Essentially there are four major trading styles, the difference being the length of time traders hold their trades.
Not all traders trade the same way, which can be attributed to their individual experience and personality.
– Scalp trading: trades many times in a short period by taking small trades within a short time frame. These traders, known as scalpers, can hold trades for seconds to a few minutes.
– Day Trader: trades based on intra-day price movements and holds positions for several hours.
– Swing Trader: takes position in the direction of the trend and holds it for many days.
– Position Trader: trades in the direction of a long-term trend and holds it for a matter of weeks or months.
There is no right way to trade, but everyone has their own methods, tactics, techniques and beliefs that make them unique as traders. In this article, we’re going to cover the four most common trading styles to help you align yourself with your style so you can be successful trading forex.
A Scalper is a trader who trades many times in a short period by taking small trades with a short holding time frame. This style is challenging to master because the scalper needs to make as many small gains as possible to make profits. Ideally, he/she will take many small profits and run or minimize their losses because there are so many opportunities that they can decide to trade. Scalping involves making hundreds of trades and holding most of them for mere seconds or minutes before moving on to the next trade. Most scalpers are day traders due to the frequency of trading opportunities, but some stay up at night to further capitalize on price movements.
A Day Trader’s trading style is based on intra-day price movements and holds positions for several hours. This kind of trader can take an active role in the market’s activity by taking positions, managing his/her risk and sticking to a trading plan. Day traders don’t trade very often compared to scalpers, but what they do have is the ability to estimate if the market will move in their favour or not regarding the direction of the trend. Day traders also need to have a clear picture of the market and their trading decisions related to the overall market itself. They are often active traders, but they try to remain within their trading plan while monitoring the market’s stability and taking trades when they see a suitable price point.
A Swing Trader is a trader who takes a position in the direction of the trend and holds it for many days. People who prefer this style of trading. Most Swing Traders are considered Day Traders because they trade intra-day and day-to-day based on their analysis while keeping an eye on longer-term trends. These traders track the market to see if there are a trend and trade nearly every day to take advantage of these prices. This trading style is often used by day traders who want to make long-term investments rather than trade in the day-to-day.
A Position Trader is a trader who trades in the direction of a long-term trend and holds it for a matter of weeks or months. These traders often swing traders who are consistent and don’t like to make short-term trades that don’t fit their overall plan. These traders typically use both technical analysis and fundamental analysis to identify trends and predict future outcomes. Position Traders choose which way the market will move because they know this trend will last longer than short-term trading opportunities. They never try to catch a breakout or look for a pullback because they’re looking for the long-term trend, giving them the best results.
Factors to consider when choosing a trading style
When choosing your trading style, you first need to know yourself. Are you an impulsive trader? Do you make rash decisions? Or are you someone who likes to think things through? Understanding how you interact with the market can make a big difference in your trading success. If you’re someone who tends to act quickly out of fear or impatience, then it’s probably best that you stick with Scalping and Swing Trading, where there are less riskier trades and more opportunities for small gains.
Which is the most preferred trading style?
Scalping, Swing Trading and Position Trading are the most popular trading styles because they correspond to traders’ fundamental needs in today’s markets. Scalpers like to take advantage of volatile markets by making hundreds of trades in a short amount of time, but if they don’t manage their trades properly, they can end up losing a lot of money. Swing Traders love to wait for a trend to form, but if they don’t plan or manage their risk correctly, they will lose all their money. Being careful and focusing on long-term investments rather than taking small profits are two big secrets to successful trading for position traders who trade over multiple weeks or months. It is essential as a new trader to understand yourself to choose the trading style that fits your personality.