What is your personal style? Are you an extroverted person who prefers fast-paced activities that engage your mind, or are you an introverted person who enjoys studying a topic and approaching activities on a more gradual basis? Of course, these are the two extremes of personality types, and we all fall somewhere in between, possessing some of each at one time or another. However, if we lean more to one way or the other, then there is a trading style that will come close to matching our personality characteristics for trading any item in real time.
For example, here are three basic trading styles:
Day traders attempt to enter and exit the market frequently during the day while holding positions that can last seconds, minutes or hours, but are never held open after the market closes. The goal is to react quickly to achieve small gains, but avoid major swings in price direction. Constant market monitoring is a given with this style. You may hear of “scalping techniques” when reviewing this style. Scalpers tend to rely solely on technical analysis to guide their quick-paced trading plans and enjoy this high-stress, high-activity trading regimen. They may open and close as many as one hundred transactions on any given day. Scalping is extremely risky and not all brokers support it.
Commonly referred to as “swing trading”, this approach is not day trading. Swing traders attempt to identify and profit from intermediate swings in price that can last anywhere from a few days to a few weeks. These traders will most likely use a combination of fundamental and technical analysis to guide their entries and exits, and they also prefer to be patient and not sit glued to their trading desk all day. Swing traders may have several open positions at once, but the average holding period tends to be one to four days.
In this case, traders are seeking trends that may evolve over months, based on a studious analysis of economic fundamentals and their interpretation of where the economy is headed and how that may affect prices. You may hear this style described as “Position Trading”. It is the closest trading style that resembles what value investors typically do with their “Buy-and-Hold” long-term strategies, which may ignore short-term market volatility
As you can see, trading styles vary over a time period, which is part of the selection criteria for how you will want to trade. You will need to “know thyself” to determine the proper blend of activity, research, and patience to find a trading style that feels most comfortable for you. Many traders have often said that you trade with your stomach, not with your brain, an indication that if your gut is tied up in knots, then perhaps, your trading style may need to be moderated. All investment styles are about one’s ability to tolerate risk. If you are losing sleep at night, then you may want to gear back a little on your trading activity level.