TRADING SKILLS
let us talk about the different trading styles we can use to trade these currency markets. Forex lends itself well to all three styles of trading available: Intraday, Swing and Position Trading. Here at DC platform trading online, we also like to refer to Position Trading as Pro-Active Investing. Let’s take a look into each of the three styles, along with the pros and cons associated with each.
Trading Style 1 – Position Trading (aka Pro-Active Investing)
Many people would say this style of trading is similar to the traditional form of longer-term investing. The name position is taken from the act of taking a position in the market. Some also know this style as Buy and Hold, meaning that once the position is opened in the market, it is then held for a long period of time, through both the ups and the downs, giving the position time to work out for a profit in the long run. In many ways this is a flawed strategy, as there is no real exit strategy or way to effectively manage the risk. Instead, here at OTA, we teach people to still hold for a while but also employ the use of a stop-loss and profit target, just as you would on any other trade. This, in essence, is the pro-active method of using this trading style.
Trades of this nature would more likely be found on Monthly, Weekly and Daily charts. The example below using our patented Core-Strategy is an example of a position trade:
The downside to this type of trade is mainly in the fact that position trades do not present themselves very often and much time is spent waiting for them to trigger. Capital is also tied up for a considerable length of time, yet due to the leveraged nature of FX, this is a reasonable amount. The final issue I would say, is that these trades do require a larger risk in pips, but the reward is that much higher in comparison. For a truly hands-off style of trading with little activity and potentially huge pay-outs from time to time, position trading offers plenty of advantages to the very patient trader. This is the ideal means to manage your long-term wealth.
Trading Style 2 – Swing Trading
I would classify Swing trading as more of a trading style used for short-term income, yet with a nice hands-off and low maintenance approach. Ideal for those still in full-time employment or maybe just short on time, swing is also a Set and Forget approach to the currency markets. Depending on the number of pairs traded and the charts used, we could expect maybe 3 to 6 decent set-ups a week. Charts from 4 hour and higher work well with this trading style and there is the huge benefit that the analysis and planning can be done at the time that suits the trader.
Personally, I like to put aside 15-20 minutes a day to do my analysis and set up my orders each day, giving me plenty of time to do other things with my time. Again, this style offers low maintenance for traders and has the added bonus of controlling emotions due to its set and forget dynamic. The less time the trader spends looking at the screen, the more the trade is left to follow its plan. Here is an example of a swing set-up:
What are the drawbacks then? Well, none that really stand out to hinder progress. This style keeps us close enough to the daily action of the FX markets but also far enough away so that we don’t interfere with the trades either. Yes, you will have to be patient and some weeks will be light on trading, but as your account grows, so will your profits too. I think this is the very best trading style for newer and also more experienced traders alike and is still a huge part of my trade plan.
Trading Style 3 – Intraday Trading
By far this is seen as the most exciting and adrenaline fuelled way to trade, but that does not necessarily equate it to being a good thing. I won’t deny that a proficient Intraday trader can make exceptional profits, mainly due to the sheer amount of opportunity which is presented on a daily basis, especially with wild moves like we have seen of late. However, this can also come at a price and for those lacking in patience, discipline and a plan. Day trading can put you out of the market with losses sooner than most would realize. You have to account for the spread on each entry and on the faster timeframes you are likely to see more noise and false signals, especially considering the huge part that algorithms play in the modern trading scene. It is not all doom and gloom though, because if you can give it time, then there is no reason why you cannot make it as an intraday speculator. Let’s take a look at an example:
Do you notice how many more trades there were on this chart? Sure you will not win them, all but when it comes together you can see how lucrative it could be, even with some losses in the mix. Patience and discipline, as I said before, are the name of the game here. On the other hand, if you attempt to trade the more volatile pairs like GBPNZD in this style, you are inviting yourself to be chopped to pieces. When you are finding levels on 5 min charts as well, it can be very easy to over trade if you are not careful. Be warned, my friends. Yes, it would be nice to consistently average about 30 pips a day, but it may be easier to go for a bigger move and capture more on a swing trade. The choice is really up to you.
