The Trading Strategies
Traders from all over the world gather into a gigantic trading arena, sucking in data from Electronic Booking Service (EBS), Chicago or Reuters and pour their molten liquidity into the icy markets in an attempt to garner precious pips, points or cents. In the icy mountains of the markets a battle is taking place in each millisecond, each session providing its own horrors to the virgin hogs’ massacre.
Traders battle with each other as devious traders team together to butcher the weak but well-fed innocent, devouring their liquidity as if it was a chunky chocolate bar, enjoying every moment. ‘The trend is your friend,’ a popular forex slogan that is passed down to traders is a famous war cry until that friendly trend betrays you when you need it the most , reversing in your face through the screen and punches right through your stop loss order, leaving you in mixed emotions as you begin doubting the trustworthiness of the naked trend line.
Unleashing your ‘big guns’ with the aid of the leverage do not scratch the market. The hope to regain your loss through the leverage only exists in your mind and unfortunately does not reflect reality as the market does not care about you, your family and your financial conditions.
The enormous liquidity attracts stop hunting operations, which we believe is taking place in the Foreign Exchange market although some would argue this is pure imagination kicking-in due to substantial losses as a result of misreading the market with a gentle dose of excessive leverage.
We believe the current investigations of institutional traders coordinating their trades in chat rooms will bear fruit and shed light on this much-needed dark region. As the battles takes place 24 hours a day, from Asia to Europe and the United States, traders conceived a plan, commonly referred to as a trading strategy to claim consistent successful battles in the market.
In this research we will discuss the famed trading strategies: scalping, day trading and swing trading. We will analyse each strategy, unearthing its flaws and advantages to determine which technique is suitable for your personality.
Scalping may first appear as a cowardice act, chipping the defensive walls of the market and running for your life to the safe-zone, satisfied with your flimsy loot. Scalping is when a trader decided to enter the market, long or short is irrelevant, reach a profit of between 3 – 10 pips and exit the market with the bounty.
Naturally, scalpers are afraid of large market spreads as this would mean remaining in the market too long for their liking until the spread is covered and a profit is finally generated. The nature of a scalper is to seek a hunting ground (financial broker) that offers the tightest spread he or she could fine, mostly in EURUSD. The tighter the spread, the easier it would be to achieve the goal of 3 – 10 pips profit.
Many forex scalpers were lured into unregulated grounds as fraudsters realized a tight spread will attract high-volume traders. Once the scalpers were lured in, the trap door is sealed as the traders sadly depart from their invested capital, which is busy moving inside the old pipes of the Society of Worldwide Interbank Financial Telecommunication (SWIFT).
Scalpers often do not use a protective stop loss order. When the market is 5 – 8 pips against their predicted direction aside the spread, the scalper immediately withdraws the open positions from the market, terrified of the unknown that is unfolding on the battle grounds. Some scalpers make usage of stop loss orders while some dismiss it, reassuring themselves the market will reverse in some point. After all, this is the market does, everything that goes up must go down and vice versa, right?
The advantages of a scalping is immunity to psychological battles that day and swing traders are inflected with. Realizing a relatively small amount of pips with decent size traders accumulated to a decent profit after several successful trades. Earning 30 pips a day mountains to over 500 pips by the end of the month.
The tight stop loss and low spread mean reduced market exposure unless a ‘heroic’ act is taken by over-leveraging the positions, which the scalper will regret for a long period of time. The downside of scalping the lack of ability to fully capitalize over the market in fear the tables will reverse on them at virtually any time. It takes time to modify your perception of targeting only several pips and then seeing the market continue to propel in your predicted direction. Even when a stop loss is used, slippage is the worst nightmare of a scalper.
One sudden move may create substantial damage, violating the risk management bible of a scalper. Another key disadvantage is the tight stop loss. It is very likely for the market to trade several pips against you before trading in your predicted direction. Scalpers do not enjoy the benefit of the doubt. Exiting the market when it is just several pips from your entry may mean that many trades that were stopped out or manually closed could have ended differently, possibly with a fair profit.
Scalping will often requires a decent investment as scalping with 1,000 units or 0.01 lot in the MetaTrader4 (MT4) turns to be unprofitable by the end of the month despite a high success rate. Bearing in mind excessive usage of the leverage lethal, a decent investment must be made to translate the intensive work into a decent
Return on Investment (ROI) by the end of the month. Some may view scalpers as scavengers, feeding off the remainders of big market players’ liquidity that has shifted the market price by several pips. Part of the battle in global markets is survival. Realizing only several pips is not a shameful act and may be rewarding by the end of the month.
