A long trade and a short trade are the two most basic types of forex transactions. In a long transaction, the trader is wagering that the value of the currency will rise in the future, allowing them to profit. A short trade is a wager that the price of a currency pair will fall in the future. Traders can fine-tune their approach to trading by employing technical analysis trading tactics such as breakout and moving average.
Trading strategies can be divided into four categories based on the time and quantity of trades:
- A scalp trade consists of positions held for no more than a few seconds or minutes, with profit amounts limited to a certain number of pips. These deals are designed to be cumulative, which means that tiny profits made in each trade add up to a tidy sum at the end of the day or term. They rely on price swing prediction and are unable to tolerate high volatility. As a result, traders tend to limit these trades to the most liquid pairings and the busiest trading hours of the day.
- Day trades are short-term positions that are held and liquidated on the same day. A day trade can last several hours or minutes. To enhance their financial gains, day traders need technical analysis abilities and awareness of crucial technical indicators. Day trades, like scalp trades, rely on small gains throughout the day to make money.
- A swing trade occurs when a trader holds a position for more than a day; for example, the trader may hold the position for days or weeks. Swing trades can be beneficial during important government announcements or periods of economic turmoil. Swing trades do not necessitate regular market monitoring throughout the day because they have a larger time frame. Swing traders should be able to assess economic and political changes, as well as their impact on currency movement, in addition to technical analysis.
- A position trade occurs when a trader holds a currency for an extended period of time, such as months or even years. Because it gives a rational basis for the transaction, this form of trading necessitates greater fundamental analysis skills.