There are many different types of trading in Forex to choose from, and each one has different positives and negatives. Various trading types are suitable to different people according to goals, personality and individual style preferences. Here are descriptions of the five most popular types of trading.
Breakout Trading
Breakout trades begin with deciding on a key price for a specific trade. When the price breaks the level that you have predetermined, then you buy or sell at that time. Breakouts are used when the market is trending and momentum for further movement is expected. It is assumed that once the price has met the level that you identified, it will continue on that path, moving either higher or lower. Once you understand the concept, this is a simple type of trade. These are especially appropriate when the market is either sitting at an extremely high point or an especially low point. Just as the trend is about to change, put in an order so that when the price moves, your trade is entered automatically.
Position Trading
Position trading is based on a strategy of buying and holding. To determine a trend that a current market will take, position traders use long term charts that range from daily to monthly. Traders work towards being in the market at the time that prices begin to move. These types of trades can last from a few days to a few weeks or longer, depending on movement. If the expectation is that the market will move in one direction for an extended time period, traders start trading that asset immediately in small amounts. Traders try to keep their positons steady as the prices move, so they can build up to the best entry price.
Trading with Momentum
Momentum traders look for situations where prices are pretty much moving in the same direction as the current trend. The expected trend is what is important, rather than a specific entry point. When an asset’s long-term move in one direction can be determined, traders take advantage of that momentum. Some of the predictors that traders look for include geo political events lasting for months or years or changes within nations that cause interest rate fluctuations. These are long-term trades that follow politics and economies closely.
Reversals
During periods where there is not a lot of activity in the market, technically-based traders implement reversals. When the market is moving sideways without a clear direction, traders note key prices levels. When levels hit a bounce to that level, profits can be realized. This type of trading requires close attention to national events that can trigger unexpected moves.
Swing Trades
Swing traders typically enter the market when a trend breaks. They take advantage of the period of time when prices are in a state of fluctuation before a new trend is established. These short-term trades are successful in a market that is moving. According to a specific set of trading rules, traders create their own algorithms and use them to identify buy and sell points.