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Roughly, traders can be divided into three main categories. First the short-term, high frequency scalpers who would not hold a position for more than a few minutes. Next is the medium term, directional day trader who may hold a position from a few minutes to a few hours but never overnight, hence the term day trader. They are also called swing traders since they trade on the swing from one direction to another direction. Then there are the long term traders who may hold a position for days or even weeks and they are also called position traders since they hold on to their position until there is a major change in direction.
Each type of trader will usually refer to charts of three different timeframe to make their trade. There is no hard and fast rule but it may be something like these.
Scalpers: 1 minute, 5 minutes, 15 minutes
Day trader: 5 minutes, 1 hour, 4 hours
Position traders: 1 hour, daily, weekly
The middle range charts are for monitoring the market during the trading session. The lower range is used for timing entry and exit and the higher range is used for knowing the longer term trend. After awhile, you may find certain timeframes may suit you better than those mentioned above. Anyway, it is always good to look at the hourly and daily chart to see where the market is heading.
Sometimes it can be confusing when you look at the charts at different timeframe since the market seems to be moving up at one time frame while it appears to be moving down in another timeframe. This is the case because the market does not move in a straight line but in waves and any single movement can be broken down into smaller and smaller movements with its ups and downs. During periods when all the time frames are in one direction, the market is trending but this this can change quickly depending how how strong the trend is. Most of the time the market moves within a range in a sideway manner but also with its own ups and downs.
Which trading style is best for a beginner? It all depends on the individual preference and also his tolerance of risk and loses, the capital that is available and the time that he has. As a general rule, the smaller the time frame, the smaller the potential loss (in terms of pips) when setting stop loss and also smaller potential profit (again in terms of pips) when setting the target profit. The converse is also true i.e. the larger the time frame, the higher the potential loss and the potential gain. This is because of the volatility or fluctuation that increases with the timeframe. For scalping, this may be just a few pips to 10, 20 pips; for day trader, 20 pips to 100 or 200 pips while for position trader this will be in the range of hundreds of pips.
Which style is easier to make the pips? To make say 200 pips, you may need to make just 1 trade as a position trader, 4 trades as a day trader or 20 trades as a scalper. One can argue that there are many more opportunities to trade as a scalper within a day but one must remember that every time you enter a market, there is risk involved and for every trade you make, you are giving away pips in terms of the spread. So there is no one best style and whichever style you choose you still have to follow the rules and be disciplined at all times.
It does not mean that trading the longer time frame has the higher risk (in terms of your capital) even though a bigger number of pips are involved since you can adjust the risk by reducing the number of lots as compared to a shorter time frame. There's nothing like trying it out and you can do it for free absolutely by opening a demo account. Most Forex brokers will allow you to open a demo account and that's the best way to get started before you put in your real money. There are also many trading platforms but the most popular seems to be Metatrader 4 and this is the one that I'll be using in all my posts.
So open a demo account and start trading.
Ronald Kwok
http://ronaldkwok.atomicblog.hop.clickbank.net/
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