Scalping is suited to traders that are impatient and perhaps are not completely convinced a decent profit must be made. After all, ‘the market is out to get me’ so there is no logic in remaining in the trade for a long time. If you have no patience, which is completely fine, shifting to other strategies will cause more harm than any good.
The Day Trader
Day trading differs to scalping by the targets, stop loss size and goals. Day traders do not wish to remain in the everlasting battles and predetermine to exit all trades by the end of trading day. During the battle, day trades will execute trades, targeting anywhere between 20 – 40 pips, often applying a protective stop loss order of 15 pips (depending on the financial instrument).
The aim is to profit a fair intraday chunk and realize it with a fair profit. As opposed to scalpers, day traders are not concerned by the spread and focus on any currency pair or cross of their choice. Realizing between twenty to forty pips per trade will significantly enhance the earned profit from the forex market. Unlike scalping, day traders do give the market the time on an intraday level to trade in their predicted direction, thus increasing the probability of achieving a higher success rate.
Although a larger stop loss is used when compared to scalping, the take profit compensates. Day traders will often work on a 15min chart (but not limited) to ensure the trade will not be rolled over to the next trading day. The invested capital may be smaller than the scalpers’ and still earn the same profit in real money if not more. One of the notable downsizes to day trading is again the inability to realize hundreds of pips. Some may argue that whatever you are able to grab from the market is decent and well-respected while some would say that is EURUSD sheds +200 pips in one day, why settle for just 20 pips?
When a trade is executed in the market, you must constantly monitor the open position in order to realize profits or perhaps shift the protective stop to the entry. Trailing stops are available, yes, but from our experience we find them more harming in the long-run. You may not agree with our views, which we totally accept.
The time consumption is heavy, unlike a scalper that enters a trade knowing an exit will be made in a short period of time. Day trades do not benefit from this privilege, which acts as a disadvantage for such trading techniques. Psychological battles are inevitable. The day trader will be faced with tough decision-making, when to shift the stop loss to the entry, when if at all realize partials and perhaps close the trade ahead of the take profit or alternatively increase the take profit price.
Scalpers are immune to these tough decisions while day traders aren’t. We view day traders as snipers, patiently waiting for their target in the dark and heading home when the sun rises. This takes us to the third trading strategy, swing trading.
Day trading strategies is suitable for forex traders that have faith in the market and a limited amount of patience for the market to trade in their favour. If you have the time, a certain amount of patience, day trading may be the most appropriate approach for you. By choice, you may combine scalping with trading if it does not weigh on your market analysis,
The Swing Trader
As opposed to the previous trading strategies, swing trades map the battle zone and are not in hurry to make a clean exit from the market. The aim is to target around 100 pips if not more (depending on the financial instrument) and are more than happy to roll the trade for several days but not weeks until the target is achieved.
Swing traders will often work with a 4hr and daily charts to outline their objectives from the market. The stop loss is approximately 40 pips (may vary, depending on the actual analysis and instrument), ensuring a decent Risk-Ratio (RR) is maintained. By the end of the month, swing traders may profit hundreds of pips as opposed to scalpers.
The key advantage is time. There is no need to constantly monitor the open trades in fear of being badly beaten by a 5min bear or bull. Although by the books the trade can be observed once in several hours, we do suggest monitor your trades’ progress on a frequent basis, not by minute of course.
Constantly monitoring your open trades is therefore not essential. As at least 100 pips are targeted, the need of excessive leverage is not needed unless the swing trader is motivated by greed. The downside is watching seeing your trade in 15 pips profit and then later that day in a loss of 20 pips.
Psychological battles are again inevitable. When your trades are stopped out consecutively, the loss may accumulate to over 150 pips, an event you are unlikely to face so quickly in scalping or day trading. We view swing traders as long-range mortars, firing their shots and patiently waiting for their target to be acquired.
Swing trading is appropriate for traders that have patience. You must possess the ability to see your trades in +30 pips profit, then +24 pips and then +15 pips and still remain in the market. Of course, believing in your trading strategy and abiding its rules is essential. It is difficult to filter all the intraday noise, especial key fundamental data that may affect your trades during the trading day.
If you have patience and are not concerned by the intraday noise, swing trading may be for you. We will refrain from combining day trading with swing trading due to psychological reasons. It may create a deep confusion in your mind which strategy has a greater success rate. Before you will even realise you will bouncing between losses that incurred in day trading and swing trading.
Our trade alerts consist of day and swing trading strategies. Scalping is irrelevant as traders will not have the time to react to our published alerts. Our goal is to provide decent market analysis and a significant ROI by the end of the month. We invite you to observe our trade alerts in global markets, based on technical and/or fundamental analysis. Forex is used as an example but the same strategies may be applied to trading Commodities, Stocks and Indices.
Last Updated on July 12, 2017