Short-term trading is one of the most popular forex trading approaches adopted by retail traders. Being the ideal place for short-term trading opportunity is one of the factors that make the forex market very popular. A short-term currency trader typically aims for small to moderate gains but initiates a large number of trades over a specified period. Successful short term forex traders have back-tested their trading strategies, either manually or thru computerized back-testing software. The goal of many short-term day traders is to produce a steady monthly income based on the implementation of their strategy in the market.
Day trading or scalping the forex market can be a very exciting career once you become profitable. The allure of fast quick money is something that draws the newest comers to the market, and thus to some form of a forex scalping strategy. Now that allure of quick money is not just a dream but in fact, once you are proficient at scalping, becomes a reality. Another advantage to trading short term is the lack of exposure you have to the market. Often positions are only open while you are in front of the screen and closed when you leave or turn the computer off. Having zero risks when you walk away from the computer is something many traders value.
Day traders will generally identify current market trends and prevailing sentiment and trade in the same direction until a support or resistance level is reached. Once their profit target has been reached, or their stop loss order triggered, their position will be closed. Day trading can be a very intensive approach to trading the markets and requires a very strong risk management strategy, plenty of time so that you can react to fast moving market events and a solid understanding of your chosen market. If you decide on a Day Trading approach, make sure that you use our smart risk management tools like Stop Losses to protect yourself against volatility should the market move against you.
Short-term traders often miss out on rollover, or interest premiums, on a daily basis—depending on when they enter and exit their positions. Longer-term traders can create trades and groups of positions that benefit from interest payments in the long term. Long-term trading can be less time consuming since you don’t have to watch the live market. Many new traders are working a full-time job, raising a family and having a life while they learn this market. Checking in on your trades and making adjustments every once in a while, rather than constantly watching the live market throughout the duration of the trade, requires a lot less time and can be easily scheduled around your daily routine.
Forex traders should use a range of different strategies and apply different triggers when analyzing currency movement. But an understanding of both long and short-term trading strategies will ultimately be required to make the right calls if any position is going to be sustainable. Understanding the type of trader, you are and the risks you are willing to take will help form your trading strategies and help you to understand the right calls and positions. Common pitfalls such as overtrading and the improper use of leverage can lead to substantial capital loss. Although the development of a comprehensive trading plan can help mitigate these issues, short-term trading remains a formidable challenge not suitable for everyone.
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