Trading Styles: Which One is Your Preferred Style?
When we talk about trading, there is not just one way to do it. There are many different trading styles. In this article, we will explore these styles, how they differ and which one could be the best for you.
The act of trading involves the buying and selling of securities looking to profit from short term movements in the market. The securities in this instance happen to be cryptocurrency rather than stocks but the mentality is the same.
There are various methodologies when discussing trading and they all have their own strengths and weaknesses. When picking a style, you have to balance these along with the inherent risks as well.
The four most common styles of trading are:
- Intraday trading
- Swing trading
- Position trading
Let’s have a look at these one at a time.
Trading Style #1. Scalping
You might hear about scalping in relation to ticket sales. Scalpers buy something that you know will rise quickly in price. They then sell it off quickly to realize the profit immediately before they can suffer any loses. This is the same for scalping in the trading world as well.
This is an aggressively active trading style but is a quick strategy which does not take a lot of time. It involves an aggressive buy and then a quick turnaround to sell those with a profit. This method looks to exploit the small and frequent price changes that happen during the day instead of large price movements.
It would also take advantage of the spread of the bid and ask prices on the order books. Because of this, the profit from each trade is comparatively small. The space between buying and selling is very short to minimize the risk of loss. With a very small profit, a singular loss could counteract many trades worth of gains.
It is important for scalpers to look for very liquid markets to ensure that trades are immediate so they can act without hesitation. They also prefer quiet markets without a lot of sudden price movements. This is so that they can make repeatable profitable trades from the spread of prices.
Trading Style #2. Intraday Trading
Intraday trading, or more commonly day trading, is a term that people know about. When a person thinks about traders, this is probably the style they are thinking about. This is the trading that you see in “Wolf of Wall Street”. This is an active trading strategy which looks to make trades which start and close on the same day.
This sort of trading uses many technical analysis techniques to try to predict the price moves over the day. The plan is to exploit when the price should be at the lowest to buy and then sell when it should be the highest. They can build a profit from the difference between these.
This type of trading is traditionally one which does not involve overnight positions as the stock markets would close overnight and the next day could start with a wildly different price and throw your analysis out of the window. However, the crypto markets do not sleep, and the importance of intraday trading is to continually monitor and analyze the price movements over the entirety of the time you are trading to react accordingly.
This is generally a method which professional traders spend a lot of time to keep their trades in check. The ability to correctly analyze and predict the market is a barrier to entry. However, the expansive collection of knowledge on the internet and software has made this much easier on a novice trader.
Trading Style #3. Swing trading
Swing trading involves holding positions for trades over the course of a set period of days to try to gain profits over the period’s short-term market moves. This requires the market to be generally moving in one direction mostly so that you can ride its momentum.
The swing trader does not have to monitor the trades so finely as the amount of time would make this untenable. Instead, they must be cautious and set up stop-loss orders. This is so that in the event of unfavorable price moves, the losses will be minimal. The swing trade must have the patience to wait for the right opportunity where the market reaches the perfect condition to start swing trading.
The skill to know when to start, along with the confidence in correctly safeguarding with stop-loss orders is a high barrier to entry for this type of hands-off trading but this can result in much larger profit margins for less overall work. The majority of the work is in the research and set up.
Trading Style #4. Position Trading
Position trading is the most HODL of all the trading strategies. This methodology has the trader buy and hold over a long time. Holding over this time is called a position, hence position trading.
Traditionally, position trading would hold their position of a few days to several weeks. It is now popular to almost indefinitely hold their position.
The popular cryptocurrency meme of HODL came from a misspelling of “hold”.
Position trading is a very passive strategy which relies on good research and analysis to recognize trends. When the market is ready to trend towards growing in price, the traders will buy in and ride the wave all the way to the top.
After careful analysis, the trader needs to hold their position over the time period even in the face of major fluctuations. You have to be highly patient and calm while position trading. If you are all about those short-term changes in the market, this may not be the style for you.
Picking a Style – Advantages and Disadvantages
All of these trading styles have their own advantages and disadvantages. If you want to spend more time to ensure your trades remain profitable, then scalping or intraday trading may be better for you. However, if you have the analytical skills you could set up swing or position trading to collect profits without your constant monitoring.
For a new trader, choosing a style can be a daunting task. In practice, you could try each style on a small scale to experience each. It is better to pick a trading style which will be the most compatible with your personality and level of skill. The ability to manage the risk correctly for each style is also necessary.
Well, what are you waiting for? You know about the styles now. You can start trying out the styles on a small scale on iCE3X before you start to ramp it up. What style jumps out to you the most? What has been your experience with these styles?
Be sure to go through our Free Trading Course to learn more about the basics of trading. Pro tip: we have an amazing trading view for our platform on iCE3X which really streamlines the trading data, allowing you to trade with ease and confidence. We also have a youtube video showing you how to navigate the trading view below.