When you're a beginner in the world of forex, it can be overwhelming to consider all the possible forex trading strategies that are available and which one you should choose. There are three important things to consider here: one is your trader personality, the second is how much time you have available (likely dependent on your day job) and the third is how much risk you're prepared to take on. So here's how to pick the right forex trading strategies for you to suit your day job and other commitments.
This blog is part of our new Make It Happen series, a series of blogs aimed at total beginners to forex: for people working a full-time job, with little capital to start off with, and limited time to learn how to trade. Sound familiar? Here’s how to get started on your trading journey.
How to Choose Forex Trading Strategies to Suit Your Day Job
What are forex trading strategies?
Forex trading strategies can be classified by the timeframes in which they operate. The time you expect to keep a trade open is relevant for several reasons. The longer you keep a trade open, the more risk is involved. However, the shorter the timeframe, the less price movement there generally is.
This means that shorter timeframe trades must utilize more capital to generate the same amount of profit. This increase in capital on the line also increases the risk. This interaction between capital requirements and time commitment means that various trading strategies appeal to different sorts of traders. So - how can you tell which one is the best for you?
Scalping: The strategy that uses the least amount of time is scalping. This style of trading attempts to profit from very small moves in the market over a very short interval of time. However, to achieve the same rate of profit as a day or swing trade, you must put up a higher amount of capital. So, the lower risk of a brief open position is counterbalanced by the higher risk of more capital on the line. See if scalping would suit your personality here>>
Day trading: Day traders try to get in and out of their position within the course of a day. This avoids overnight risk, the risk that a trade will turn against you when you’re away sleeping or taking a break from the market. It also avoids fees that come with keeping your trade open across more than one day. With more time for price movements to build steam, not as much capital is required to make day trading worthwhile as compared to scalping. See if day trading would suit your personality here>>
Swing trading: Swing traders typically open positions that last between a few days and a few weeks. Swing traders typically rely heavily on technical analysis to identify imbalances in the market that they can take advantage of to find where a swing, or trend, will probably occur. See if swing trading would suit your personality here>>
Position trading: Longer-term traders are those who hold their position for longer than a few weeks. Some hold their positions for months or even years. These are fundamental traders who are looking to benefit from a long trend between two currencies. See if position trading would suit your personality here>>
How should I choose between forex trading strategies?
There are three main things you should consider when choosing between forex trading strategies:
- How much time do you have available?
- What is your personality like?
- How much risk are you prepared to take on?
Time: The first consideration for picking a trading strategy is the amount of time that you have available for trading and research. Scalping and swing trading typically rely heavily on technical analysis. This means more emphasis on charts and techniques and less emphasis on news events and fundamentals. Keeping track of news events and fundamentals can be time-consuming, requiring constant attention. For someone with a full-time job, swing trading and scalping offer great opportunities to trade an effective strategy in the forex market.
Personality: Secondly, you should choose a trading strategy that fits your personality. If you lack patience, holding your position for months or years clearly isn’t for you. If you are not someone who enjoys the frenetic pace of getting into a trade only to exit it a few minutes or hours later, then scalping will not be very enjoyable.
Risk: Your time considerations must be balanced with a third factor—risk. The amount of risk you are willing to take on is a vitally important factor when choosing a trading strategy. The longer you keep trades open, the more fees that can accumulate and the more risk that the position could turn against you. However, the shorter a trade is, the more capital will need to be involved to produce a profit since the price movements will be smaller than with longer trades.
What forex trading strategies should I choose if I have a day job?
For those who have a day job, an ideal strategy would be the end of day swing trading strategy.
While most trading activity happens during the day, there are a few advantages to trading at the end of the day. Trading is an exercise is price discovery. Looking at the market at the end of the day means that an entire day of price discovery has occurred and here you come after that has finished. Therefore, the price that you see is the "fair value" the market has spent the whole day determining. You were able to avoid the ups and downs of intraday trading. However, these ups and downs also offer the volatility that would allow you to make profits in a shorter amount of time.
You can look at the trend determined by the trading day and it will be more significant than someone looking at the sharp, sudden moves of a market under high volume. The end of the day lacks the trading activity and the news events that make scalping or day trading viable. This does not prevent you from scalping or day trading other currencies around the world during their prime trading hours, however.
What are forex trading strategies? Read our beginners' guide here>>
What forex trading strategies should I choose if I have an evening job?
If you have an evening job strategy, this frees up the trading day for you. This means that day trading, swing trading, and scalping are all potential trading strategies for you. You’re able to devote attention to the market during its busiest time, both from a trading perspective and in terms of news events.
Assuming you want to trade currencies in your own part of the world, most business is conducted during daylight hours. This means that central banks announce decisions and the government releases economic reports during these hours. If you are trading during these hours, you can take advantage of sharp moves in the market that last for a few minutes or develop during the course of a day. You can also take advantage of longer-term trends that represent swing trading opportunities.