When you trade you need to develop a trading strategy that fits you and your lifestyle. This starts by picking your trading style.
Market Wizard and trading coach, the late and great Dr K. Van Tharp said:
‘One of the biggest secrets of successful trading is finding a trading system that fits you personally.’
Today we’ll look at the five most common trading styles to help you decide which one may be a good fit for you.
The trading styles we will cover are:
- Scalping
- Day trading
- Swing trading
- Position trading
- Algorithmic trading
What is a trading style?
A trading ‘style’ is a way of describing:
- How often you trade
- How long you keep your trades open
- How much time you devote to monitoring your trades
Your personal trading style will be unique to you, and the aims and objectives you set out in your trading plan.
It will be influenced by your personality and by how much time you dedicate to trading.
It’s not something that’s set in concrete, either. You may start off trying one style, and then find that another style is more to your liking.
The different styles of trading and the time commitment required for each one
| Scalping | Day Trading | Swing Trading | Position Trading | |
|---|---|---|---|---|
Time frame | Very short term | Same day | Medium term | Long term |
Positions opened | Many daily | Several daily | Few weekly | Few monthly or yearly |
Holding time | Minutes | Hours | Days or weeks | Months or years |
Chart time frames | 1M, 2M, 5M | 15M, 30M | 1H, 4H | D, W |
Monitoring | Intense | Continuous | Moderate | Occasional |
Scalping
Scalping is an ultra-short-term trading style, where traders aim to make small profits from very quick price movements.
Positions are typically held only for seconds to minutes. Traders who are scalping use one-minute to five-minute charts, spotting quickly-forming chart patterns that signal a trade entry opportunity.
This style of trading requires intense concentration, very quick decision-making, and bucket-loads of confidence!
It’s best left for those more experienced traders who are able to make quick, confident decisions based on a great deal of trading experience.
Scalping is not a style recommended for beginner traders. It’s like the racing car Formula One style of trading, involving high speed and high adrenalin.
Here is an example of a simple breakout strategy on a one-minute chart, showing trades lasting from five to six minutes (many scalping strategies close trades much faster than this):
Day trading
This involves opening and closing multiple positions all within one day.
Trades may be left open for minutes or hours, but are closed by the end of each day. The opening and closing of trades are repeated the following day with new trades.
This eliminates paying overnight financing costs (or nightly ‘interest’) which may be charged for keeping CFDs open overnight.
It also eliminates the stress of holding positions open overnight, as there is always a risk that an asset may gap up or down between trading sessions.
Day trading can be a fast-paced and high-adrenalin form of trading, but not quite as fast as scalping. There is some overlap between these two styles of trading.
Day trading is suitable for most traders with time available to spend monitoring the markets intra-day.
It is a style of trading that involves high concentration, and constant monitoring of positions throughout the trading session.
Here is an example of a day trade using a simple breakout strategy on a 15-minute chart. In this case, the trade lasts for four hours:
Swing trading
Swing traders seek to take advantage of ‘swings’ in price movement within a larger multi-day trend.
Traders hold positions for a few days or weeks, taking advantage of short to medium-term price fluctuations that are seen within a broader trend.
The main goal of swing trading is to capture shorter-term price movements and benefit from market oscillations.
A swing trader relies on technical analysis to identify key price entry and exit points.
This style of trading is the ‘bread and butter’ of many traders, and is highly suitable for beginner traders.
It is most suited to markets that experience relatively high volatility, as these are the markets in which swing highs and lows are most likely to occur.
Here is an example of a simple breakout strategy on a four-hour chart, with the trade lasting for four days:
Position trading
Position trading involves a long-term approach to trading, where traders hold positions for an extended period of time, ranging from weeks to years.
This trading style involves a detailed knowledge of fundamental analysis, and a focus on world-wide (macro-economic) trends.
It suits long-term traders, for example, a forex trader taking advantage of a long-term trend based on the changes made to an interest-rate policy of a particular government.
Following the announcement of the interest-rate policy change, the fx trader may decide to back one currency against another for a long period of time, possibly over a year or more.
This form of trading suits those with a long-term mindset who are happy to monitor their open positions less frequently (daily or weekly).
It is a slower, less risky approach to long-term wealth creation.
Here is an example of a simple breakout strategy using the weekly charts, with the trade lasting for nine weeks.
Algorithmic trading
Algorithmic trading involves using an automated computer system (or ‘algorithms,’ which are mathematical models) to execute trades.
Such systems are known as Expert Advisors or EAs to those who use the Metatrader platform.
This platform allows traders to program their own entry and exit requirements for a trade, and then ask the system to find appropriate trading opportunities.
Algorithmic trading suits traders who have a technical background or are interested in automating their trading rules.
In saying that, it can be good to learn to trade manually first and then later begin to code your rules.
What style of trading is best for beginners?
Swing trading or position trading are suitable styles of trading for beginners.
They do not require you to make instant decisions, and you’ll have time to carefully consider your entries and exits.
However, these styles do not produce instant results, which may be disappointing if you are impatient to grow your trading account.
Day trading is also a suitable style of trading for those who have the time available.
Scalping is a fast-paced form of trading that is best left to more experienced traders.
As a beginner trader, it’s best to decide on one style and strategy for trading and stick to that until you become proficient at it.
Only then should you branch into other styles or asset classes as you become a more experienced trader.
If you want more information, go to our trading course for beginners to find out more.
Happy trading! Till next time,
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Sources
Marketmates uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial guidelines to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
- The Balance Money – Your guide to trading https://www.thebalancemoney.com/trading
- Christopher Tate – The Art of Trading https://www.tradinggame.com.au/product/trading/the-art-of-trading-2nd-edition/
- TradingView.com – Trading charting software TradingView.com
