TRADING BASICS

PRESENTED BY

TRADERA
 2

TIMEFRAMES
SCALPING

Scalping is a trading style that involves entering and exiting the market very quickly usually
closing with a small amount of pips each time. Scalpers evaluate and execute their trades on
the lower timeframes such as the 1 minute and 5 minute charts. In order to make significant
money scalping, traders must typically use high lot sizes to compensate for the small amount
of pips being caught on each trade. An example of a scalp trade scenario would be entering a
trade based on the 5 minute chart, remaining in that trade for 12 minutes, and exiting having
caught a total of 4 pips.

Notable Advantages – One of the main advantages of scalping is that you limit your exposure
to the market. When you are only exposed to the market (meaning you have open positions)
for short amounts of time, you potentially cut off the risks of unforeseen price fluctuations
and large variations in your running trades’ profit / loss. You are able to get nearly instant
gratification in knowing if your trades were correct or incorrect, profitable or non-profitable.
Finally, you may be able to shave off a lot of your time investment into trading the markets
because you can actively trade for a short, controlled period of time and then be done!

Notable Disadvantages – Scalping can be difficult because you are constantly worried about
the costs associated with entering each trade versus the reward you’re looking to gain. The
spread and commission fees become more significant when you’re only looking to close your
positions with a few pips at a time. Also, scalping may be too fast paced for many traders –
especially beginners. Many professionals argue that scalping is relatively low-probability
trading due to the unpredictive, random nature of the minute fluctuations in price that you
are reading on the lower timeframes

DAY TRADING

Day trading is considered the happy medium of trading styles because it’s not too quick, but
it’s not too slow either. Day traders usually enter and exit their trades within the same day
and don’t like to hold their trades overnight or over the weekend. Day traders tend to trade
 3
the 15 minute, 1 hour, and 4 hour timeframes, and don’t typically take as many trades as
scalpers do. The caveat to this is that day traders are typically securing more pips on any
given trade. An example of a day trade scenario would be entering a trade based on the 1
hour chart, remaining in that trade for 8 hours, and then exiting having caught 55 pips.

Notable Advantages – Day trading allows you to take substantial positions in the market while
still having limitations on your overall market exposure by not holding trades over longer time
periods. You are able to get fairly quick gratification in knowing if your trades were correct or
not, and the spread and commission fees are not usually an issue with this type of trading.

Notable Disadvantages – Day trading presents a unique problem for those who do not trade
full time because the “middle timeframes” require a fairly consistent monitoring throughout
any given trading day. If you can’t check the markets every 1 to 4 hours, you’re going to
have a very difficult time day trading successfully. Another thing to keep in mind is that risk
and reward go hand in hand. You may be looking to catch more pips on any given trade, but
you will also be risking more pips. Now that you’re holding trades for hours at a time, you will
begin to experience fluctuations in your running profit / loss which will have a substantial
effect on your trading psychology.

SWING TRADING

Swing trading involves entering trade positions that last anywhere from a couple days to a
couple months. This style of trading will involve analyzing and executing based on the 4 hour,
daily, or even weekly charts. There is significant exposure to the market with these types of
positions, so you will need a better grip on fundamental analysis to have success. The most
significant advantage of swing trading is that it requires the least amount of chart time. You
can even take trade positions based on the annual projection of a currency and only have to
monitor your trade by checking the markets once a month if you want to! Of course, profits
and losses will both be much larger when swing trading so more equity will be required to
trade this style properly.

CHOOSING A TRADING STYLE

Each trading style has unique advantages and disadvantages, and you will need to determine
for yourself which style of trading resonates best with your personality and your lifestyle.