Which Trading Style Is Best For You?

Published on Sep 29, 2020

Like every other trader, whether you are a novice or seasoned trader, you have your own unique trading style. Understanding your trading style is a critical part of your success.

There are multiple factors involved in adopting and developing a style in trading, but briefly, it depends on how you see the market and what your goals are. 

You can be a short-term trader, a medium-term trader, or a long-term trader. Learn about the different ways to trade the markets based on the length of time that trades are held for

Day Trading 

Day trading means entering and exiting a position within the same day. Day traders generally tend to monitor the markets throughout the day. This means day trading tends to be speculative in nature, often requiring traders to stay updated with market news, prices, and data to identify entry opportunities and exit strategies. 

Many traders adopt this style to avoid surprising factors such as price gaps and uncontrolled risks.

Scalping Trading 

Scalping is the shortest-term style of trading that involves buying and selling of an instrument within a very short period. Each trade is usually held from between just a few seconds, to a few minutes. 

This trading style has gained huge popularity in recent times and is equally effective for currencies, commodities, and stocks. However, it is more suitable in the Forex market because it provides adequate volatility. Scalping is usually performed by analyzing the price action, requiring traders to spend a lot of time reading and analyzing the charts. 

However, traders still need to be aware of daily economic announcements, as any surprising data could cause markets to gap, or trends to reverse.

Swing Trading 

Swing Trading is a medium-term trading style in which a trader may hold the position from a span of a few days to weeks or even months to take advantage of medium-term market moves.

Swing traders do expose to the risk of holding their position overnight, where large movements and market gaps can occur.

Swing trading is heavily backed by technical analysis, but some traders also use the fundamental analyses or even a combination of both.  Technical analysis is particularly useful for determining stop and limit levels. 

Position Trading 

Position Trading involves holding positions for weeks, months or even years until the trader achieves a potential desired profit.

Position traders are best described as trend followers. They believe that once a trend starts, it is likely to continue. This strategy seems to be more achievable in cycles of near stability whereas difficult to achieve in high volatility cycles.

Position traders use a mix of technical and fundamental analysis to make trading decisions. They also depend on macroeconomic factors, general market trends, and historical patterns to identify trading opportunities which they believe will achieve their desired goal.

If you want to succeed as a position trader, make sure that you have a solid plan in place to control potential risks, usually via stop loss and take profit orders.

Final thoughts 

Your trading style is not set in stone and can evolve as you become more experienced in the financial markets. You may also employ different trading styles for different investment portfolios. However, before deciding on adopting these styles, you need to be aware of the risks and costs associated with each one.