Learning how to trade is an uphill struggle for most people. Those who aren’t willing to put in the work will find themselves lost in a chaotic mess, drowning in a flood of information, statistics, and – most importantly of all – poor strategy.
When you want to learn how to trade, it’s important to decide on a strategy. A trading strategy, a type of trading, or just a general approach will help guide you through the most difficult parts of the learning curve. But how can you decide which type of trading is perfect for you?
The key difference between the four different styles of trading is the length of time that you hold the trades. For example, scalping only requires you to hold trades for a matter of seconds (or minutes), while day trading could entail a few hours. Swing trading, in comparison, is usually conducted over the course of a few days, while position trading is the most long-term approach and it can entail anything from a few days to a number of years.
When it comes to picking the right style, many new traders struggle with finding their perfect fit. But it’s important to know exactly what kind of trades you want to conduct when shaping your long-term strategy. Certain trades will only make you a pittance if you take the scalping approach when you really should be using a position trading style. Likewise, holding your trades for too long can mean that you miss your window of opportunity and miss out on cold, hard profit. When you look at how the professional companies invest, selecting a style is an important step and helps to define you as a trader.
If you’re interested in finding your trading style, it can help to look at your personality type. In the next section, we’ll look at the individual trading styles and determine whether they’re right for you. Remember: it’s important to be honest when selecting your style, as this will help you make the most profits during your trading career.
Scalping is a style designed for the speed freaks. It’s quick, with trades often flying past you in a matter of seconds. You’ll be constantly watching the markets and searching for opportunities, waiting for the perfect second to sell or buy. You could be trading long one minute and short the next, so it’s ideal for anyone who loves to make split second decisions and loves to act in the moment. If you’re a hesitant person, scalping might not be for you.
As a style, scalping is perfect for impatient people. If you want to make instant profit (though not always the biggest profits) and you know how to maintain your focus and concentration even at the most testing times, it might be ideal. If you get easily distracted or find yourself overthinking things, then scalping might not be your style.
Next up is day trading. The best part of day trading is that you’ll often find that the jobs you start at the beginning of the day are complete by the end of it. It’s good for instant gratification, without the sheer speed of scalping.
However, this can mean that you’re often stuck around waiting for an opportune moment. Because day traders aren’t willing to let their trades sit for too long, you might be hanging around for a few hours before you execute the trade. This can lead to long days, with many day traders not even considering position or swing trades until the times when they would normally be asleep or out of the office. You might be hanging around far longer than you expected on any given day, for fear or missing out.
One more important detail which should be considered finding your trading style is that a day trader typically invests for short periods of time in a variety of securities. Thus, to buy and sell securities, the day trader will have to open a trading account with a broker. Deciding on the broker best suited for trade business is one of the most important decisions the trader will have to make, to dwell on this topiclearn more at Brokernotes.
If you’re a patient person, then swing trading might be the best balance between the rush of scalping or day trading and the more considered approach of position trading. It’s likely to become profitable quicker than position trading, though the extent of these profits can be reduced. Typically, swing trades are held overnight, so you’re not stuck in the office for long hours. The flipside to this is that you might be away from your computer when the opportune moment strikes. If you get nervous about missing out on the best possible deal, swing trading might not be your best option.
Perhaps the most important quality for a swing trader is the ability to remain calm. It’s important, as these types of trades will normally require a larger stop loss when compared to the other styles. If you can keep your cool, there are big profits to be made.
Of all the different trading styles, position trading is the one which takes place over the longest-term. Trades can last several years at a time and, in that sense, it’s not disingenuous to think about position trading as more strategic and more chess-like. If you’re excitable, if you need that instant gratification, or if you need to profit right away, position trading is likely not for you.
The targets you’d pick for position trades can be many thousands of ticks. If you find that you’re hot and sweaty when making a 25-tick trade, then position trading is likely not for you.
If you’re easily swayed by public opinion, if you get worried by either bear or bull markets, or if you don’t have the courage of your convictions, then position trading is likely not for you.
But if you have the patience, the insight, and the resources, position trading can be very, very profitable. There’s a reason why position traders often make the most money: the sheer strength of nerve involved can be trying for even the most skilled of traders.
By examining the intricacies of all the different trading styles, you can find an approach which works for you. If you’re new to the trading game, it might take a while to find your niche. Remember, there’s rarely a right or wrong approach. But as you become more skilled, you’ll discover the style which best suits you. When you do, remember to stick with it, even in difficult moments. Chopping and changing style can endanger your profits and you’ll likely end up with a string of losses.
Stay loyal to your style, however, and you can be greatly rewarded.