When it comes to becoming a successful trader, one of the first decisions that a trader must take is to select a trading style that can suit their personality and their lifestyle. If you understand the differences between these 5 trading techniques, then you can see how each style is unique and comes with its own set of characteristics and challenges and choose the one that is best for you.
1. Day Trading: The Fast Lane
Day trading means that you make multiple trades in a day and treat trading as a full-time job. Day traders must constantly keep a check on trends, use advanced trading charts to constantly keep a check and identify a good time to enter or exit opportunities. Their main purpose is to earn as much as they can daily, and they do this by trading as much as they can and try to cancel out the losses by doing so. They work independently and with the thrill of gaining or losing a lot. A disadvantage of day trading, according to the U.S. Securities and Exchange Commission (SEC) is that the traders usually suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.
2. Swing Trading: The Middle Ground
A swing trader works in and out and not constantly. They can take a few days to figure things out and then make trades on stocks, commodities and currencies over time after analyzing trends of a few weeks or days. They do not make it their full-time job, but some might work as day and swing traders, both. And if you have knowledge about trading and have capital to invest, then you can also give a shot at swing trading. You could have a day job and still swing trade as you do not have to constantly monitor your screen.
3. Position Trading: The Long Game
In position trading, investors hold on to investments for a long and extended time, for months and even for years. They focus on long-term trends and make capital on large shifts and significant market trends. It is also a very relaxed approach as traders do not have too much time pressure, and they can take their time trying to understand things and notice trends and making decisions, while keeping in mind the trends that they have seen overtime. However, it requires a lot of diligence and intelligence and a lot of trust and belief in the investment that the traders choose.
4. Scalping: Speed and Precision
Scalping is a trading strategy through which traders try to gain huge profits by investing small amounts in the market. They are not traditional traders who hold positions, but make money by selling commodities, stocks and cryptocurrencies in very short timeframes and try to make as much profit as they can so that by the end of the day, the small profits add up to a huge amount. While day traders open positions and hold them for hours and minutes, scalpers open and hold them for only seconds to minutes.
5. Algorithmic / Quantitative Trading: Code Over Emotion
In algorithmic trading, there are set computer programs that analyze patterns on market data, timing, and price movements to reach decisions. Since the human factor is eliminated, it also eradicates the chances of making decisions emotionally or irrationally. It uses historical data and already sets rules so that traders only must focus on creating good strategies and do not have to spend time on monitoring trading patterns. If you are low on capital, you can also look for funded trading accounts. So, how do funded trading accounts work? Simply explained, they are accounts where traders are given sufficient capital to trade on a scale that can lead to profits and then their funds are split between them and the investors. This is beneficial to both parties, as traders with no capital can earn and firms can maximize their capital too.
Conclusion
If you are wondering what strategy is best for you, then you can think about what your individual psychology is like, what your aim is towards trading, how much time you can spend on trading, and what just feels right. You can also try out different strategies and create demo accounts to try it out before you finalize what suits you the best.
