As the trading world continues to grow bigger, you can easily come across traders following different trading styles. While every trader’s ultimate goal is the same, their method of achieving the goal varies significantly. You may find short-term traders, long-term traders, or traders following a mixed approach incorporating both short-term and long-term styles. But what exactly is long-term and short-term trading? Well, these terms are highly subjective. For example, a timeframe of a few minutes can be considered short-term for some traders, while it may be a couple of days for others.
Things can be confusing for people that are willing to join the trading world. Hence, to simplify things, Kimberly Torres, a successful day trader, decided to help beginners by explaining the available trading styles in the simplest way possible.
Day Trading
Day trading is a short-term trade where you’re required to buy and sell one or multiple trades within the same trading day. As the trades are conducted within a short period, day traders leverage small gains to build higher profits. A common strategy used in day trading is utilizing the technical analysis to exploit intraday price fluctuations. If you’re starting as a day trader, make sure to set a profit target and stop loss to minimize losing money in the initial days.
Swing Trading
While swing trading also falls in the short term trading category, its holding period is quite generous. Unlike day trading, swing trading allows you to hold positions for days, weeks, or even months. Swing traders mostly rely on technical analysis and price action for defining profitable entry and exit points. As you don’t necessarily have to exit all positions within the same day, you don’t have to monitor the market consistently.
Position Trading
Position trading is for those who have the patience to hold stocks or other positions for a long time. Instead of buying and selling in a short time frame, position traders follow the buy and hold approach. They hold the positions for months or even years and monitor weekly/monthly as to how their assets or stocks are performing concerning the on-going trend. Position traders use a mix of fundamental and technical analysis to identify and take advantage of long-term trends.
Scalp Trading
Scalp traders are the most active traders throughout the market hours. They keep buying and selling positions in mere minutes or even seconds to “scalp” little profits from every trade. It is mostly done by targeting small intraday price movements and the bid-ask spread. If day trading and swing trading falls in the short-term trading category, the scalp trading falls in the very short term trading category. Since scalp traders make many trades in a single day, it becomes essential to look for a broker that charges the minimum possible commissions.
To become a successful trader, you first have to identify your ideal trading style. Based on the trading style, you can later design a robust trading strategy that will help you earn profits in the market. Now that Kimberly Torres helped you understand the different available trading styles, you can choose a style that you’re comfortable with. Give yourself enough time to understand the pros and cons of all trading styles, and then take the final call.
Kimberly entered the market as a day trader and tried her hands on different trading styles over time. Day trading is suitable for beginners, so you can start with day trading if you’re not sure of other options. As and when you keep learning new things, you can continue making the required switch between the different trading styles.