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There is no trading strategy which fits everybody needs. We all have different risk tolerances and goals. For exmaple Intraday Swing traders follow the trend and enter on pullbacks. Trading is a business dealing in probabilities and that it takes a series of trades to make a trader, not just one or two trades. Let's see some of the different trading styles and see which one fits you. Basically, there are four styles of trading: - Scalping
- Day Trading
- Swing Trading
- Position Trading
Scalping is day trading but with different analysis and timeframes. Scalpers will usually hold trades for seconds to a couple of minutes while a day trader may hold a position from a couple of minutes to several hours. Swing traders usually hold their positions for a few days at a time. While position traders will hold them from several weeks to years. In order for you to choose which type of trader you are, you will have to choose a timeframe you are comfortable with. Defining your style is very important to your success as a trader. Much like a trader without a written trading plan, you will be bouncing around from one style to the other if you do not pick one and focus on becoming the best you can. Some people who trade stocks start out as traders then become investors when their position goes against them, claiming they don't want to take a loss and will wait until the market comes back for them. In Forex you can't do that cause if a trade goes against you much you get a margin call and loose a lot. Scalping
Very fast, short duration usually done by professionals. Their trades can be within seconds of each other and can easily be long (buy) one minute and short (sell) the next. Trading this style requires that you can make decisions instantly and act without any hesitation. People who are looking for instant gratification are usually better-suited for this style. Usually these people will exit the trade immediately if it goes against them. To excel in this style, you must be very fast with your thinking and dexterous with your mouse. If you find that the mouse pointer is a little intimidating and double-clicking is difficult, then this is not your style of trading. Also, you must not become distracted while Scalping. If you find yourself staring out the window or watching TV while trading, this could cause serious problems to your trading account. For example, if your mind wandered off while reading this, then Scalping is certainly not for you.
Day Trading Day trading is for the trader who wants to enter and exit the trade during the same trading day. They find that they can sleep better at night not having a position on and worrying about an adverse move overnight such as a large gap opening. Another advantage is the margin required to day trade is extremely low, thereby offering more leverage and a much higher return on their investment. The downside to this is many new traders over-leverage themselves with this inexpensive margin. Day traders usually try to obtain risk/reward levels of at least 1:3 by holding positions longer than Scalpers. Direct Access trading has made day trading much easier to compete in the markets, there is a more level playing field, faster price fills and reports and the opportunity to trade from just about anywhere in the world. Most day traders only use technical analysis to trade. Fundamental news is usually too slow to day trade from. Traders will usually watch multiple timeframes during the day to keep an eye on the long and short term trends. They also do not mind sitting at the screen and trading for several hours per day. Swing Trading Swing trading requires patience to sit and wait, and wait, and wait some more for a setup to occur. Unlike a Position trader, the Swing trader will be looking for the position to become profitable rather quickly. These traders still understand though that they must allow time, in this case possibly days, to do its work. Swing traders hold their positions overnight, so if walking away from the computer while a position is on worries you, then maybe Swing trading is not your style. Swing traders typically get their signals from daily bar charts and intraday charts. By using daily bar charts, your stops are going to be larger than day trading due to the larger swings. The upside to this is that the profits have the potential to be much larger on a per trade basis than day trading. Position Trading Position trading is the longest duration style of trading. These traders trade long term trends usually watch daily and monthly charts read economic news. While holding these positions you could be buying while everybody else is selling. A consistently profitable Position trader will be looking for much, much larger profits before even considering exiting their position. |
