Different types of trading
25 Oct 2018
The trading world is diverse in terms of opportunities, and due to this many different types of styles can be applied here. It is very important to choose a style that suits your personality and preferences. This is also very dependent on your psychology and personality. To be successful you will need to prioritize a style according to how your mind works.
In this article we will discuss the trading styles you are likely to encounter. What typically separates styles is the amount of time spent in a single transaction, the time of entry and in some cases, also, the frequency of trades. There are no strict rules regarding the time frames that a particular trader should use to trade, however, the table below provides the average terms that a trader would use.
Choosing the trading style that best suits your personality can be a difficult task for new traders, but it is absolutely necessary for your long term success as a professional trader. If you are new to the subject (or even if you are an experienced trader) and still do not feel that you have found your style, the following are some of the personality traits compatible with the different trading styles. By choosing a style that suits your personality, you will have greater chances of becoming a profitable trader. So be honest, even if you do not like some of the personality traits that are listed below.
|Trading Style||Time Frame||Holding Time|
|Intraday Trading||Short Term||One Day|
|Swing Trading||Short Term||Some days or weeks|
|Scalping||Very short term||Some seconds or minutes|
|Position Trading||Long Term||Months or years|
|Trend Trading||Long Term||Months or years|
Most commonly practiced among retailers in the Indian stock market, positions are squared before the market closing hours. The philosophy of intraday trading is that exposure during the night is risky. Traders record gains or losses quickly and make multiple transactions every day. It is convenient for people who care less about fundamentals or things that are considered important to be a successful long term investor. For them, it is about managing the money, measuring the time of the inputs and outputs and sizing positions appropriately.
It does not matter if the trading is for you a job or not, intraday trading involves taking an additional leverage to generate higher returns. It always requires looking for higher investment returns than in other trading strategies. It is also among the most aggressive trading styles. The day trading style thrives thanks to high volatility as the number of opportunities increases at those times. A successful day trader understands the importance of the coherence and power of compound returns in the short term. If consistency is maintained, the returns can be compounded monthly or quarterly. Day trading is only suitable for those who can devote a good amount of time to track the movements of the stock exchanges regularly.
The main difference between intraday trading and swing trading is the time frame. Swing traders try to predict the short-term fluctuation of stock prices overnight. Then the positions can last from one day to a few weeks. The leverage used by swing traders is generally lower than in intraday trading. Due to the risk of the night, brokers in India charge SPAN+ exposure margins. In a way, it allows traders to better resist price movements at night and hold positions for longer, therefore, trying to get higher profits per trade. Most technical traders and chartists fall into this category. If you like to analyze the movements of short term prices using a technical analysis, this is your style of play.
Pure swing trading also involves a lot of money flow analysis. If this is what you like, then keep this style. It's rewarding and the price movements are more predictable. However, risk management should be more sophisticated. In this style, you should be able to ignore minor intraday fluctuations without worrying. However, most swing traders also perform intraday trades, so it is a style that can be merged. In any case, it is important to draw a line and focus on a particular trading style.
Scalping is a very fast trading style. Scalpers often operate at intervals of a few seconds and often in opposite directions (that is, they make long choices one minute, but short the next). Scalping is more suitable for active traders who can make immediate decisions and act on those decisions without hesitation. Impatient people are often the best scalpers because they expect their exchanges to become profitable immediately and make the decision to exit the business quickly if the results go against them.
Being a successful scalper requires focus and concentration, so it is not an appropriate trading style for people who are easily distracted or spend daydreaming (that is, if you have been thinking about something else while reading this, then perhaps scalping is not for you).
Position trading is the longest term trading of all and often involves operations that last several years. Therefore, position trading is only suitable for more patient traders.
This is a type of trading style that ignores the small short term fluctuations in which the swing traders are fully focused. Position trading implies less leverage than swing trading. The waiting time of each operation is higher since these traders anticipate a large structural movement in the future.
Synchronizing the market is not the top priority for this category of traders, as they are willing to survive the storm and wait a few months to see a large gain. Its approach is generally a hybrid of technical and fundamental aspects. To be able to hold positions for a longer period of time, they feel they have to be sure of what is happening inside the asset they are betting on. In general, they are looking for underlying stocks to earn more than 20% in the near future. Position traders have the ability to lean more towards investment in the long term.
The objective here is to identify a trend and only trade in the same direction as the suspected trend. Traditionally, trend traders have partnered with long-term fund managers; however, in reality, you can become a trend trader at any time period you choose as a trend of all time frames.
Choose a Trading Style
Choosing a trading style requires flexibility to know when a trading style is right for you, but it also requires consistency to continue with the correct trading style, even when it is not working optimally. One of the biggest mistakes that new traders often make is to change trading styles at the first sign of problems. Constantly changing your trading style or trading strategy is a sure way to catch all the losing streaks. Once you are comfortable with a particular style, be faithful, and it will reward you for your long term loyalty.
If you have not yet chosen a suitable trading style or have already chosen it but are not sure and want to make sure it really suits you, try to master your skills with a Libertex Demo Account. Open a demo account and practice your appropriate trading style without risk.