There are many trading styles but for this blog, we’ll focus on these four: scalping, day trading, swing trading, and position trading.
You can trade any of these trading styles using TradeZero trading software.
Scalping is the quickest trading style with fast executions, generally, a scalp trader is in and out of a position within minutes. Therefore, a scalper is not looking for large moves, instead, a scalp trader is looking to capitalize on small moves that occur frequently often on 1,3, or 5-minute charts and sometimes even on a chart showing only seconds.
Since the level of profit per trade tends to be smaller, scalp traders look for relatively liquid markets to make sure their traders are easily executed. Most of the time scalp trading can be done on both the long- and short side. To short sell hard to borrow stocks, you’ll often need access to premium locates. These can often be accessed when trading at TradeZero, making use of their trading software.
The pros of scalping
- A trader can be in and out of position within minutes.
- With small price variations good profits can still be made.
The cons of scalping
- A large amount of orders can result in higher transaction fees.
- It can requires bigger capital to generate returns (due to the small amount of profit per trade).
- It can be seen as a time-consuming strategy.
Day trading or what some may call intraday trading is perhaps the most popular style of trading. Day trading, as its name implies, is the method of buying and selling securities usually within the same day.
When day trading, positions are usually closed out within the same day they are taken, but sometimes if there is a greater up or downside on a stock, day traders might swing a portion of their position. The goal is to gain even more profits, however, there are certain risks involved and a day trader should be aware of all of them.
For example, if a day trader is short-selling a stock and holding some of his shares overnight and positive news is published about or by the company, the stock could gap up significantly in the less liquid markets of after hours and premarket.
The pros of day trading
- Can immediately capitalize on volatility; and
- It is among the most exciting, fast-paced methods of trading.
The cons of day trading
- The trader may pay multiple transaction fees due to higher amounts of orders;
- The trader may generate smaller incremental profits as opposed to bigger wins from holding a position for a longer period.
Swing traders are generally looking for big trend breaks to enter and ride that trend for as long as possible. At the end of a trend, there is usually some price volatility as the new trend tries to establish itself. Swing trades are commonly held for days, weeks, and even months. A swing trader does not need to sit in front of the screens all day, this makes it a popular trading style for people who have other commitments such as a full-time job. Swing traders may choose to make use of both technical analysis and fundamental analysis, since positions are held longer it is important to know some of the underlying fundamentals of the stock to prevent any surprises that may occur.
The pros of swing trading
- It can require less time and attention watching screens than day trading;
- It can have higher potential for larger returns per an individual trade.
The cons of swing trading
- The trader may be sitting in a position for months only to be disappointed to end up taking a loss.
Position trading can be seen by some as a buy-and-hold strategy rather than active trading. However, position trading, when done by an advanced trader, can be seen as a form of active trading.
Position trading uses longer-term charts anywhere from daily, weekly, or monthly, in combination with other methods to determine the trend of the current market direction. This type of trade may last for several days to several weeks and sometimes longer, it all depends on the duration of the trend.
Position traders could benefit from both the up and downside of market movements. Position traders look to determine the direction of the market, but do typically try to forecast any price levels.
Typically, position traders jump on the trend after it has established itself, and when the trend breaks, they usually exit the position. This means that in periods of high market volatility, position trading is more difficult and positions are generally reduced.
The pros of position trading
- May be seen as less stressful due to less consistent exposure to high volatility.
The cons of position trading
- Often requires patience to recognize long-term changes in a security’s price.
There is no right or wrong in terms of what trading style to choose, there are pros and cons to every trading style mentioned above. In the end it is the trader that must choose the trading style that fits best with their day-to-day schedule and personality.
Capital Index. (2022, August 20). DIFFERENT TYPES OF TRADING STRATEGIES. Retrieved from Capital Index: https://www.capitalindex.com/bs/eng/pages/trading-guides/different-types-of-trading-strategies
Investopedia. (2022, August 20). 4 Common Active Trading Strategies. Retrieved from Investopedia : https://www.investopedia.com/articles/active-trading/11/four-types-of-active-traders.asp
This content (“Content”) is produced by Bram Pierik. The Content represents only the views and opinions of Mr. Pierik. Mr. Pierik’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Mr. Pierik is compensated by TradeZero for producing the Content and may also receive compensation for customers he introduces to TradeZero.
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