium-term trade is the most profitable way to earn money for the currency market, stock shares market and commodity market. Trading position is open from three to five days. The advantage of this type of speculative transactions is the fact that a trader is with the market for the whole trend, takes a lot of profit, does not spend a lot of time with trading terminal, sometimes it is enough to look in a while to control the position. The disadvantage is that if the trend is not developed into a powerful movement of one hundred points or more, and the trader already has a paper profit, it is likely that profit will not be fixed, because a warrant for profit-taking stands much longer than price will go.
Long-term trading, as a rule, used by investors and traders that focus on fundamental analysis when making trading decisions, as well as financial institutions, banks and large hedge funds. Trading position may be opened for a sufficiently long period of time, it may be weeks, months or even years. The advantage of this type of investment is that you can earn a great profit in the financial market. The disadvantages of this type of trade is that time for opening such trading position can be wasted, if the trend is not going anywhere and will remain in place. It is also possible that exit from this open position can be hard, if it is already in minus.
Currency market speculators often choose a mixed trading style, using various trading strategies. You must choose the trading style that best suits you on the psychological parameters, objectives and time that you are willing to spend on speculative financial transactions.