A Brief Guide To Short-Term Forex Trading Strategies

Short-term forex trading approaches offer us a number of attractive benefits. These include the opportunity to make money by placing short and long positions within a single trend; to exit a position in the evening and not worry about the portfolio while the market is closed; to trade with a fairly low starting capital. Nevertheless, when starting short-term trading, one must know its basic styles, which include pipsing, scalping, intraday, and swing trading. In this article, we will describe what these trading styles are, what are the similarities and differences between them, and what risks and profit potentials they offer.

Short-Term Trading Strategies

First of all, let's rank the presented styles by the duration of position holding: pipsing is the shortest trading style, followed by scalping, intraday trading is known as a bit longer position holding, and swing trading is something like a transitional type between short-term and position trading.

Pipsing

Pipsing is the shortest method of trading and is a technique of placing orders with the purpose of taking a few minimum price steps .in case the quote is moving in the direction of the trader's position, or the immediate closure of the position if the price is moving against the trader or standing still. Pipsipsing is suitable for assets with high liquidity and intraday volatility. Assets should allow for high leverage and also feature minimal commissions. The best-suited assets are those in which one step of the price in the direction of the trader covers the commission costs and brings profit. The name "pipsing" is derived from the early days of Internet trading when on the first computers every price movement of an asset was accompanied by a characteristic system sound.

Pipsing implies opening the maximum number of positions. On a trading day, one can place more than fifty trades, holding a position from a few seconds to a minute or several minutes (more seldom). As a rule, such traders work with a single asset and stay at their workstations during the whole trading day. In pipsing, there is not much difference in the direction of the trade because the work is carried out on price fluctuations. Yet, this approach is the most energy and time-consuming since it requires extreme concentration.

Traditionally pipsing traders use a minute or even tick charts of traded assets, as well as the depth of the market.

Scalping

Scalping is a short-term trading style that involves placing an average of ten to thirty trades a day with the goal of "wedging" into the price momentum and gathering a range of movement before a price correction. If the price does not move toward expectations, traders must exit the market at zero or with minimal risk. The average time a scalper stays in the position is from several seconds to several tens of minutes. The term "scalping" implies as it were, the removal of a price scalp. The requirements for assets in scalping are almost the same as the pipsing, traditionally they are major currency pairs with minimum spread and maximum volatility.

Scalping, unlike pipsing, assumes a very deep analysis of both logical market aspects (news, statistics, general market expectations), and technical picture (market trends, position of correlating assets, depth of the market). Accordingly, scalping introduces the analysis of correlating assets as well as market trends. Though classic scalping is traded with the help of the depth of the market, like any other type of trading, scalping is evolving, becoming a more and more intellectual type of trading.

Intraday

Intraday trading implies opening and closing positions within one day (on average five to ten trades per working day) based on technical analysis of traded and correlated assets. In intraday trading, the Quotes window is practically not analyzed, but attention is paid to trends in higher time frames (ten-minute and half-hour periods).

The purpose of positions in intraday trading is to earn on the end of a trend reversal and also on the change of the trend when the formation is confirmed. This style of trading lets you work with less liquid assets, as the range of taking profit when trading intraday is larger and it will not greatly affect the result of the position. Nonetheless, intraday traders work with liquid futures due to the high leverage available and low commissions.

The histogram of volumes, open interest (for futures instruments), trends, technical analysis patterns, and technical indicators (if the chosen intraday trading strategy involves their use) are analyzed during intraday trading. At the end of the day, all intraday positions are closed.

Swing Trading

Swing trading owes its appearance to G. Taylor and his book "The Taylor Trading Technique" written in the 1950s. Swing trading, as well as intraday, is based on technical analysis of traded and correlated assets, and these days it is also compared to the news and statistical background. The main distinction between swing trading and intraday trading is that the first one allows carrying positions overnight. That is, in swing trading, the trader tries to take the potential of a technical movement, allowing its development, not in one trading day.

Overnight transfer of position is a very risky venture, even with the Stop Loss orders because the opening candle is very sharp, and therefore there is a risk of slippage in the risk zone, as well as in the profit zone. That is why positions can be rolled overnight when there are serious preconditions for further movement, as well as when the position is already deeply in the profit zone. Thus, swing trading is a kind of transitional style of trading between intraday methods and position trading.

However, for intraday trading, you will need a working trading strategy and discipline, which can be raised only with experience, so intraday trading is the pinnacle of trading skills.

Final Thoughts: Can Short-Term Forex Trading Be Successful?

As a rule, only traders who have mastered the methods of technical analysis with extensive trading experience can work successfully with short-term forex strategies. Personal qualities of a trader, with an iron will, nerves of steel, and, of course, the ability to observe strict discipline are often put at the forefront of such trading.

Naturally, not everyone can possess such qualities. Maybe this is the reason why only a few traders are successfully using this trading method. But be that as it may, short-term trading has its advantages, which cannot be ignored, and so many traders prefer to work within the trading day.

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