Every person is different and, hence, trades differently. It is vital for every trader to determine which of the four primary trading styles – day trading, position trading, scalping, and swing trading – suits them, and their long-term needs and goals.
The key difference between the four trading styles introduced above is the length of time each trade is held.
Among these, the shortest trades are the so-called scalping trades. These are typically held for only a few minutes at most. Meanwhile, the most prolonged trades are position trades, which could potentially be maintained for many years.
As a new trader, it is vital that you understand which trading style best fits your personality, and then choose that.
Scalping trades are conducted quickly and require lightning-fast decision-making. In fact, this is often so fast-moving that the only way to do it effectively is to use computer programs that are designed to buy and sell trading instruments for you – what is often referred to as algorithmic trading.
Traders who are impatient by nature may find scalping suitable to their trading needs since they require profitable trades and would not think twice about exiting a trade if it is going the other way. Apart from this, scalping requires an ability to concentrate and focus deeply and, hence, is not ideal if you tend to get easily distracted.
Day trading is ideal for traders who like to finish a task before the day is over. Succeeding at day trading requires discipline to ensure you can identify potential trading opportunities, and to refrain from doing anything when the market isn’t giving you those opportunities. Lastly, you also need the discipline to ensure you follow your trading plan.
Traders with personalities suited to day trading would not be comfortable dealing with trades that carry over to the next day, which is common in position and swing trading. Such trades can potentially be affected by price movements during the night while you’re asleep, so if you’re someone who likes to wrap up things before you hit the sack, day trading is for you.
This form of trading is ideal for those who don’t mind waiting for things to fall in place. While swing traders may have to wait before they enter a trade, they expect positive results quickly.
Most of the time, swing trades carry over to the next day, so this trading style isn’t suited to you if you get anxious while you’re away from your computer.
Typically, swing trading demands a more significant stop loss, so a swing trader must stay calm even when things aren’t going in their favour.
Position trades last the longest and are suited to traders who don’t require too much excitement, and are patient.
Apart from this, position trading also demands that you have the ability to stay on course for long periods of time. After all, a position trade may need to be held through both bullish and bearish market environments.
Since these trades are held for such a long period, position traders also know that things may potentially turn around. Discipline, proper planning, and the ability to follow through on a plan are key personality traits for any position trader.
Learn to stick with your trading style
Remember that the trading style you eventually opt for should feel comfortable for you to stay consistent with. You need to be determined enough to stick to your trading style even when the going gets tough. This is not something we just say, it is perhaps the most essential rule for success in forex trading.
Now that you have learned about the different trading styles and what characterizes them, what trading style do you think suits you the most? How did you make your decision? Feel free to let us know in the comments below!