Like with ice cream, everyone has their favorite. The same goes for traders, everyone has their own preferred trading style. Some traders may open one or two trades a week where other traders use of intraday trading or scalping. In this lesson, we look at the different trading styles and help chose the best trading style for your personality and risk appetite.
Day Trading or Intraday Trading
As a day trader, you hold positions for a brief time (from minutes to hours), make many trades a day, and usually enter and close your trades on the same day. This trading style suits traders who plan ahead but would not be able to sleep at night knowing a trade is left open and could be affected by market movements overnight. All trades are closed prior to finishing for the day.
Swing trading is like intraday trading, but it has a longer trading horizon between hours to a few days. Swing traders don’t expect their trades to become profitable immediately but they have the patience to wait for the trade to become profitable. Swing traders may set up larger stop-losses and would become paranoid if the market moves against them in the short term.
Position trading is the longest term of trading. Position traders will hold positions open from weeks to years. It’s the complete opposite of intraday trading because you are more interested in long-term investment than in short-term price changes. Position traders may target several thousand pips rather than short term gains.
Scalping is very short-term trading. This means often opening trades seconds apart. The aim of scalping is to make many small profits during a single trading day. Scalping is suited to traders who tend to be more impatient however they are confident about their decisions and not easily distracted. Being a successful scalper requires focus and dedication in order to execute the right trades at the right time.
Being Faithful to your Trading Style
Choosing a trading style requires the flexibility to know if it is working for you or not. However, it also requires the consistency to stick with the right trading style even when it is not performing optimally.
One of the biggest mistakes that new traders can make is to change trading styles (and trading systems) at the first sign of trouble. Constantly changing your trading style or trading system is a sure way to catch every losing streak. Once you are comfortable with a particular trading style, remain faithful to it, and it will reward you for your loyalty in the long run.
In our next lesson of your Forex trading course you will learn some essential Forex terminology every trader needs to know.