Many Forex traders misunderstand what true scalping means. Forex scalping is a method of trading where traders allow their positions to run for a matter of seconds, to as long as 10 minutes and rarely longer than that. Most scalping trades result in a net gain of 5-15 pips. Scalping is considered a high risk form of trading due to the risk/reward ratio. The scalping risk/reward ratio is usually inverted. Meaning, your stop will typically be larger than your target. This extra exposure to risk requires a higher win ratio to generate profits. A typical scalping trader needs to have a win ratio of 75% or greater to generate profits.
Forex day trading is a short term trading style that utilizes strong risk management. A typical day trade will last 30 minutes to as long as 2 hours, but rarely longer. All day trades open and close in the same trading session. Most day trades result in a net gain of 20-50 pips (based on the ATR of each currency pair). Forex day trading is much safer than scalping because it uses proper risk/reward ratios. Meaning, your target will always be larger than your stop. A typical day trader needs to have a win ratio of 45% or greater to generate profits.
Forex swing trading is a medium term trading style that utilizes strong risk management. An typical swing trade will last 4 to 12 hours, but sometimes a bit longer if markets are quiet. Swing trading is the most common form of forex trading. The swing trading style allows the trader to capture the most amount of volatility with the lest amount of risk exposure. Most swing trades result in a net gain of 50-120 pips (based on the ATR of each currency pair). Forex swing trading is the best combination of market exposure vs risk management. Swing trading provides the same risk/reward ratio as position trading, but your market exposure (the amount of time that your trade is live) is much shorter. A typical swing trader needs to have a win ratio of 40% or greater to generate profits.
Forex position trading is a long term trading style that utilizes low leverage and strong risk management. A typical position trade will last 5 to 60 days depending on your trading goal. Position trading is designed for long term hedging or carry trading. Position trading is not popular among retail traders and is usually used by large hedge funds or central banks. However, some of the wealthiest forex traders use position trading to generate their profits. Forex position trading is consider an advanced form of trading. Market timing is critical. If you enter a trade too soon, your market exposure will create unwanted draw-downs before profits are realized. If you enter a trade too late, you will miss a large portion of the move and lose valuable profit. Position trades can result in 100′s and 1000′s of pips per trade. A typical position trader is only right about 50% of the time, but this is more than enough to generate huge profits.