Fitting Your Currency Trade Strategy: Scalping, Day or Swing?

Different traders utilize their model that could be well-known or a new currency trade strategy. Usually, it goes with their preferences alongside other factors. For the most part, it depends on the time available for trade.

However, those that get hooked on trading may leave their full-time job. If one can find a successful currency trade strategy, it could be worth a shot.

For this reason, the traders should find the model of the trading that will fit their future life calling. As there are different types of trading, each has its pros and cons.

By reviewing them in the following article, you may find one that will suit you the most.

What is Scalp Trade?

Scalp trading - clicking for your currency trade strategy

In its essence, scalping is a trading method where trader gains profit from minimal changes within the market. To be a scalp trader, you should be able to track minor changes and signs. These changes can prove quite profitable in the long run. However, this type of trading needs a sentry state of mind and diligent work.

At the same time, it needs a smart approach. Scalp traders are setting very tight stop losses to mitigate risks. It is because the scalp trading has the potential to wipe out all the profits in one single blow.

To avoid losing a few days’ profits, you should always be present and ready to react. Scalpers will generally trade on the smaller timeframes, such as the 1/2/5/10 minute charts. The reason behind lies in the intention to best capitalize on the moves.

Benefits of Scalping

  • A high strike rate

Seemingly, it is easier to predict small price moves within the market. For example, it is not as difficult to predict a price move of 5 pips in your favor. But, anticipating a price move of 100 pips? As the price is continuously moving, the likelihood that it will run 5 pips is a lot higher.

  • Can maintain long winning streaks

Because of the above mentioned, it is easier to maintain a long winning streak in the market. At the same time, successful predictions help you gain confidence when trading the markets.

  • Little risk of being affected by news or overnight spreads

Since you are holding positions for such a short period, the big news won’t affect you. Furthermore, you won’t be holding trades overnight. For this reason, you will not face the consequences when there is little volatility in the market.

  • Easier to adapt to changing market conditions

Again, since market moves that affect you are small, you can adapt the strategy. Looking for the small gain in pips is much more comfortable. You can enter some consolidating or a trending market.

Cons of Scalping

  • Accuracy needs to be high

Scalping demands high accuracy to produce profits. In other cases, you may be losing money in the small chunks. 

  • Spread and commission can eat into profits 

A point overlooked is that provisions may skew your trade results. If you pay a commission per trade, then due to the sheer volume of trades, you will lose profits. If you are based in the UK using a spread bet account, you can get opt-out very fast. It is because the larger spreads can easily alter the results of your strategy. 

  • Can be exhausting

Scalping can be extremely exhausting (take it from me, I tried it). Your focus should be at its peak while in the market. It is because you should watch for your strategies. Any mistakes can be costly, causing havoc to your profit ratio.

  • Can be easily stopped out

Because of the very tight stops, you will need to keep an excellent risk-reward ratio (normally 1:1 with scalping). It is because the likelihood of getting stopped is very high.

Scalping Bottom Line

To conclude, scalping is best for someone who has a high focus level. For this, you will need a unique mindset. When considering scalping, think whether you can get in the zone for a few hours and stay focused. 

You should be able to control your emotions when the markets don’t go to your favor. As trading is a psychological game, it can be mentally exhausting. You must be keeping your feelings from affecting decision making. 

Since it is mind-blowing to do it for 8 hours, I suggest 3 hours twice a day. The second piece of advice is scalping during the London and New York sessions.

What is Considered Day Trade?

Day trading - Less stress for your currency trade strategy

On the other hand, day trading is less intense. Essentially, it is opening positions in the market and only holding them within that day. It is crucial to know that you can keep these positions for a few hours, or minutes but close it before the end of the trading day.

An example of day trading would be if I opened a EURUSD long position at the start of the London trading session. By noon London time I have gained 30 pips and closed out the position. 

In most cases, the trader is looking for medium size moves within the trading session. They will normally trade on the medium timeframes, such as 15 minute/30 minute/hourly charts. Only sometimes traders will utilize the 4-hour chart. 

Benefits of Day Trading

  • There is a potential for substantial gains

If you are trading intraday, the potential for profits is immense as you can capitalize on big moves in the market.

  • Trades are not affected by overnight movements

As mentioned with scalping, you are not holding trades overnight. Therefore, you are not vulnerable to price fluctuations that could stop you out.

  • Less risk then scalping

Day trading has even less risk occurrence then scalping. As you are looking at slightly bigger moves, this can also allow a huge stop loss. In this case, it means less risk of being stopped out so quickly.

  • It can be exciting

Profiting from significant moves in the intraday market can be rather thrilling. Not to get hooked on the adrenaline, you will require a lot of discipline.

Cons of Day Trading

  • There is a potential for significant losses

The potential for large profits also has a downside, and stops will also need to be bigger. On the other hand, this means there is a potential for higher losses.

  • It can be stressful

Day trading can be a tedious job. Sometimes, if you are on a bad run, it could ruin a day to come, literally.

  • Time-consuming

The clue is in the name, as it can take a couple of hours to find the perfect trade. Afterward, you will need to manage them through the day before closing out carefully. 

Day Trading Bottom Line

If scalping requires high focus, day trading involves attention to detail. For this reason, day trading is certainly not for everyone. You will need a lot of time and the ability to control your emotions.

Is Swing Trading Suitable for Currency Trade Strategy?

Swing trading is making the most profits

Unlike any other, swing trading is where you keep the position for several days. Swing traders will generally use the 4 hours, daily, and weekly candles to examine their entries in the market. Afterward, they will hold those positions for long periods. 

The way of profiting usually is from swings in the market. 

Benefits of Swing Trading

  • Does not take too much time

Trades happen one or two times a week. Since you hold them long periods, you don’t need to do a constant watch on the market. Instead, looking at it every day or two is enough to manage the trade.

  • You can do it part-time

Because of the abovementioned, it means it is suitable for people with full-time jobs. If they would like to trade, they can use the swing for their specific currency trade strategy.

  • Stress is low

Unlike others, the pressure is quite small. It is because the trader is not vulnerable to intraday moves in the market. For this reason, there is no need for a constant watch. Seemingly, this helps a lot to reduce stress.

  • Larger profits

Since it is a bigger timeframe, the potential for profits is significant. In some cases, as early investors in Bitcoin, people can get very rich.

Cons of Swing Trading

  • Significant losses

As we know, the potential for large profits also means a potential for huge losses.

  • Can be caught by large swings 

As you are not watching the market, it can turn against you. In this case, you won’t be able to manage the risks. 

Swing Trading Bottom Line

To conclude, the swing trader will be someone with less time who still wants to get in on the markets. On the other hand, it might be someone that doesn’t need the stress of day trading.

Choosing the Proper Type for Your Currency Trade Strategy

When considering some of the main types of trading, pick one that suits your current lifestyle.

Since the risk of any currency trade strategy is already high, you won’t want to do something you don’t like.

Remember, for most times it is not about the goal, but about the journey.

Have a nice trip and happy trading!

Leave a Reply