Many beginner traders get into trading thinking there’s is only one way to trade / make money in the markets – intraday trading. But that not true. There are 4 different trading styles that every aspiring trader should know of. I discuss them next.
Factors to Consider When Picking Your Trading Style:
Everyone is different when it comes to personality, family life, work conditions, lifestyle, age, gender, and a host of other things. These differences will have a big influence on how we trade. Below I give a brief breakdown of some of the factors / elements to consider when picking your trading style:
- The amount of time you can commit to trading.
- Your risk tolerance.
- Your objectives when it comes to trading, i.e. what’s your financial goals? Do you want to trade fulltime?
- Your personality.
- The amount of capital you have, i.e. for trading and education.
The Four Trading Styles:
Position Trading: This is a long – term trading strategy where trading positions are held for extended periods of time. It focusses on long – term trends in the markets and requires a lot of patience. Normally position traders will have less trading positions and trade less overall than other traders. They also run the risk of having their capital tied up as other possible trading opportunities present themselves.
Swing Trading: This is a short to medium term trading strategy where trades are held anywhere from a couple of days to weeks. Its focus is to capture a portion of a large move – normally with the trend, but can also be countertrend. A swing trader will typically trade more than a position trader and less than a day trader (discussed next). This style is often viewed as less risky than day trading and more risky than position trading.
Day Trading (also called intraday trading): This type of trading style involves traders opening and closing positions on the same day; this is short – term trading. More trades are taken compared to swing and position trading. This style is also more fast paced, which suggests its even riskier than the aforementioned trading styles.
Scalping: This is a an ultra short – term trading style. A lot of trades with small profits are taken within a trading day. Quick decision making and high levels of concentration are needed for this type of trading as trades can last for only seconds or minutes. This is a very high risk and intense trading style.
Some Additional Factors to Consider when it Comes to Short – Term vs Long – Term Trading:
- Shorter term traders will need fast, reliable and a backup internet connection; longer term traders not so much.
- Short – term traders might also need a more expensive trading setup (think computer screens, etc.) than longer term traders.
- Trading costs (commissions, etc.) will be less for longer term traders.
- Short – term trading often involves trading with margin which adds additional risk.
- Overnight risk is eliminated when closing trades the same day as opening them. Longer term traders takes risk overnight and over weekends.
- Potential returns are normally higher when it comes to short – term trading vs long – term trading.
Finally:
Choosing the trading style that suits you best is very important for any trader. That’s why I encourage you to spend some time carefully contemplating which style suits you best. Doing so will put you on the right path from the start.
Thanks so much for reading. Best of luck with your trading.
Thanks and Regards,
Trading SOS SOS
