The 4 Trading Styles
In trading we distinguish between 4 different styles which basically concern the time frames of single trades.
Your trading style depends on your personality, the time you are able to spend and your goals.
Generally you can either trade on a daily base to collect smaller profits over time, or use long term market movements to get more out of bigger positions at once.
Trading every day is your style if you enjoy trading itself and if you are impatient, so you need to see profits and results on a daily basis and sleep well because you don’t keep your trades open overnight.
People who make a living from trading, are usually daytraders. Or, the other way around – you can only be a successful daytrader if you have nothing else to distract you. Price movements must be observed constantly, as you should manually move your stop loss order to the next level, to make sure you have locked in the highest profit possible until a trend reversal.
Also, daytrading with tiny amounts is the best plan to practice and learn by.
Scalping is a form of daytrading which is extremely active. The target is to take profits out of the smallest intra-day price movements, but a lot of them. This style only makes sense if trading fees are low or spread is small. The trader has to calculate if he’s already in profit when subtracting the fee from the transaction.
A scalping trade is mostly finished in seconds to minutes. The trader must have a high overall percentage of trades with profit to be successful, as scalping isn’t targeting bigger moves with high profits at once. The difference between the highs of profits and losses is less than in other trading styles, so profits must be clearly in the majority.
Scalping on the minute chart with tiny amounts is a good practice to enhance trading skills.
Swing trading means you trade on a higher time frame, which can be from days to weeks. This, of course, only makes sense for bigger positions than for day trades. Also swing trades don’t require constant monitoring as price movements on smaller time frames don’t play a significant role.
Swing traders use stop loss orders as well, but on a higher time frame. They can ignore intra-day moves within a trend of the bigger picture, shown on the daily chart. This style of trading is great for patient traders with a certain amount of capital, who can’t trade all the time.
Position trading is more comparable to investing than to actively trading. These trades span a period of months to even years. Compared to the other trading styles, fundamentals of the asset are as important as technical chart analysis, as the fundamentals help to estimate how the asset may perform long term, or if there are chances that it might die at some point.