Choosing the Correct Timeframe to Trade

Forex Trading Styles

 

There are many ways to trade the Foreign Exchange market and various trading styles to choose from. The primary factor that differentiates these trading styles is the time frame used.

Five (5) Types of Retail Forex Traders

We can distinguish five different types of Forex traders based on the time frame they use:

1. Scalpers
2. Day traders
3. Swing Traders
4. Position Traders
5. Carry Traders

Arbitrageurs are not included because arbitrage is a highly complex strategy that requires technology beyond the reach of most retail traders.

Table: Summarizing the key characteristics of the five basic Forex trading styles:

Choosing the Right Time Frame to Trade Forex

In general, the shorter the time frame you use, the higher your trading costs will be, and the more time you’ll need to spend monitoring your positions. High capital leverage in day trading forces stop-loss and take-profit orders to be placed narrowly. Shorter time frames are more challenging to trade.

Conversely, longer time frames require lower capital leverage and wider stop-loss and take-profit orders. The time needed to monitor your positions is typically just a few hours per week.

Here are all five (5) different Forex Trading Styles:

(1) Forex Scalpers

■ Time Frame: A few seconds to a few minutes

■ Leverage: 30:1 or higher

■ Trading Cost: High

■ Risk and Reward: Very High

• Mindset: Bold and opportunistic, driven by fast-paced action. Focuses on quick decisions with accuracy.
• Example: Trading the EUR/USD on a 1-minute chart, executing multiple trades by capitalizing on small price movements near crucial support and resistance levels.

Forex scalpers trade the shortest time frames in Forex (except arbitrageurs). They are called scalpers because they aim to capture small fluctuations in currency prices. Scalping involves opening and closing positions within time frames lasting from a few seconds to a few minutes. Scalpers target a few pips per trade, usually 1-5 pips net profit. They require the tightest spreads and the fastest trading technology, which is why they trade exclusively with ECN Forex brokers. Most brokers with a Dealing Desk (DD) discourage scalping, while ECN and STP brokers (NDD) fully allow it. Forex scalpers focus mainly on the major currency pairs, especially EURUSD and GBPUSD. Often, scalpers use automated systems called Expert Advisors or Forex Robots.

The Best Brokers for Scalping: » ROBOFOREX | » ICTRADING

(2) Day-Traders

■ Time Frame: a few minutes to several hours

■ Leverage: 10:1 or higher

■ Trading Cost: High

■ Risk and Reward: Very High

• Mindset: Disciplined, focused, and analytical. Makes multiple daily decisions with calm precision, maintaining a pace steadier than scalping.
• Example: Trading GBP/USD by spotting a breakout from a consolidation pattern on a 1-hour chart, then closing the position within the same session, whether for profit or loss.

Day trading involves opening and closing positions within the same day. Day traders avoid holding positions overnight to reduce the risk of unexpected news and to avoid swap rates. The time frame used ranges from a few minutes to several hours. Day traders primarily use technical analysis to identify high-probability trading signals. They can also trade based on the latest market news. Trading costs are a significant concern for day traders, which is why they typically trade only with ECN Forex brokers. Day traders are very sensitive to spreads and usually focus on the Forex majors or highly liquid Forex crosses such as EURGBP.

Note: Forex crosses are currency pairs that do not include the USD.

The Best Brokers for Day-Trading: » ROBOFOREX | » ICTRADING

(3) Swing Traders

■ Time Frame: 1 to 30 days

■ Leverage: 3:1 to 10:1

■ Trading Cost: Medium

■ Risk and Reward: Medium to High

• Mindset: Patient, trend-focused, and risk-conscious. Willing to endure short-term volatility and hold positions overnight.
• Example: Buying USD/JPY following a pullback to the rising trendline support on the daily chart, aiming for the next swing high.

Swing traders may hold their positions from one day up to a few days, usually not beyond five days, as they prefer to avoid holding positions over weekends. Unlike day traders, swing traders keep positions overnight and are therefore exposed to potential negative swap rates. For example, a swing trader holding a long position of 5 lots on USDRUB faces a significant negative interest rate differential. Additionally, swing traders are vulnerable to unexpected news and events, so they must carefully choose their leverage to allow enough room for stop-loss orders. Many swing traders use trailing stops to protect their potential profits. In general, a swing trader needs a broad knowledge of both technical and fundamental analysis and should work with a Forex broker that offers competitive spreads and favorable overnight swaps.

The Best Brokers for Swing Trading: » IC MARKETS | » ROBOFOREX

(4) Position Traders

■ Time Frame: a couple of weeks to several months

■ Leverage: 2:1 to 5:1

■ Trading Cost: Low

■ Risk and Reward: Low to Medium

• Mindset: Strategic, big-picture, patient, and disciplined. Emphasizes long-term value by focusing on major economic trends, while managing risk through careful position sizing and stop-loss orders.
• Example: Holding a long EUR/USD position for several months, based on a fundamental belief in stronger relative growth in the Eurozone compared to the US, entering after a breakout on the weekly chart.

Position traders are similar to swing traders but use much longer time frames and lower capital leverage. They hold positions from several weeks to several months. Position traders aim to identify and capitalize on strong long-term trends, closing their positions when those trends lose momentum.

The Best Brokers for Position Trading:  » IC MARKETS

(5) Carry Traders

■ Time Frame: 3 to 18 months

■ Leverage: 1:1 to 3:1

■ Trading Cost: Very Low

■ Risk and Reward: Low to Medium

• Mindset: Strategic, big-picture, patient, and disciplined.
• Example: Holding a long NZD/USD or AUD/USD position for several months.

Carry traders aim to profit from the interest rate differential between two currencies. They open positions with a positive swap rate, meaning they buy a currency with a relatively high interest rate against one with a low interest rate. Traditionally, currencies like NZD, AUD, and CAD offer higher interest rates, while JPY and CHF tend to have the lowest. By combining these currencies, carry traders identify their preferred pairs. Timing the entry is crucial for successful carry trading; carry traders often open positions after a major price move, trading in the opposite direction. The overnight swap rates (rollover) are especially important for this trading style.

The Best Brokers for Carry Trading: » IC MARKETS

■ Forex Time Frames & Trading Styles

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