The Best Way To Trade Forex – Timeframes, Technical or Fundamental, Discretionary or Systematic Trading?

With the introduction of electronic trading making access to global markets available at the click of a button, there have never been so many different types of trading conducted in the financial markets. So how can you choose the right trading style for you? Read on to hear about some different styles of trading and see what is best suited to you. 

Technical Trading 

Technical trading is the analysis of the historical movements of price, believing that the future price of a forex pair can be predicted through patterns on the chart and the movements of price. Popular tools of technical analysts include indicators, trendlines, and support and resistance levels. Pure Technical trades can trade on any time frame they wish, but typically prefer shorter trade times, as the risk of new information changing the market direction is less risk to their trade. 

Fundamental Trading

Fundamental trading is the analysis of factors that may have an impact on price. In Forex there are a large number of factors that can influence an exchange rate, including economic data, politics, or changes in international trade. Fundamental traders typically believe they have information that has not been factored into the asset’s price, or that a positive or negative influence on a currency will grow in importance, changing the forex rate in their favour. Fundamental traders may trade on a variety of time frames, from very short trades around the release of economic data to long trades based on a deteriorating or improving economic situation.

SCALPING

Scalping is a very intensive type of trading that involves entering and exiting a trade in a very short period of time. Scalpers typically set a short window of time to trade in, such as the NASDAQ open. High leverage is typically used for scalping, as large positions are needed to profit from the small movements in a short timeframe. Scalping typically requires a high level of concentration, fast mathematical capabilities, and rigid discipline.

INTRADAY TRADING

Intraday traders typically look to hold trades anywhere between a few minutes to a couple of hours, and have all positions closed by the close of the US trading session. Typically Intraday traders also need high levels of leverage to make worthwhile profit from small to medium size moves in the market.Intraday trading typically requires a high level of skills, mild levels of patience and pattern recognition capabilities.

Swing / Position Trading

Swing traders or position traders typically hold positions for a longer duration, from a day to couple of months. It is referred to as ‘swing trading’ as typically it involves holding positions that swing up and down as they progress in the desired direction. It is also referred to as position trading, as typically a swing trader will look to build multiple positions in the market, maximizing profits from the anticipated market move. Swing trading typically requires rigid discipline, high levels of patience and a calm demeanor.

Discretionary Trading

Discretionary trading is a type of trading based on intuition and building a number of reasons to take a trade. The reasons to take a trade may include a variety of technical and fundamental reasons. This style of trading typically considers multiple chart time frames, and is adjustable to scalping, intraday trading or swing trading. 

Systems Trading

Systems trading is a rule based style of trading, where traders can clearly define the criteria required to enter a trade. Systems trading is typically based upon technical criteria, however this is not always the case. Some non-technical trading systems may include a sentiment contrarian trading system that only trades opposite of sentiment when the sentiment passes 90% in one direction. The advantage of trading systems is that typically they can easily be automated. 

So What Is The Best Way To Trade Forex?

There is no ‘best way’ to trade forex, however there may be a best way for you to trade forex! Finding a trading style that works for you can take some time, however once you have found your own unique trading style and strategy you can work on improving it.

The first decision I recommend making is deciding whether you will trade with a forex trading system or a discretionary trading style. This is an important decision, as it will govern every other decision of your trading style. Discretionary traders have the ability to take a variety of trade styles, whereas systematic traders must clearly define what values each trade must have. 

The next decision to make is whether you will conduct fundamental analysis & trading or technical analysis & trading. You can also opt for both to be factors in your trading. Using purely technical analysis / purely fundamental analysis / both all pose their own unique advantages, so be sure to research this decision carefully. 

When you’ve decided on your analysis style and your trading style the next decision is the timeframe you will be trading on. Discretionary traders can typically use multiple time frames, however systematic traders usually define their system to one time frame. 

The best way to find out what works best for you is to try all trading styles until you find a trading style that works well with your personality style. 

Examples of Integrating Different Forex Trading Styles

  1. Systematic Technical Scalping – This is a common form of trading, typically done by expert advisors. EA’s may combine a number of indicators and chart patterns to trade on a 1-15 minute chart. 
  2. Discretionary Fundamental Scalping – Traders may believe that economic data, such as NFP, will shock the markets due to their research. To profit from this bias they may take a position prior to the data release, and close the position once markets quickly react to the economic data.
  3. Technical Intraday Discretionary Trading – This is a common style of trading, with traders taking short term positions to trade based upon a number of technical confluences. For example, a trade may be composed of a moving average, a trendline and a support level. 
  4. Fundamental & Technical Systematic Swing Trading – Also a common style of trading, especially with financial institutions. An example is requiring certain parameters for economic data, a fx pair trading at 3 year highs / lows, and a break above / below a daily moving average.

These are just a few examples, but the different ways to put these types of trading together are nearly endless. Traders can maximise their trading strategy and style over time and adjust it to their personality style. 

Now you are equipped with the steps to put together a trading strategy there is only one thing left to do – go and do it! 

Happy Trading.

Published by Tom Stewart

Head of data analytics at TradeProofer. Analyst at Opes Trading Group. FX enthusiast.

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