2Day trading
Day trading is one of the more popular types of trading, whereby traders open and
close positions within a day. They also do not hold their positions overnight
because of the added risk of not knowing if prices would change dramatically while
they sleep. The holding period of their trades may range from minutes to hours
Day trading relies heavily on intraday momentum to bring the current price to the
desired price level in one direction. Day traders are looking out for signs that a
currency pair has a high probability of moving in a particular direction, going from
point X to point Y, within a day regardless of whether the price is moving in a trend
or range
Day traders tend to wait for good trading opportunities, instead of trading
frantically like scalpers tend to do. This style of trading involves intense
concentration from the trader as positions must be closely monitored on the price
charts
3Swing trading
Swing traders hold their positions for a few days, but seldom more than a week
Identifying and riding on trends early is the central objective of this trading style
and the profit objective tends to be set higher than that of day trading since the
swing trader is expecting that by holding out for a few days, there is a better chance
of capturing a larger price move. Unlike the day trader, the swing trader has to
endure overnight risk
As swing trading requires much less minute-to-minute monitoring of the market
.this type of trading is generally preferred by people who hold day jobs
My opinion is that swing traders must still keep up-to-date with the latest
fundamental and technical changes in the market, even when they are not
.monitoring the market all the time
4Position trading
Position trading spans the longest period of time, and refers to traders holding their
position for weeks or even months. Position traders seek to identify and trade
currency pairs that signal that a medium to long term trend is playing out – but will
take more than a few days to play out. Their positions are usually closed before the
trend runs out of power. This trading time frame is the least time-consuming one
among all the different ones, as there is not much need for intensive monitoring.
Many position traders place a trailing stop which automatically closes their position
if the price retraces past a particular point
Choosing a time-frame
As a general rule of thumb: the smaller the time frame you trade then the more time
is needed to be devoted to monitoring the markets
Someone who day trades tends to be more in touch with the price swings and
goings-on of the market as positions are opened and closed during the same day
Whereas at the end of the spectrum, a position trader does not have to monitor the
market so intensively
Risk-wise, I would say that the longer the time frame used in trading, the more risk
has to be assumed by the trader. This is simply because the market has more time
to move against them, and can move much further against them than it can in a
smaller time frame
Many of the strategies mentioned in this book are meant for short-term trading
However, you may decide on the length of your holding period to suit your personal
preference by adjusting the profit target and stop-loss accordingly. Of course, the
size of profit objective and stop-loss will be proportional to the length of your
holding period – the shorter your time frame, the smaller your profit target and
stop-loss should be; the longer the trading time frame, the wider your profit target
.and stop-loss can be