Forex or Forex Exchange is a market where currencies can be exchanged with each other. Forex trading is primarily the process of buying and selling currencies and is one of the most heavily traded markets. Forex trading involves trading in currency pairs. There are three types of currency pairs: minor, major, and exotic pairs. Major currency pairs are the most frequently traded currencies, while minor pairs do not involve the US dollar. Exotic pairs are those in which one currency is a major and the other is the currency of a developing economy.
There are many types of forex trading and traders based on the trading type. Here are various forms of foreign exchange trading:
Position trading
These types of forex trading are long-term and can take and hold positions for months. Position trading relies on fundamental analysis of the trade. Position traders base their decisions on forex chart analysis and forex market analysis. They use a combination of fundamental and technical analysis. Position trading involves the use of strategies such as support and resistance trading and trend forex trading. For the latter, technical tools such as moving averages are used. Support and resistance forex trading involve identifying support and resistance zones on forex analysis charts. These are areas where the price trend is likely to reverse or stop.
Breakout trading strategies are also a part of position trading and can help position forex traders to understand if there are any new trend signals. Breakouts occur when the price moves beyond or outside a level of support/resistance. Another aspect of position trading is pullback trading which is a small reversal or decline in the current trend. So the pullback forex trader will take advantage of a pause or decline in the current trend.
Swing Trading
While position trading is a long-term style, swing trading is a short- to medium-term style used by middle-class forex traders. This style involves observing price swings and holding your trades for several weeks at a time. Then, these types of traders identify a trend that has the potential to form and hold a trade. This is an ideal style if you don’t have the time to take in forex chart analysis throughout the day, but still have a few hours each day to focus on it.
When it comes to swing trading, there are some widely used strategies including reversals, retracements, breakouts, and breakout trading. Reversal trading is based on price momentum changes. Retracement trading is all about detecting a temporary reverse in price, which correlates to a larger trade. Breakout trading involves taking a position at the beginning of an uptrend and then waiting for the price to break out. You make your entry into a position when the price has broken through a key resistance level.
Breakdown trading is the opposite; the position is taken at the beginning of an uptrend and you, as a forex trader, wait for the price to break through, and enter the position once the price breaks through the support level.
Day Trading
A forex day trader opens and closes trades during the day. This forex trading style taps into price movements that occur within a single day or a single trading session. This type of trading is ideal if you have enough time to conduct a forex market analysis at the opening of the day and then monitor it throughout the day.
Forex day trading involves trend trading and counter-trend trading throughout the trading day. With trend trading, you start with a chart that covers a longer timeframe and identifies a trend. After that, you move to a chart covering a shorter timeframe. You look to trade in the direction of the trend as this helps you time your entry. Counter-trend day trading involves looking for a larger trend that covers longer time frames and then looking for the opposite to trade. Here, it involves identifying the end of a trend and its reversal.
Scalping
Scalping or scalp trading is also a popular type of forex trading where you scalp or hold on to trades for only a few minutes. This can happen multiple times during the day, but you can make small trades each time. As a scalper, you can make dozens of trades a day. This type of trading is fast and full of action. All positions are closed as the trading day ends. Scalping is ideal for people who can spend a lot of time on their trading as it requires you to stay focused on forex chart analysis. It requires you to think with your head.
What type of forex trader are you?
Each type of forex trading suits a personality type and it helps to understand if you are the right fit for that type of trading. You can become a scalper, a day trader, a swing trader, or a position trader. A scalper needs to be cautious and catch small amounts of percentage in points (pips) several times a day, while a day-trader can choose a side at the beginning of the day and end the day with either a profit or a loss, and no trades are held overnight. Swing traders may hold their trades for days or weeks. They focus on the charts or do forex market analysis for a few hours a day to make their trading decisions. Position traders base their decisions on a certain amount of fundamental and technical analysis and hold their trades for months or years.
Conclusion
Forex trading requires you to be disciplined and know the elements of forex analysis charts and technical tools in addition to fundamental analysis. It also helps to chart out your trading plan and stay focused on it. It is easy to start a trading and demat account online and gain access to real-time market data and comprehensive reports to help you gain a deeper understanding of the forex markets.
