In this article, you will learn more about these different trading and investing styles:
- Day Trading
- Scalp Trading
- Swing Trading
- Position Trading
- News Trading
Traders and investors approach their financial goals in their own individual ways, but broadly speaking, there are five different styles from which to choose. The following styles apply to the Forex and Stocks, ETFs, and Indices markets.
Day trading is also known as intraday trading.
During weekdays, trading hours extend across Asian, European and US time zones. This means you can trade at any time. Day traders tend to limit their trading to a 24-hour period, entering and exiting trades on the same day.
Trades placed using this style can last several hours and are often based on four-hour or hourly time frames during research using technical analysis charts. A feature of day trading is frequent trades. When day trading, trades and investments are normally closed out by the end of the 24-hour period within the context of their time zone. The idea behind this is to prevent any overnight losses because of unexpected volatility.
The aim of day trading is to take advantage of short-term movements in the markets, which is why this style of trading requires a lot of time and close attention. Risk management techniques such as stop losses are important to consider here.
Scalp trading is part of day trading, with the difference that scalpers enter and exit trades much more quickly, sometimes in minutes or seconds. The aim of scalping is to get in and out of a market position, taking the shortest-term opportunities. Gain experience by practicing on a demo account and use demo funds before trading with your capital.
Like day trading, scalping needs plenty of time and attention, as well as research, risk management and experience.
Once swing traders enter a trade, they may take several days to exit. The aim is to capture individual opportunities over a broad market movement such as a clear downward or upward trend. In the case of a downward trend, a swing trader may look to open a short position as early as possible and exit when the trend bottoms out. In an uptrend, the idea would be to open the position at the lowest possible price and exit the position at the highest possible price within the trend.
There are fewer trades made in this scenario, meaning that swing trading is less time-intensive, but like all trading, it requires attention, research and risk management for long-term achievements.
Position traders tend to take long-term positions lasting months or years and ignore short-term ups and downs in the markets.
Positioning could also refer to taking strategic positions during cyclical market movements or making strategic trades during Initial Public Offerings (IPOs). By cyclical market movements, we mean sectors which move up or down with the economy, like construction or real estate.
Precision trading can also be referred to as positioning. In these cases, traders may take a position just when the market opens in each region in order to take short-term advantage of institutional trading from hedge funds and central banks. The flow of resources from institutional trading can move markets on a short-term basis. Central banks in particular have an interest in trading gold and currency instruments as these are used as reserves for the financial system.
Another major trading style is news event trading. Each time a country announces an economic performance update, Forex traders see it as an opportunity to take positions on the outcome. News trading events happen each week day and coincide with other trading styles, such as day trading and swing trading. Trading news events may have a short-term impact on the market during their release, but over time, they reflect a long-term trend in the economy.
The time needed depends on the frequency of the trading events on which each trader decides to trade, but as in all the other styles, risk management and solid research are fundamental for improving performance.
Lastly, there are a few other factors to consider. Choose your goals carefully, keep them realistic and understand your own risk appetite to avoid getting in over your head as a beginner. Only invest or trade the capital you can afford to lose, and keep track of your performance with a trading diary to help you analyse your success versus failure rate and your risk versus reward rate.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.