As I have shown you here, the neat thing about all three trading styles is that our Supply and Demand levels that are created by institutional order flow can be seen across many timeframes, thus the strategy works for any style. The key is deciding which is right for you and, of course, your lifestyle. Think about your personality and emotions too, as they are a huge part of the success story in the end.
I would always encourage anyone to start with swing trading to learn to detach from the trades. Only after becoming consistent in that style, then to move on to the others. I hope this was of help to you.
Trading Style 1 – Position Trading (aka Pro-Active Investing)
Many people would say this style of trading is similar to the traditional form of longer-term investing. The name position is taken from the act of taking a position in the market. Some also know this style as Buy and Hold, meaning that once the position is opened in the market, it is then held for a long period of time, through both the ups and the downs, giving the position time to work out for a profit in the long run. In many ways this is a flawed strategy, as there is no real exit strategy or way to effectively manage the risk. Instead, here at OTA, we teach people to still hold for a while but also employ the use of a stop-loss and profit target, just as you would on any other trade. This, in essence, is the pro-active method of using this trading style.
Trades of this nature would more likely be found on Monthly, Weekly and Daily charts. The example below using our patented Core-Strategy is an example of a position trade:
The downside to this type of trade is mainly in the fact that position trades do not present themselves very often and much time is spent waiting for them to trigger. Capital is also tied up for a considerable length of time, yet due to the leveraged nature of FX, this is a reasonable amount. The final issue I would say, is that these trades do require a larger risk in pips, but the reward is that much higher in comparison. For a truly hands-off style of trading with little activity and potentially huge pay-outs from time to time, position trading offers plenty of advantages to the very patient trader. This is the ideal means to manage your long-term wealth.
Trading Style 2 – Swing Trading
I would classify Swing trading as more of a trading style used for short-term income, yet with a nice hands-off and low maintenance approach. Ideal for those still in full-time employment or maybe just short on time, swing is also a Set and Forget approach to the currency markets. Depending on the number of pairs traded and the charts used, we could expect maybe 3 to 6 decent set-ups a week. Charts from 4 hour and higher work well with this trading style and there is the huge benefit that the analysis and planning can be done at the time that suits the trader.
Personally, I like to put aside 15-20 minutes a day to do my analysis and set up my orders each day, giving me plenty of time to do other things with my time. Again, this style offers low maintenance for traders and has the added bonus of controlling emotions due to its set and forget dynamic. The less time the trader spends looking at the screen, the more the trade is left to follow its plan. Here is an example of a swing set-up:
What are the drawbacks then? Well, none that really stand out to hinder progress. This style keeps us close enough to the daily action of the FX markets but also far enough away so that we don’t interfere with the trades either. Yes, you will have to be patient and some weeks will be light on trading, but as your account grows, so will your profits too. I think this is the very best trading style for newer and also more experienced traders alike and is still a huge part of my trade plan.
Trading Style 3 – Intraday Trading
By far this is seen as the most exciting and adrenaline fuelled way to trade, but that does not necessarily equate it to being a good thing. I won’t deny that a proficient Intraday trader can make exceptional profits, mainly due to the sheer amount of opportunity which is presented on a daily basis, especially with wild moves like we have seen of late. However, this can also come at a price and for those lacking in patience, discipline and a plan. Day trading can put you out of the market with losses sooner than most would realize. You have to account for the spread on each entry and on the faster timeframes you are likely to see more noise and false signals, especially considering the huge part that algorithms play in the modern trading scene. It is not all doom and gloom though, because if you can give it time, then there is no reason why you cannot make it as an intraday speculator. Let’s take a look at an example:
Do you notice how many more trades there were on this chart? Sure you will not win them, all but when it comes together you can see how lucrative it could be, even with some losses in the mix. Patience and discipline, as I said before, are the name of the game here. On the other hand, if you attempt to trade the more volatile pairs like GBPNZD in this style, you are inviting yourself to be chopped to pieces. When you are finding levels on 5 min charts as well, it can be very easy to over trade if you are not careful. Be warned, my friends. Yes, it would be nice to consistently average about 30 pips a day, but it may be easier to go for a bigger move and capture more on a swing trade. The choice is really up to you.
