There are different trading styles and every trader should choose the one that suites his way of life, personality and goals. It is better to study the differences and make an informed decision, instead of switching from one style to another.
Why are you trading? How much time can you devote to this? How much risk are you willing to take? Will you trade for a living or for a hobby? These are the questions that need to have an answer before you decide what style fits best.
It is not mandatory to stick to just one style, of course. But you must understand them, and you must know how to use them right. That is how you can get the best of all of them.
There are four basic styles of trading.
SCALPING
Scalpers open and close positions within seconds or minutes. They trade minute price fluctuations and their profit target for a single position is small. They usually trade on 1-minute or 5-minute charts and scarcely use any tools.
Scalping decreases the risks associated with having an open position for a longer time. It does not need sophisticated conditions to be met in order to execute a trade, so trading opportunities are considerably frequent.
The scalper must have the proper mindset. In order to be successful, he needs to make very quick decisions and be disciplined.
DAY TRADING
Day traders open and close their positions, as the name suggests, within one day. They usually use 1-hour or 4-hour timeframes and close all their positions by the end of the day.
Day trading requires time to analyze the market and manage the open positions. There are usually plenty of trading opportunities throughout the day, furthermore day traders often trade multiple assets.
Day trading does come with some risk because the positions are kept open for a while. In order to protect them, day traders often use stop-loss and take-profit orders. Some of that risk is mitigated by the fact that, normally, no positions are left open overnight.
SWING TRADING
Swing traders join the price action at the first signs for a reversal of the trend. They usually keep their positions open for a few days, or even weeks, until they reach their profit target or until they are stopped out.
Swing trading needs a volatile market. It needs a trend. A price that is consolidating is a risk to the swing trader. To keep the position going, and to not get closed out at the smallest correction, swing traders use larger stop-loss orders.
Swing positions are usually kept open overnight, so this type of trading is suitable for those who have the patience and the nerve to leave those positions unattended for some time.
POSITION TRADING
Position trading is the long-distance runner in the group. Position traders hold their positions for days, months and even years, and for that they must follow the fundamentals, as well as the technical indications.
Position trading is often considered a synonym for investing. But while a passive investor would typically use a buy-and-hold strategy, position traders certainly plan to sell when their target is reached (sooner or later).
It is most successfully used in markets with well developing trends. Position traders typically open their positions in the beginning of the trend, but only after it has been confirmed and going. They would normally close the position as soon as the trend breaks. This type of trading is not appropriate for too volatile markets.
The position trading provides fewer trading opportunities, compared to the other types. The profit targets can be a few hundred pips or even higher and the trader must have the stomach to see his position swing from profit to loss and back. Position trading requires patience, confidence and knowledge.
