There are many different trading styles available, each offering a unique approach to investing on the financial markets.
For a successful trader, it’s pivotal to not only learn how each trading style works, but understand the different benefits they can bring to each of your trades, across various financial instruments.
In this article, you’ll find a guide to different trading styles, so you can better choose which one is right for you, at the appropriate times throughout your trading journey.
Day trading
One of the most popular trading styles is day trading.
The fundamental aspect that distinguishes day trading from other styles, is the fact all positions must be closed before the end of the trading day.
It’s not necessarily important how many positions you open.
The key part of day trading is to ensure no positions are left open overnight, and that they’re closed within the same day they were opened.
Day traders aim to make their profit from the market fluctuations and movements within a 24-hour period. Depending on many factors – such as external events and market volatility – these movements can be significant enough to produce substantial profits.
Day trading can help remove the vulnerability that comes with overnight positions, which could suddenly take an unfavourable turn when you’re not present to monitor the market.
With day trading, you’ll have full visibility of how each trade is performing.
Position trading
Position trading is another well-known style of trading. This style revolves around traders opening very few positions at a time, and holding them for prolonged periods.
Position traders can hold active positions for several months, or sometimes even years, before closing them.
The goal of position trading is to profit from the long-term trends of certain assets, and open your position as early as possible, to ride the trend all the way till the most appropriate time of closing.
For instance, you might want to trade AMC Entertainment shares on the stock market, after spotting a potentially long-term, price rising trend.
Depending on your trading experience, you could trade on the stock market through a financial derivative, opening a long position using contracts for difference (CFDs), at the earliest convenient time.
The time you hold your position for depends on the asset’s performance, but the longer you allow the asset to move in the favourable direction, the larger your potential profit will be on closing.
Be sure to monitor market performance constantly, as this will be the key to alert you of the most appropriate time to close your position with the most profit.
Scalping trading
Scalping trading is the opposite of position trading. With this strategy, you open a much higher number of trades at one time, but only hold the positions for very short periods of time.
Many scalping traders will open multiple positions, and only keep them for a few minutes at a time, or even a few seconds if necessary.
The aim of scalping trading is to profit off the short-term fluctuations that occur in the markets, where you can potentially make sufficient profits in short amounts of time.
For instance, this could be opening a position on an asset with a potential sudden price rise, where you can make a quick profit from the incremental price change.
With multiple, small profits, you can potentially end up with a large sum of profit by the end of your trading day.
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Choosing the right trading style is vital to your success as a trader. Now that you know how each style works, you’ll be more equipped to make the right approach to each of your trades in the future.