Styles of Trading – 4 Frequently used Trading Styles and How to Choose the Best One
We will discuss various styles of trading financial assets. We will let you know how all the variants work, and then, we will discuss which one should you choose. Let us know more now.
Trading of financial assets can be thrilling, and can also be a bit tricky at times. The core fundamental of trading is there are no fixed rules that you can follow to get success.
A lot of factors influence market conditions. It is alright that you can follow one set of strategies, but you can’t bet on it that it will bring guaranteed success.
Styles of Trading
The trading styles not just dictate your personality, but also let you earn profits. Primarily there are four significant trading styles which we will cover today:
- Intraday trading
- Swing trading
- Position trading
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Scalping – Style of Trading
Scalping is arguably one of the toughest styles of trading. The idea is to accumulate profit by making quick deals.
Here the profit margin will not be massive; however, by using numerous trades, a proper Scalper would reach the daily target more often than not.
The reason we are saying it is the most challenging of all trades is that you have to stay up-to-date with every little update about a particular asset.
So, you can be a successful trader if you can, not only anticipate market trends, but also are proactive in placing orders. On average, a Scalping trade is about a minute long.
So, we expect you can guess how many trades a typical Scalper does in a day to reach the potential target.
When it comes to the risk factor, Scalping probably involves the most. It is, primarily because you need to stay consistent in every trade you do in a day.
One wrong move can disrupt the flow entirely, and you may end up losing a ton of money.
You may also require more capital investment to stay afloat if things go south for you. More often than not, people get Scalping confused with Day trading.
Though the core trading completes within a day, but there are numerous fundamental differences between the two styles of trading.
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Intraday Trading – Trading Styles
If we continue the discussion from Scalping to Day trading, both the styles have some common traits, but overall, they are quite indifferent.
Day trading typically deals in 1-2 high volume trades, where the focus remains on buying a financial asset at a low cost and sell them at a higher price within one day’s price movement.
Now, you can argue that buying and selling assets is what any trade is all about. So, what makes Day trading different? The answer is simple – one day tenure.
Whatever the amount that a trader buys a piece of asset is usually open at a low price. Then, with proper research, a Day trader expects the price to go up significantly within a one-day time frame.
So, that allows them to earn massive profits with just 1-2 trades in a day. Needless to say, Day trading involves huge risks.
First, there is a risk that when and if you buy an asset, the price may never go up, or even worse the price may fall.
So, that can result is a massive loss as to earn a handsome profit margin, the investment amount should have to be adequate.
Then again, if your anticipation is moderately accurate, you can earn enough at a quick span.
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Swing Trading – Styles of Trading
A huge percentage of traders also involve in multiple professions apart from say, trading stocks.
So, it is difficult for those traders to sit in front of your TV or computer sharp at 9:15 AM to check the market status.
So, usually what they do, is they invest in a particular asset and wait for a couple of weeks, or a month, and observe the price movement.
They don’t have an intension to keep it there for 3 year or 5 years. Then again, they don’t want to keep up with the pace as the Scalpers or Day traders do.
So, that itself creates a different fraction of traders, which in technical terms are called the Swing traders.
Here, most of the traders do minimal research and play safe. They typically choose assets with high stability; preferably large-cap stocks.
What you need to observe is that these traders don’t have a hardcore passion for being successful traders. They just want to earn a bit of money with a low to medium investments.
Naturally, the risk factor is arguably the least here. That said, some successful traders invest money using the Swing trading style and yield handsome profits consistently.
Position Trading – Types of Trading Styles
By now, you should have an idea that we are distinguishing trading styles based on the tenure on which you hold the position.
So, as we have discussed the last 3 styles in ascending order, the last one that we must talk about is Position Trading.
It resembles long-term investments, and we are talking about a minimum of 3 years. The focus of such traders is not to earn profits instantly.
They know these are financial assets which are equivalent to owning any piece of property.
So, with time, they not only earn a significant profit, but they do get dividends from the company for putting their faith in the company’s operations.
That is what is also the fundamental difference between a trader and an investor. Patience is very essential to be a successful Position trader. Of course, the risk factor is colossal.
Imagine you trust someone that they will be there for you when the time comes. But when the time actually arrives, that person deserts you.
That is what it feels when a long-term investment backfires. So, such traders do a ton of research before investing.
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Conclusion – Styles of Trading
Now once we have explained the trading styles, it is time to discuss which one should you pick. Sadly, there are no simple answers. A trading style mostly varies on people’s mentality.
Yes, there are other factors like capital investments, research knowledge, market volatility, and many more, but it is the way we think and interpret market conditions that determines your ideal trading style.
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