Short-term forex trading
When comparing different ways of trading activity on the currency market, short-term trading is undoubtedly the most popular.
It is especially popular among the beginners. This is due to the fact that this method of Forex trading allows for a relatively short period of time (usually one trading day) to get a pretty good profit. It may happen that in order to achieve a positive result in the transaction trader may need only a few minutes. And if the trader works in this mode all the time, the number of performed deals is difficult to even count.
But it is good when total profit in such deals prevails over the loss. The apparent simplicity of short-term trading and its high profitability is a wrong side of the coin. Such trading activity is considered the most risky, and one can lose his/her trading deposit rather quickly by using this type of trading.
For whom can short-term trading be successful?
As a rule, short term trading strategies can only be successful for traders, who have mastered the methods of technical analysis with extensive experience in trading. In such trading, the personal qualities of a trader, his iron will, nerves of steel and, of course, the ability to observe strict discipline often come to the forefront.
Naturally, these qualities are not known to everyone. Maybe this is the reason why only few traders are successful using this trading method. But short-term trading has its own advantages, which cannot be ignored, that is why many traders prefer working within the trading day.
Advantages of short term trading
So, the main advantages of short term trading on Forex, are as follows:
- Firstly, such trading gives the trader an opportunity to manoeuvre, he can at the right moment rearrange himself and make a decision that will correspond to the current market situation. In this way the trader can ensure that the level of his losses will not be critical. In the work of traders who practice long-term or medium-term trading on Forex, there can be a period when their deals are in the negative zone for a long time.
- Secondly, short-term trading allows the trader to plan his working day more clearly. He or she can both open trades and exit the market at the end of the trading session without leaving any positions open. All this gives additional comfort to traders, as they can avoid unnecessary worries about the fate of open positions.
Disadvantages of short-term trading
Despite the presence of certain advantages, disadvantages of such trading are also clearly seen, and often their weight significantly exceeds the advantages.
- Usually, when practicing short term trading, a trader uses a time period not exceeding one hour. Very frequently fifteen-minute, five-minute and sometimes one-minute time intervals are used. But, as we know, on small timeframes the "informational noise" is the most clearly perceptible, and only a trader with vast trading experience is able to distinguish it from the real price movement.
- Short-term trading, as a rule, requires from the trader high attention and, as a consequence, a constant presence at the terminal. A trader's working day in this case is quite busy and intense.
- As a rule, a trader working in the short-term trading mode is constantly faced with the necessity of defining the mathematical expectation he or she is planning to get from a trade. Usually he should place short stops in deals, while the level of profit should not be too high. As for the global trend, short-term trader manages to catch it very seldom. All this requires application of a trading strategy which allows making much more profitable deals compared to the number of losing trades. In this aspect, traders who trade with a medium- or long-term method have a certain advantage. They can afford more losing trades and take profit on the basis of more favorable stop-profit ratio.
To sum it up, it should be said that eventually it is up to a trader to choose a timeframe, which is more convenient for them to work on the currency market. But it has been noticed that as traders gain experience, they change their preferences. As a rule they give up short-term trading in favor of middle-term trading and leave the right of sitting at a trading terminal to novice traders.