There are different kinds of trading styles available for the average trader to employ. These trading styles depend on several factors such as the timeline of a trade, your risk appetite, your trading confidence, and your decision-making skills. Adopting a trading style that aligns with your personality is crucial. If you’re a beginner trader looking to identify your own trading style, read this short explainer.
This article at a glance:
- Your trading style depends on your risk appetite, trading timeframe, and ability to conduct fundamental or technical analysis.
- It is also based on your trading psychology, or your emotional state when trading.
- There are broadly four trading styles for beginners to try out.
What are trading styles
Determining your preferred trading style is part of your overall trading plan. It dictates what strategies you employ when you’re making trades in the market.
While your trading style can depend on your risk appetite, trading timeframe, and ability to conduct fundamental or technical analysis, it also incorporates your trading psychology, or your emotional state when trading.
Best trading style for beginners
There are four main trading styles that beginner traders can choose from, and they include the following:
Day trading is a style where you open and close trades within a single day, never leaving positions open overnight. Day traders monitor market movements closely and often close several trades within a day’s time frame. The main advantage of day trading is that traders do not have to pay overnight costs. However, this trading style can be time-consuming and requires disciplined market analysis.
Scalping is a fast-paced trading style, involving closing positions within seconds or minutes of opening them. Scalpers are not looking to benefit from bigger trends. They hold positions for shorter durations but trade at a higher frequency. In this way, they hope to accumulate small amounts from short bursts of trading. One of the advantages of scalping is that you don’t need to know a tremendous amount about a stock to see a profit. That said, scalping can be expensive since there are higher transaction costs associated with opening several trades.
Position trading involves purchasing financial assets and holding them for long periods, such as weeks or years. It is a crossover between active trading and passive trading, and many consider the style a passive buy-and-hold strategy.
With position trading, traders continue to hold these positions despite price volatility. Advantages of position trading include lesser time and attention required compared to day trading or scalping. Further, short-time market fluctuations do not influence the overall outcome of your trades. At the same time, missing out on short-term opportunities is one of the disadvantages of this trading style.
Swing trading involves holding securities for several days, based on price movements. With swing trading, you use technical and fundamental analysis to look for trading opportunities and study price patterns. Swing traders try to profit from volatility when their analysis tells them that the trend is about to change.
Advantages of swing trading include utilizing a risk/reward ratio to take profits, but traders with this style must remember that they are subject to weekend and overnight costs.
What is the best trading style for me?
Here are a few traits that work with each trading style:
You’re a one-and-done type of person
If this sounds like you, you may be best suited for day trading. Day traders start and finish trades on the same day, and don’t like to leave active trades overnight. When you leave an active trade overnight, there is the risk that price movements could affect it.
You’re quick on your feet
If you can make quick decisions with no hesitation, then scalping could be the most appropriate trading style. Scalping involves making different trades seconds apart. It also involves exiting a trade right away if you think it’s going against you.
You’re patient and calm
Patience is essential in swing trading. The majority of swing traders hold their trades overnight. Likewise, swing traders need to be calm and level-headed if a trade goes against you.
You don’t mind waiting
Position trading is a more laid back approach to trading, suitable for those traders that do not want to monitor markets closely and on a daily basis. Instead, they prefer to open a position and wait to see how the trend moves.
Now that you know the different kinds of trading styles, and which traits pair with each, try them all out on a demo account to find the perfect fit.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorized to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.