What is your trading style?

What is your trading style?

Trading styles
Photo by @Korneevamaha

 

Every trader is different. We have different personalities and react in different ways to each type of circumstance. It’s therefore important to understand what style of trading you should be used when trading the financial markets.

Why your trading style is important

How you trade will reflect your personality and how you react in certain circumstances. Beginner traders will often experiment with how they want to trade, they’ll test each style of trading to find which suits them best.

They’ll also use experienced traders and copy their styles to see if it suits them. Copying other traders and testing is a good idea but simply relying on a professional’s strategy might prove not to work because their personality will be different to yours.

By all means, give it a go, and if you like it, adapt it to you and your style but replicating it exactly does not mean you will see the same returns as that trader.

What are the trading styles?

So, what are the trading styles you should be using? There are four main styles of trading, which span over different time frames; scalping, day trading, swing trading, position trading.

Scalping

Scalping is the shortest style of trading and will see you holding a position normally for no longer than 30 minutes. And in fact, you would normally hold the position for a matter of seconds or a few minutes.

It requires you to actively analyse the markets and watch for any opportunity. Due to the short nature of the trades, you can take up to 100 in a single day. This will depend on your strategies but it’s common to take lots of trades.

Scalpers will often trade close to high impact news because this is where the markets become volatile and where the traders can easily grab some short, fast moves.

The issue with scalping is normally related to the spread, it’s important you know how much your spread is when taking a trade because, with a higher volume of trades, you will be paying a higher number of spreads.

Is scalping for you?

This style of trading suits the trader that likes to watch the markets avidly and is not patient enough to hold positions for long periods. Do you get fidgety when you’re holding a position and want to be active in the markets? Then scalping may well be for you.

You will make decisions quickly and decisively, while also being focused on the markets and able to concentrate during high-pressure situations.

For more information, read our lesson on scalping.

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Day trading

Day trading is exactly as it sounds. It is trading during the day and not holding positions overnight. Day traders will need to be quite active in the markets and be analysing the markets throughout the day in order to find trading opportunities. 

They will hold positions for a few minutes up to eight hours but again as highlighted, they will not hold positions overnight.

A positive of day trading is that you can close all trades at the end of the day and then look back and analyse your results. Was it a good or bad trading day?

Is day trading for you?

Day trading is for you if you are not comfortable holding positions overnight. Will having an open position make you anxious while you’re having dinner with your family? If so, then day trading is probably for you.

Day trading is time intensive, therefore you would need to be able to commit at least a few hours each day to find trade opportunities and trading.

For more information, read our day trading lesson.

Swing trading

Swing trading is the style of trading in-between position and day trading. You will likely hold onto your positions for a couple of days, although this could extend to a week or two.

You can trade several strategies when swing trading, both against the trend and with the trend, as well as in sideways markets.

Swing trading is about trying to predict the aggressive move of a market, trying to predict just before a market moves. You’re looking for a consolidation phase that you expect to break higher or lower for a prolonged period.

It’s called swing trading because that move in the market resembles a swing.

Is swing trading for you?

Swing trading is one of the most popular styles of trading for beginners because they don’t need to be watching the markets all day. They can do their analysis at any time and then simply leave orders in the market.

Leaving orders in the market means that you don’t need to constantly check to see if the price is where you want to buy or sell.

Swing trading is also good for those who have a bit more patience and are happy to hold positions overnight. The advantage of this is that you are more likely to catch the whole move. Lots of impulsive moves take a few days to come to fruition and therefore the scalpers and day traders won’t be able to profit from the entire move.

For more information, check out our lesson on positions and swing trading.


Screenshot from TradingView

 

Position trading

Position trading is very similar to swing trading. The key difference is that it is a bit more longer-term and tends to traditionally follow the trend. Whereas with swing trading, you can trade in any direction.

Position traders tend to hold positions for weeks, months and even years. It is often likened to investing, where you simply buy and hold in the expectation that the price will increase over time. The benefit of this is that you ignore all the noise of the intraday swings. The shorter-term traders might struggle with this because they consider those intraday swings as opportunities but position traders are happy to stay with the long term.

Is position trading for you?

Position traders tend to have more patience and don’t get annoyed by missing out on every little opportunity. They also don’t want to spend too much time analysing the markets, they’re happy to do their analysis, place an order and let their trade run.

They often don’t use targets and instead trail the stop loss behind the price. This way, they can catch as much of the move as possible, giving away as little as possible.

As mentioned, this can be likened to investing but perhaps a slightly shorter-term venture. Investing tends to be for years, often for retirement whereas position trading you will still be checking and analysing the markets throughout the year. You might spend an hour a week checking your positions and making decisions.

For more information, check out our swing and position trading lesson.

Can you combine trading styles?

Technically you can, but a trading style is normally determined by your circumstances. If you have time and want to, then you will probably be a day trader and if you don’t you’re more likely to be a swing or position trader.

But, you can hold positions for long periods of time and use a position trading style while also trying to take advantage of the shorter-term moves.

If you are looking to do this then we would recommend that you split these styles up by accounts. Open a trading account that you use specifically for position or swing trading and then another for the shorter term trades, day trades and scalping.

One advantage of using different styles is you can find out which performs best for you and therefore make informed decisions about which one you should be using.

Answer our questions to understand what style of trading suits you

A. How many licks does it take to finish a lollypop?

  1. 521. I counted.
  2. 183. I started but got bored and guessed.
  3. I don’t know, I lick and bite my lolly’s.
  4. I don’t lick, I just bite it in one.

B. What type of music do you like?

  1. Classical
  2. Jazz
  3. Rock and indie rock
  4. Hip hop and death metal

C. What do you do when you wake up for work?

  1. Wake up early, get everything ready for work and relax before I need to leave.
  2. Wake up, shower, breakfast and go.
  3. Wake up, breakfast as I’m leaving the door.
  4. Wake up, rush to work because I’m late.

D. If you meet a friend and they’re late, you

  1. Wait, these things happen, you’re not in a rush.
  2. Send them a text to make sure they’re OK.
  3. Call them immediately to find out where they are and why they’re late.
  4. Leave because you don’t have time to wait

These might be a bit silly but they should give you an idea about where you stand when it comes to trading styles.

So, take all your answers and add them up. For example, if your answers were 1, 3, 1, 2, then your score is 7.

Below is an estimate based on your scores about the style of trading that best suits you.

Score

Potential trading style

4-6

Position trader

7-10

Swing trader

11-14

Day trader

15-16

Scalper

 

Summary of your trading style

You should now have a good idea about what type of trading style suits you. We’ve covered what each style tends to mean for each trader. It’s now time for you to experiment and test to see what suits you best.

It is always worth testing your styles on a demo account because you can see how you react.

It is also worth recording every trade you take and adding a style into your trade journal. This way you can go back and analyse to see which style made you the most money!

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