What are the main trading styles?

There’s a vast array of trading styles. Each trader has their own approach, even if these only differ slightly from other traders. We all bring our own personalities to our trading, which will then be reflected in our trading style and strategy.

We’ll now recap the main trading strategies that we’ve looked at in this module, focusing on the main styles. These include:

• Position trading
• Swing trading strategy
• Day trading strategies
• Scalping trading
• Price action trading
• Algorithmic trading
• Event driven trading

Position trading

We looked at position trading in our full lesson on position trading and swing trading. 

As you’ll have seen in our lesson, position trading is an approach to trading that usually means taking a position in the direction of the primary trend. This can be on a short or intermediate-term basis, usually by looking at a daily chart.

As a position trader, most often, you’d hold trades for multiple days. But it’s more likely you’ll hold them for 1–3 weeks. There are many different approaches for position trading, but they mainly depend on short- to intermediate-term technical analysis.

Swing trading

A swing trading strategy follows the short-term swings in any particular market. Usually, swing trading is done on a short-term basis. It can take place, holding trades for only a few days, but possibly for 1–2 weeks. As with position trading, as a swing trader, there are numerous ways for you to trade. But these mainly use very short-term technical analysis methods.

Day trading

Day trading is exactly what it says, trading within the day. This doesn’t necessarily mean only taking one position for the day. It indicates that all open positions are closed out by the end of your trading day. 

As we noted in our full lesson on day trading, the day trader may take multiple positions within the day. These positions could be both long and short, and will mostly look to use technical analysis tools. You could also combine these with fundamental events.

Scalping

Scalping is a form of trading over very, very short time frames. We looked at this closely in our full lesson on scalping.

You’d recognise a scalping strategy by these characteristics:

• Scalpers look for very small market moves, using extremely tight stops
• Trades may only be open for a few seconds, perhaps a few minutes 
• As a scalper, you wouldn’t leave trades open for periods between 30–60 minutes. This simply wouldn’t be scalping.

When using this strategy, you’d usually look for impulsive moves. Particularly when notable technical support or resistance levels are broken, or on breaking news events. 

Price action trading

In our full lesson on price action trading, we looked at the key factors that make up price action strategies. Price action trading is essentially as its name suggests — trading the price action.

This strategy works by:

1. Finding the dominant price action on your decided time frame
2. You’d then identify the technical pattern or trend on your chosen time frame 
3. Then, you’d enter trades in the direction signalled by the price pattern or the trend

There are many styles that can be used when price action trading. This could include looking at chart reversal or continuation patterns or analysing different candlestick patterns. These include Hammer, Shooting Star or Pin bar strategies. Or you might even look to use a breakout or false breakout approach.

Algorithmic trading

Or full lesson on algorithmic trading looked at the world of algorithms and their function and use when trading.

Algorithmic trading is a trading approach where a set of guidelines are defined and programmed into a computer model. An automated trading process is then established, which is usually defined by price, time and volume. 

An algorithmic trading strategy is a rule-based approach, where defining the rules is critical if you want to produce a profitable strategy. This would usually involve mathematical models and intricate formulas, possibly with some human interaction. 

There are various different approaches to algorithmic trading, which include:

• Trend-following strategies 
• Mean reversion strategies 
• Implementation shortfall strategies 
• Mathematical model-based strategies 
• Volume Weighted Average Price (VWAP) strategies 
• Time Weighted Average Price (TWAP) strategies

Event driven trading

Event driven trading is an approach that looks to take advantage of and profit from various fundamental events. These events can potentially impact a specific financial market, forex market or maybe a broader asset class.

The term ‘event driven trading’ is mainly used to define an approach that focuses on corporate or company events. Earnings reports come as one example. 

However, event driven trading can be more widely used to describe any trading style that sees you analysing and building a strategy around any fundamental event. It’s important that these events have the ability to sway any specific financial market. We reviewed this strategy to a deeper level in our full lesson on event trading.

Event driven trading is a solid strategy approach when it’s applied to individual stocks. But it requires strong analytical abilities that individual traders may not have. However, you can profit from a form of event driven trading, applied to larger macroeconomic and geopolitical events.

Your trading style

There are a number of key factors to take into consideration when deciding on what trading style could suit you best. These include:

• Your situation and the time you can devote to trading
• Your personal make up and psychology
• The goals and aims for your trading
• What ‘feels’ right

First of all, how much time do you have to devote to trading? If you can’t sit in front of a computer all day and monitor current market conditions, then you won’t be able to properly participate as a day trader. It’d certainly be difficult for you to be a scalper. 

If you only have certain times of day that you can devote to trading, then maybe swing or position trading is better for you?

What do you bring to trading from a personal and psychological aspect? If you don’t have computing knowledge and skills, or a strong analytical approach, then algorithmic trading and event driven trading may not be for you. 

If visualising stocks, forex trading and markets via charts is appealing and is one of your strengths, then maybe day trading, swing or position trading would suit you? If you’re looking to make ‘smile’ money or top up your income, then these forms of trading might appeal.

Does holding trades for a very short time period or a longer time horizon appeal more to you and your personality? What are your trading goals? Do you want to trade full time and make a living from it? If so, the short time horizons of scalping or day trading might be the best approach.

Overall, it’s what ‘feels’ right to you that’s important, so you should try to narrow down your choices by answering the questions above. Then try out various trading styles, approaches and strategies using a demo account.

Discover what style suits you, and importantly, what style you find successful and profitable!

Trading styles summary

In this lesson we’ve recapped what trading styles are, the different trading styles and strategies that are out there. We’ve offered a guide for you to decide which could best suit your personality and approach to trading.

The key takeaways from this lesson are:

• Identify what trading styles you can and can’t do. Some may not be open to you because of your time commitments, others may suit you well because of what you bring as an individual to the world of trading.
• Be sure to explore as many of the different types of trading as you can. Do this at first with a demo account, to find out what style might best suit you and your personality.

In the next module on fundamental analysis, we’ll delve deeper into the vast world of trading with a further series of lessons to build your knowledge and skills.