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How do trading styles differ?

Every trader is differently oriented and prefers different style of trading that fits his personality, time availability and traded instruments. See the article below for the main styles of trading that mostly differ based on how long trader intends to hold his open position.

Position trading

Position traders aim to capture long-term trends that last from few months up to few years. They often use fundamental analysis for the main idea generation, sometimes combined with technical analysis to time entry of the trade. Traders use weekly or monthly price charts and try to ignore short-term price fluctuations in order to capture long-term trends. Main advantages of this approach are the time flexibility it offers and the potential of profiting from large moves in the market. Traders have to be very patient with their positions, but at the same time ready to act when the opportunity comes, because not participating in large trends can have significant impact on their yearly profits.

Swing trading

Swing trading is a style where traders look to capture short to medium-term market moves, also known as swings. They mostly use technical analysis on four hour price charts to identify entry points offering good risk to reward opportunities. Since open positions are held from few days up to few weeks, this style offers time flexibility and traders do not have to monitor their positions all the time. This is why swing trading is a popular style among retail and beginner traders.

Day trading

Day trading is a short-term trading style where positions are never held overnight. Traders focus on capturing intra-day price fluctuations using technical analysis on a lower chart timeframes. This style requires trader to observe the market during the trading session and make quick decisions based on his strategy. Because of shorter holding periods, day traders are able to capture much smaller price moves than swing or position traders. That is compensated by much bigger trade frequency, usually averaging several trades a day.

Scalping
  • is an extreme version of day trading, where traders hold positions for very short period of time ranging from few seconds up to few minutes. They are actively buying or selling throughout the trading sessions, opening dozens or even hundreds of trades. Due to this high trade frequency, traders are looking for a few pips of profit at a time.
  • Day trading and scalping share similar advantages and disadvantages for individual traders. Advantages of these styles are the ability of generating outsized returns due to the high trade frequency and possibility of increasing their buying power through the use of leverage. On the other hand there are many disadvantages, such as the need of constantly analyzing and making quick decisions based on market behaviour. These decisions can be the difference between making or loosing money, which can be very tiring and stressful. Another disadvantage are the costs associated with higher trading frequency, that can significantly reduce their profits. Active traders need to find suitable broker for their trading needs in order to reduce the spreads and commissions to the minimum. For these reasons day trading and scalping are generally considered as more difficult trading styles and are not recommended for beginner traders.

    High-frequency trading (HFT)

    The growth in electronic execution methods in forex market has enabled algorithmic trading, which is a style of trading where computer algorithms analyses certain markets and execute orders based on specific market behaviour. High-frequency trading (HFT) is an algorithmic strategy that profits from tiny price movements with rapid trade frequency executing trades that last only a fractions of a second. HFT plays a significant role in FX with market estimates suggesting it accounts for around 25% of spot forex turnover Since the success of HFT relies heavily on execution speed, firms fight for location as close as possible to the servers of an exchange. This fact combined with the need of having very powerful computers able to run complex algorithms makes competing with high-frequency trading firms nearly impossible for independent traders.

    Vlastimil Bijota is a co-founder of investro.com, who has been dealing with financial markets and blockchain for more than seven years. He is an investor in several fintech compani...

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