Ever wondered whether Forex day traders had an advantage over swing trader? Is it worth the switch?
Ultimately, the decision comes back to you and you must always link your trading style to your personality. After having tried both swing and day trading, I can testify on one idea: Forex day traders have it slightly easier than Forex swing traders.
This comes down to a very interesting concept called The Feedback Loop. In this article, I'll tell you a bit more about this concept and provide you with ways to grow faster as a Forex trader.
First, however, I want to bring you through one of my losing months to illustrate the problem (let's call it that!) with swing trading.
My Experience Of Losing Month
In July 2016, I experienced one of my worst month of trading since I became what I'd refer to as a profitable trader. I lost 6.49%.
The month before, I was up 4.9%, which is an acceptable return for the risk incurred.
What you must know now is that I take the trades following my plan no matter what, the return is not what I think about at any given point during the month.
So what changed between those 2 months?
I took approximately the same number of trades, used the same stop losses and take profits. Not much changed.
Except for one thing…
In July, I frequently tried picking up tops and/or bottoms.
Even though my strategy is based on price reversals, it is usually counter-effective to enter trades right at a market top or bottom (that is, after price shooted strongly in one direction).
Here's where it gets tricky:
As a swing trader, I tend to hold my trades for a few days and a few weeks at maximum. The average holding time for my trades in July was 2-3 days (that's a rough estimate).
What The Feedback Loop Means Here
You might think that everything is fine here and say: “a losing month is a long month. Period.”
However, recall that I was trying to pick tops/bottoms too often.
Given the fact that I enter a limited amount of trades in a month as a swing trader and that those trades stay open for a couple of days, it's hard for me to know what I need to correct in a short period of time.
It is, therefore, easier for me to experience a losing month…and even a few.
The reason is that I need to gather multiple trades in my trading journal before seeing patterns of things I did right or wrong.
Those patterns represent feedback. Every time you look at a series of trades, you get feedback.
The Feedback Loop
In very simple term, a trader receives feedback from his trade upon analyzing them. That's why having no trading journal is one of the BIGGEST mistakes you can make as a Forex trader.
Why Forex Day Traders Have It Easier
By definition, Forex day traders hold their trades for a day at most and are usually more likely to take several trades a day. That gives them multiple trades to look at when the market closes on Friday. They are receiving feedback much quicker than a swing trader.
Hence the advantage with day trading. You are able to draw conclusion much quicker and that allows you to make adjustments in your trading and actions.
Another advantage of Forex day traders is that their mistakes are usually having a lower impact overall. A losing day can usually be recovered the next day and losing months are thus less frequent.
For swing traders, losing months can occur and might affect slightly more the trader. It's then normal to feel like you have a hard task for the next month.
The goal of this isn't to say that day trading is the ultimate form of trading.
My intention with this article is to make you realize that the shorter you make your Feedback Loop, the easier it will be to have consistent returns from trading. You'll be able to correct your mistakes and avoid them the next day, or at worst the next week (instead of the next month).
Reducing Your Feedback Loop / Increasing The Feedback
To finish up this article, I thought I'd give you a few tips to reduce your feedback loop. While a simple way is to enter the world of Forex day traders and day trade, it isn't as easy.
Here are some tactics to reduce your Feedback Loop:
- Make weekly reviews a habit.
- Compare your current trades with your previous month trades.
- Spot the differences on the chart between your actual trades and past trades.
- Use automated tools such as Edgewonk or MyFxBook to track your trading stats.
Have you ever thought about the Feedback Loop concept? What do you intend to implement from reading this article? Comment below and let's chat about that!