Trading styles can be divided into some categories, but these four examples are the most popular used by forex traders. Choosing the right trading styles can determine your success in the forex market.

4 Common Active Trading Styles

Active trading is the act of buying and selling securities based on the short-term movement to get benefits from the price movements on the short-term chart. It is the opposite of buy-and-hold, a long-term strategy.

There are four (4) most known styles of active trading:

  1. Daily trading
  2. Position trading
  3. Swing trading
  4. Scalping

What is it like? Let's discuss them together in the article below.

 

1. Daily Trading

Daily trading is the most famous active trading style, and even often being considered as the meaning of active trading. As the name suggests, it is a method of buying and selling securities on the same day.

Traditionally, daily trading is done by professional traders. However, expert advisors open up the opportunity for a beginner trader to do so. Here are the pros and cons of day trading for you to consider.

✔️Pros ❌Cons
Potential for high returns Day trading can be extremely risky due to the high volatility of the financial markets
Opportunity to make a living Traders may experience stress, anxiety, and emotional ups and downs as they make split-second decisions and manage potential losses
Improve a trader's ability to think quickly, react swiftly to market movements, and develop strong analytical and decision-making skills because of its quick-decision-making Requires significant time and dedication
Day traders have the freedom to work for themselves, set their own schedules, and make independent trading decisions Frequent buying and selling of financial instruments can result in high transaction costs

 

2. Position Trading

Some people think that position trading is a buy-and-hold strategy and not active trading. However, when carried out by an experienced trader, position trading can be active trading. Position trading uses longer-term charts (from daily to monthly), combined with other methods to determine the direction of the market trend at that time.

The transaction made in this style can last for a few days until weeks and even longer, depending on the trend.

Traders who are paying attention to trends are trying to determine the direction of the market, but they are not trying to estimate each price level.

Usually, trend traders are following trends after the condition is steady. When the trend stops, they usually get out of their position. This means in a period of high volatility market, it is more difficult to make any transaction.

Here are the pros and cons of positioning trading:

✔️Pros ❌Cons
Position trading requires less time and constant monitoring compared to day trading Traders may need to wait patiently for their trades to play out
Reduced stress and emotional pressure Position traders may miss out on short-term trading opportunities or quick market movements that could be profitable for day traders or swing traders
Potential for larger profits because of the chances to catch major market trends and capitalize on long-term price movements Holding positions overnight or over the weekend exposes position traders to additional risks, such as unexpected news events or market gaps
Position trading relies heavily on fundamental analysis It may take longer to realize those profits compared to shorter-term trading strategies

 

3. Swing Trading

While the trend stops, swing traders usually start to play.

At the end of the trend, price volatility is usually formed in the market before a new trend forms. Swing trader buys or sells when volatility happens.

The key is to buy from the price swing low and exit on the price swing high and vice versa.

To be able to do that, swing traders apply various methods so they can identify where the previous swing ends and when the next one begins. They often create a formula based on technical and fundamental analysis. The algorithm of swing trading requires a one-way market or the opposite way. A market with a limited range or sideways is risky for a swing trader.

Here are the complete considerations:

✔️Pros ❌Cons
Swing trading aims to capture shorter-term price movements within a broader trend It can be more prevalent during times of high market volatility
Compared to day trading, swing trading requires less time and constant monitoring Holding positions overnight or over the weekend exposes swing traders to potential risks such as unexpected news events, earnings reports, or geopolitical developments
Swing trading can be less stressful compared to day trading as it involves holding positions for a few days to weeks Emotional and psychological challenges
Swing trading offers the potential for higher returns compared to long-term investing Timing and execution risks

 

4. Scalping

Scalping is one of the fast trading strategies applied by active traders. Scalping includes exploiting many gaps in price caused by the spread of bid/ask and order flow.

This strategy commonly works by making spreads, or in other words, buying on the bid price and selling on ask price to get the spread between two price points. Scalpers try to hold their position in a short tempo, as well as reduce the risk related to that strategy.

Additionally, a scalper doesn't move with big volumes, but they try to take chances from small movements in a small volume. Because the benefit per transaction is small, scalpers prefer to trade in a more liquid market.

Unlike swing traders, scalpers like a stable market that's not easily influenced by sudden price movement. That is in order to get more spreads from the bid/ask price.

Scalpers are also required to focus on factors such as lot size, price fluctuations, leverage, and familiarize themselves with any broker terms that could potentially impose restrictions on their scalping activities.

Lastly, here are the pros and cons of scalping:

✔️Pros ❌Cons
Quick profits High transaction costs
It can reduce the risk of significant adverse price movements during longer holding periods Traders need to dedicate a significant amount of time and focus during trading hours, which may be demanding and limit other activities
Reduced overnight risk The fast-paced nature of scalping can lead to increased emotional pressure and potential psychological strain
Scalping allows traders to take advantage of small price fluctuations and market inefficiencies that may be unnoticed by longer-term traders Susceptibility to slippage and market noise
  Scalping targets small price movements, which may limit the profit potential per trade

 

Conclusion

Active traders can apply one or several styles above. Before deciding to use them, risks, and costs related to each strategy should be considered.

There are some reasons why active trading was done by professional traders. It reduces the cost demanded by securities companies in relation to the high-frequency transaction and it ensures better execution for each transaction.

Forex brokers with low commissions and better execution are two elements that increase the benefit potentially from trading.