Trading Styles : 4 Types of Trading Strategies
Once that you have decided to test waters of trading , you need to decide which trading styles are right for you. There are different types of traders in the market. Depending on your capital and time that you have you can choose your trading style.
There are 4 types of trading styles based on time frame that is used for trading.
| Trading Style | Timeframe of Trading | Candlestick Used | Capital Required |
| Position Trading or Investing | Long term (Months or Years) | Weekly / Daily | Large |
| Swing Trading | Medium term (Few days or weeks) | Daily / Hourly | Large |
| Day Trading | Short term ( Within one day) | 5 min / 3 min | Small |
| Scalping | Very Short term ( Few minutes) | 1 min or less | Large |
Types of Traders In Market : Position Trading or Investing for long term wealth creation
Position trading or investing is a form of long-term trading styles, and one trade can last for months or even years. It is also popularly known as Buy and Hold. In this investment style , only way you can make money is if the stock price goes up.
There is no profit if the stock goes down and hence one needs to diversify the portfolio. If you invest all your money in one stock and that stock goes down then you lose all your money.
Hence in investing or position type of trading styles it is necessary to chose stocks from different sectors and balance the investment and protect from sudden fall in one of the sectors of the economy.
Investors are Looking to buy quality stocks at good valuations, and hold on to them, over long term.
Fundamental stock analysis is mostly used, before taking trade decisions, sometimes it is also coupled with weekly candlestick charts.
You need large capital to make decent amount of money with this style of trading. No intermediate or monthly income is generally possible . Investors, need to hedge their positions, in order to protect their portfolio, from downside risk. This type of trading is more passive in nature.
Traders who o not have patience and want to feel the rush of the trading business should not opt for this style as you will be taking very few trades in one year.
One must be patient to see through both , the bull and bear phases of the market. Once you make an investment it may take some time for the stock to give you large profit and it may also see some downside during intermediate period.
Trader must have the patience and not let go of the trade to become profittable.
This type of trading or trading style tests the patience of the trader.
Types of Traders In Market : Swing Trading.
In Swing trading type of trading styles, traders hold on to the assets for several days, or weeks, and try to profit from price movement also known as Swings.
A stock in a trend, or moving sideways will always have ups and downs. Swing traders, are trying to capture these ups and downs to make profit. Swing traders try to buy at swing low and sell at swing high.
Traders mostly use technical analysis using daily charts for swing trading. This type of trading styles Candlestick patterns , support and resistance , moving averages are popular among swing traders. Swing traders are looking for price change over several days because of a news, earnings release or any other catalyst. A swing trader can be a bull or bear or change his position depending on situation in the market.
Various candlestick patterns such as Hammer , Invented Hammer , Shooting star are popular among swing traders.
In swing trading you can make money on both sides of the market especially if you are trading futures contracts. You can either buy or sell depending on the
Position sizing and pre-defined risk – reward ratios form the backbone of this style of trading. Traders can earn monthly income in swing trading.
Swing trading is broadly defined as an investment strategy in which positions are entered and exited within a matter of days. Generally speaking, swing trading is a slower trading strategy than day trading, in which assets are bought and sold within hours.
As part of the investment strategy, swing traders actively seek out peaks and troughs in the price of a particular asset. This information helps create predictions regarding future price motion that the swing trader can use to generate profit. Although there is no assurance, of course, that past actions will be reflected in future trading, swing traders leverage a trove of historical data alongside current activity to determine what their best course of action will be.
One needs to be active as a trader and continuously look for opportunities to trade. This style of trading is suitable for people, who want to make trading as a full-time job , it is also suitable for people with existing job, or business as a side hustle.
Types of Traders In Market : Day Trading
In day trading type of trading styles, trades are closed on the same day and no position is carried forward to the next day.
Day traders are types of traders that hold on to assets for few hours. This style of trading is fast paced and can be stressful at times. Day trading, is demanding in terms of time and efforts and requires a lot of screen time.
This style of trading, requires a lot of discipline in terms of position sizing and stop loss, to be successful as a day trader. Stock or asset selection, is very crucial to be successful in day-trading.
Traders can make money only, if the selected stock makes a big move on that very day. Traders use 3- or 5-minute candle-stick charts along with indicator set-ups for trade entry and exits. Intra-day support and resistance , Break out strategies, V-wap and use of oscillators are very popular in day trading.
Day trading has potential to earn big money but, the risks are also high. Many brokers offer large leverages for day trading , this means, a person can trade bigger size with a small trading account.This can be helpful and also dangerous at the same time, as you can pile up large losses very quickly.
Day trading is generally suitable for those who can spend a lot of time in-front of the screen. It is difficult for people with existing job to day trade, however some assets can be traded throughout the day and people with a day job can trade these assets. Brokerage and slippage become really important and can significantly erode profits.
Overall day trading, is a high risk , high reward game and one must be careful before entering into it.
Trading Styles : Scalping Trading
Scalping, is actually a form of day trading. It involves buying and selling of a financial asset within a span of minutes, or in some cases even within a minute. Scalping is a fast-paced activity for nimble traders. It requires precision timing and execution.
A trader may take 100 or more trades in a single day. Traders use 1 minute or even lower time frame charts , candlestick patterns , trade signal tools to make quick profits.
Scalping is geared towards profiting from minor price changes in a stock’s price. Scalping utilizes larger position sizes for smaller price gains in the smallest period of holding time.
Trader generally needs to trade large quantities to make any decent profit. Brokerage and slippage can also reduce the profits quite significantly and trader must of very careful of that.
Computer programs and algorithmic trading techniques are often used for scalping.
Traders who adopt this investment style rely on technical analysis as opposed to fundamentals analysis. Technical analysis is a type of market analysis that focuses on a security’s past price movements, usually with the help of charts and other data analysis tools. With historical price information in hand, scalpers can observe patterns and predict the security’s future movements as they set up their trades.
Scalping is purely based on technical analysis, and short-term price fluctuations. Due to the extensive use of leverage, scalping is considered a high-risk style of trading. Scalping is very niche and a difficult style of trading.
Summary
In summary, investing is a long-term , passive style of trading and traders make profit by long term trend in stocks.
Swing traders look to make profit by using price volatility over several days.
Day traders and scalpers are looking for intra-day volatility in selected stocks for making quick profits.
All these styles of trading are equally challenging to master and require significant amount of time and efforts to be put in.