As I have shown you here, the neat thing about all three trading styles is that our Supply and Demand levels that are created by institutional order flow can be seen across many timeframes, thus the strategy works for any style. The key is deciding which is right for you and, of course, your lifestyle. Think about your personality and emotions too, as they are a huge part of the success story in the end.
I would always encourage anyone to start with swing trading to learn to detach from the trades. Only after becoming consistent in that style, then to move on to the others. I hope this was of help to you.
Trading is a journey and takes lots of time and effort. Sure, you need a starting point and that usually involves getting some framework for understanding how trades are identified and executed. The challenge is being able to do/learn that in real-time each day, each week etc etc.
While I have been in the business for 20+ years, I still learn a great deal from some of the research I take in each day. My Bloomberg Terminal is a great example. Yes, there is a lot of information on it, but in time you can find the key pieces of information and insights that really help you build your basis for taking trades. I also strongly suggest that you not get too myopic in terms of your analysis. Technical analysis is a robust approach, but I prefer combining my technical insights with data from Bloomberg (lots of options data) as well as quantitative research from the team at Nautilus Capital.
You asked me directly and will give you my answer. When looking to outside sources, make sure they can string together the bullet points below. If not, don't waste your time.
So, in some sense, there is trading education, but only the form of a virtual apprenticeship. Aspiring carpenters don’t learn how to be a master carpenter at a weekend course. However, they can learn it from hanging out in the workshop with a professional for years. Trading is no different.
Hope that helps.
Dave
While I have been in the business for 20+ years, I still learn a great deal from some of the research I take in each day. My Bloomberg Terminal is a great example. Yes, there is a lot of information on it, but in time you can find the key pieces of information and insights that really help you build your basis for taking trades. I also strongly suggest that you not get too myopic in terms of your analysis. Technical analysis is a robust approach, but I prefer combining my technical insights with data from Bloomberg (lots of options data) as well as quantitative research from the team at Nautilus Capital.
You asked me directly and will give you my answer. When looking to outside sources, make sure they can string together the bullet points below. If not, don't waste your time.
- How are they interpreting the market
- What key price levels or asset class movements will trigger a possible set-up
- A daily review of what was stated in the previous days and how it builds on where we are now.
- Contrary to popular belief, there is no ‘Trade of The Day’. For the true trading professional there is an ongoing narrative within the major asset classes and a handful of FX pairs/crosses.
- Price forecasts with clear levels where trades are proven invalid or at levels where booking profits makes sense.
So, in some sense, there is trading education, but only the form of a virtual apprenticeship. Aspiring carpenters don’t learn how to be a master carpenter at a weekend course. However, they can learn it from hanging out in the workshop with a professional for years. Trading is no different.
Hope that helps.
Dave
Any reviews, news, research, analysis, prices or other information contained in this article is provided as general market commentary, does not constitute investment advice and may undergo changes from time to time. Trading the Financial and Currency Markets on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as to your favor. Before entering trading Financial and Currency Markets, you should carefully consider your investment objectives, level of experience and risk appetite. There is a possibility that you could sustain a loss of some or more of your initial investment and therefore you should not invest money which you cannot afford to lose. You should be aware of all the risks associated with Financial and Currency Markets trading, and in case you have any doubt, rather seek advice from an independent financial advisor. Scandinavian Capital Markets AB, its owners, employees, agents or affiliates do not give investment advice, therefore Scandinavian Capital Markets AB assumes no liability for any loss or damage, including without limitation to, any loss of profit, which may be suffered directly or indirectly from use of or reliance on such information. Scandinavian Capital Markets AB strongly encourages consultation with a licensed representative or financial advisor regarding any particular investment or use of any investment strategy.
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