How to Find the Right Trading Style
Education - | 09 Sep 2019
Finding the right trading style will be a difficult, but crucial part in your path to become a professional trader. It is impossible to determine which style suits you best in the beginning, even after doing personality tests and trying to find the appropriate one based on the results. The best way to find out which trading style is the correct one for you, is to try them out either in a demo environment
There are four main trading styles:
- Day Trading
- Swing Trading
- Position Trading
When scalping, traders are trying to take advantage of small intraday price moves. Some even have a target of only 5 pips per trade, and trade duration could vary from from seconds to a few minutes. Scalpers need to be good with numbers and be able to make decisions quickly, even when under pressure. They also usually spend more time in front of the screen, and tend to focus on one or a few specific markets (e.g. only scalping EUR/USD or only S&P 500 futures).
The advantage of being a scalper can be that it allows you to focus on the market in a specific timeframe, and you do not have to worry about holding your positions overnight or interpreting long-term fundamentals. However, scalping comes with a lot of pressure as you need to be fully focused during your trading session. Furthermore, it is easier to make mistakes and react emotionally when your trades are running only for minutes. It may therefore not be the best trading style for beginners.
Day traders usually do not hold trades only for seconds, as scalpers do. However, their trading day also tends to be focused on a specific session or time of the day, when they try to act on opportunities. While scalpers might use a M1 chart to trade, day traders tend to use anything from the M15 up to the H1 chart. Scalpers tend to open more than 10 trades per day (some highly active traders might end up with even more than 100 per day), while day traders usually take it a bit slower and try to find 2-3 good opportunities per day.
Day trading could suit you well if you like to close your positions before the trading day ends, but do not want to have the high level of pressure that comes with scalping.
Swing trading is a term used for traders who tend to hold their positions open for multiple days. They might use anything from a H1 to a D1 chart, or even weekly. Popular trading strategies include trend following, range trading or breakout trading.
Traders who choose this type of trading style need patience and discipline. It might take days for a quality opportunity to show up, or you might end up holding a trade open for a week or more while running an open loss. Some traders do not have the necessary patience, and close their trades too early.
If you like to analyze the markets without any rush, and are comfortable with running positions for days or even weeks – swing trading might be the right trading style for you. It also gives you the opportunity to include fundamental analysis (trying to anticipate monetary policy moves or political developments) – which is futile to do in scalping.
The goal of position trading is to capture profits from long-term trend moves, while ignoring the short-term noise occurs day to day. Traders that utilize this type of trading style might hold positions open for weeks, months and in rare cases – even for years.
Along with scalping, it is one of the more difficult trading styles. It requires a trader to remain highly disciplined, able to ignore noise and remain calm even when a position moves against him/her for several hundred pips. Imagine for example, that you had a bearish outlook on stocks in early 2018. You shorted the S&P 500 at the beginning of the year, with the intention of keeping the position open for the rest of the year. While you would have enjoyed the price movements at the beginning and the end of the year, the rally from March to September could have been a painful experience. Only few traders have the discipline to keep their positions running for such a long-time period.
How can you find out which trading style suits you?
Test them out in a demo environment with virtual funds. When you get a feeling for which one suits you the best, you can consider testing it out in a live environment. Not even then is the process finished. Some traders might find day trading suitable for them, but then change to swing trading later in their trading career. Just as the market environment constantly evolves, so do traders and their preferences.
In addition to that, you can take one of the many free personality tests on the Internet, which might provide you with further insights.
Finally, if you have a live account with AxiTrader, you will be able to access the Premium Analytical Tools from PsyQuation for free, which also include behavioral analysis. https://psyquation.com/en
The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
Education - 15 Min Read
Forex 101: The Ultimate Guide to Forex Trading in 2020
AxiTrader Team | 30 Mar 2020
Learn the basics of FX Trading with this FX 101 guide if you want to participate in the world's larges and most liquid market.
Managing Risk in Volatile Markets
Milan Cutkovic | 23 Mar 2020
Managing risk is critical, particularly in volatile market conditions. Learn the top 6 ways on how to manage trading risks with this post.