Trading is all about the frequent buying and selling of various financial instruments with an intention of generating profits from the price movements. However, before venturing into the field of trading, it is necessary to acquire knowledge of the basic styles of trading, which helps the trader to manage risks and advance towards achieving the long-term goal of a becoming a successful professional trader.
The four most prominent styles of trading that we will review in this article are:
- Intraday Trading
- Swing Trading
- Position Trading
Scalping is an extremely active form of trading, and is one of the quickest strategies employed by active traders that focuses on taking profits from small price changes that occur frequently, rather than exploiting large price movements, and hence the level of profits per trade in scalping is relatively tiny.
This trading style requires a strict and aggressive entry, as well as, a similar exit strategy because one massive loss could eliminate several small gains realised. It is a suitable trading style for active traders that are capable of making immediate decisions and acting without hesitation.
Intraday trading is perhaps the most well known active-trading style in which the positions are initiated and closed out within the same trading day, and no positions are held overnight. Intraday trading uses technical analysis extensively to find and exploit intraday price moves to build profits.
This trading style is more suitable for traders who do not prefer carrying overnight positions, so that their positions are not affected by any unusual price movements during odd hours, such as trading gaps occurring after a weekend.
Swing trading refers to a style of trading that does not necessarily require constant monitoring, since positions are held for a period of a few days in an attempt to capture short-term market moves. This trading style requires a market that moves in either direction to ride the momentum. So a range bound market is the primary risk for a swing trader. Swing trading is for traders that have the patience to wait for the right trading opportunity that produces a price movement sufficient enough to generate a reasonable profit.
Since traders are required to hold overnight positions, swing trading generally requires a larger stop-loss and hence, requires traders to remain calm when a trade is going against the initiated position.
Position trading is considered to be a buy-and-hold strategy, and open positions are held for several days to several weeks, depending on the trend. This is the longest time-frame trading strategy. Position traders utilise a combination of fundamental analyses and longer-term charts to determine the direction of the market.
This trading style requires traders to be highly patient and calm during the periods of high market volatility. Hence, this strategy is not for impatient traders, who get excited by short-term price fluctuations.
Choosing Your Trading Style
This review of the leading trading styles clearly shows that the critical difference between various trading styles is mainly based on the different time perspective. Beginner traders might experiment with each of the trading styles mentioned above; however, they should ultimately choose the trading style that best matches their knowledge and personality. In addition to deciding the amount of time dedicated to trading, individual expertise and character, traders should also evaluate some other factors while determining the selection of a particular trading style, which includes the size of their trading account, trading experience, and their tolerance to risk.
By deciding on a particular trading style, traders can devote their time to further researching the method, gaining additional knowledge on the preferred trading style, and practising their strategy on a demo account.
Choosing a trading style could be a difficult task for a new trader. However, by selecting the trading style that is best compatible with an individual’s personality, as well as a suitable risk management strategy, traders could increase their chances of being profitable in the long run.
This material does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not reliable indicator for any current or future performance as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisor to ensure you understand the risks.