For new forex traders one of the first questions you need to answer is: The same applies for shares or commodities, or whatever you trade. When you consider the fundamental importance of this decision on the nature of trading, this question effectively becomes: But rather, will I trade over a short time frame or a long time frame, or somewhere in between. After a little research a new trader will realise that the answer to that question has far reaching consequences on all the other aspects of their trading.
What they choose to be the time frame to trade Forex on, whatever it is that motivates their choice, will impact on all other aspects of their trading. This could be what assets they trade, the trading strategy they use, their risk management principles and the expected effort and rewards. Most importantly it will impact the skill level required and how likely they are to succeed.! As detailed in Episode 51, when we started the Traders Support Club course, one of the first videos we watched touched on this subject.
There are, broadly speaking, four different time frames to trade Forex. In order, from shortest to longest, they are: Scalping is trading over very short time frames, potentially as short as a few seconds. It might be as long as a few minutes. Scalpers will be looking to bag multiple small profits over the course of a day. Scalping will usually take the form of technical trading and is typically where people are looking for a predictable, repeatable pattern or price behaviour that they can take trade very quickly.
Profit targets will be less than 20 pips usually and sometimes much smaller. Scalpers will need a broker that has very fast execution of trades and low spreads.
The spread will be an unusually large percentage of a scalp trade. Day trading, is defined very simply as a trading strategy which rarely sees a trader hold positions overnight. Scalping is a form of day trading, but is usually thought of as separate from other day trading methodologies. In reality quite a few day trading strategies see trades being held across a two day period.
Any longer than two days and you are not really day trading. Day traders will look to be placing multiple trades in a day, but probably not the double figures that you may see with scalpers. When I day trade I am typically placing two to three trades a day.
Swing trading takes place from two days to up to about three weeks. Swing trading strategies can be similar to day trading strategies. The patterns sought can be looked at on longer time frame charts - maybe using the 4 hourly or daily chart rather than the 15 minute or 5 minute chart that day traders might use.
Swing traders will look to place a number of trades in a given week. The term Swing trading can be confusing as some people take it to mean a specific strategy or set of strategies, rather than a trading time frame. Some corners of the internet refer to Swing trading as a type of day trading that relies on picking momentum assets that build in a trend over a few days or a week. We will stick to the more common definition for swing trading: Position trading is the form of trading that has the most in common with traditional investing.
Position trading involves taking a trade and holding it for time frames from two or three weeks through to months or maybe even years. This is the lowest intensity form of trading and will typically but not always involve a touch of fundamentals trading as well as technical trading. Shares traders often have longer outlooks than Forex traders who tend to trade shorter time frames with greater leverage, looking for greater returns. The Forex markets are so volatile that it is less common to see Forex traders holding leveraged positions for weeks or months.
With the general expectation that stocks and commodity prices will rise over time, or at least move in cycles, these assets often lend themselves better to this longer term trading.
But, as with all things in trading, these are generalisations and there will always be exceptions to the rule! When we first got into trading, both Tom and I instinctively looked at the shorter time frames. I looked at normal day trading, sometimes having a position open overnight, but usually being in and out within a day.
If I had to hold a position over a weekend I got full-blown anxiety! Tom also day traded initially and even looked at some very short term scalping methods - looking for pips at a time. Well, almost scalping - maybe just very short term day trading!
All of this is quite subjective so probably depends on your personal perspective! This seems to be a common theme for a lot of traders.
Maybe people who are more attracted to trading than traditional buy-and-hold investing, or handing their money over to a fund manager, are naturally geared-up to seek the action of day trading? Certainly Tom and I thought that our learning curve would be accelerated by trading more frequently. Forex is a highly volatile marketplace, where the trend can reverse several times a week, or even a day!
That makes it a bit more tricky to trade the longer timeframes than, a stock or index that may move in the same direction without much volatility for a long time. But if I can put together a trading robot in the future probably using this course! But equally, I never had any desire to be spending weeks on analysis in order to place one trade and then watch it play out over weeks or months. So position trading is out, for me at least.
But, the more I thought about Swing Trading, the more it appealed. This is inherently a personal thing, and it is not my intention to suggest to anyone that they should mirror my actions. But, once it became clear that Traders Support Club recommend Swing Trading as the initial strategy for most new traders, it really got me thinking.
As people that read my last post in this series will know, I am struggling with the discipline needed to properly execute a day trading strategy. Not from a trading rules perspective, but from a trading routine perspective. Running Two Blokes Trading with Tom, writing things like this, looking after my family and other business interests Swing trading seems to offer the active trading style that I enjoy, but with a much lower time requirement.
I know it is not an excuse to be lazy, but right now, like most people, I am trading around other commitments. Level 3, Swing Trading: Level 5, Day Trading: Level 7, Scalping Level I had clearly jumped right in at the deep end.
Although I feel that I am slightly beyond a level 3, I am not convinced that I am yet at a level 7! So, somewhere in the middle, for now, suits me just fine. Anecdotally, from the people I had spoken to from the TBT community and the traders that I had interviewed on the podcast, it seemed that longer term success was often found with longer timeframe trading.
Short of hacking into a broker and looking at their data I am not sure if there is anything I can do to verify this hunch. Possibly this is a slightly facetious example, but it illustrates that the shorter term your trading is, the more difficult it will be, and the lower your expectancy of success.
Particularly if you are a beginner! I will be looking to make the transition to Swing Trader over the coming weeks, at least initially. For now, my only desire is to see my trading account consistently grow. If I have more chance of seeing that happen with Swing trading then so be it. However, what is still abundantly clear, is that I will still need a demonstrable, proven strategy to make Swing trading work. It is not going to be a walk in the park, even if I am taking the pressure off slightly.
I am looking forward to getting into the meat of the training videos and webinars in the next couple of weeks and putting together a back tested trading strategy that will hopefully set me on the track to consistent profits as soon as possible. Why a lot of people end up day trading first.
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