Which trading style is best for you?

One of the cornerstones of a successful trader should be a robust and well-tested strategy. Before fine-tuning a strategy to perfection, however, every trader should be clear about what type of trader he is (or wants to be), or what trading style suits him best.

Trading is an individual sport; there is no one-size-fits-all approach for all traders. Although many novice traders try to copy the approach and strategies of more experienced traders or mentors, they eventually realize that the ideal approach is to adapt the chosen strategy to their own style. In short, we are all individuals, each suited to something different and each pursuing different goals.

Know yourself

Once you've got your bearings in the market, you should get clear on your trading priorities and figure out what type of trader you are and what style might suit you. Several key factors will influence your decision making.

Personality

It is a good idea to clarify whether your strengths include patience and analytical thinking, or whether you are more likely to make decisions impulsively and advocate quicker action. It is very important to know your personality and choose an approach that you are comfortable with and that suits you.

Risk tolerance

There is a big difference in whether you are able to handle high volatility in the markets and are willing to take more frequent risks, or whether you tend to avoid more emotionally demanding activities and prefer a more conservative approach.

Time requirement

How much time you are able to devote to chart watching or market analysis on a daily basis must ultimately influence your trading style. If you are not able to watch the charts for several hours a day and react immediately to market events, you cannot make money by scalping.

Education and knowledge

A lot depends on your knowledge and experience of market events, or technical or fundamental analysis, and which approach suits you better. Knowledge of mathematical models and quantitative analysis, or programming experience, can also play a big role.

Capital/account size

You cannot expect high profits with small capital, nor can you rely on opening a large number of trades during the day, as margin requirements will probably not allow you to do so.

Financial targets

This is not so much about trade size and capital. Rather, it's about whether you're willing to take risks to make the highest possible profits, or whether you'll be satisfied with smaller but more consistent profits.

Psychological resilience

Psychology plays a very important role in trading, no doubt about it. You should be clear on whether you are willing to accept a number of smaller losses, or whether you are too uncomfortable and prefer to focus on less frequent trading styles.

Markets/Instruments

Some investment instruments tend to move more in trends, while for others price movements within a range predominate. This too can play a fairly important role in the choice of trading style.

Experience

Whether you have any prior experience in investing or trading, experience is a key factor for good decision making. It is a good idea to try out trading and different approaches in a smaller account or demo account before making a final decision on an approach. This will give you very good feedback and show you your strengths and weaknesses, which can be crucial in making a final decision.

After considering all the factors mentioned, you can decide which style is best for you and how you will execute your trades.

Scalping

Scalping involves opening trades and holding a position for a very short period of time, within a few seconds or a few minutes. Scalpers execute several trades in the course of a day with the aim of making maximum profit in the shortest possible time, using minimum spreads and fast movement of the chosen investment asset.

Scalpers must be able to react quickly and have a high tolerance for risk. Scalpers choose highly liquid markets where there is a good chance of a minimum spread, while at the same time expecting significant movements. This method is very time-consuming, but on the other hand, scalpers do not have to worry about what will happen to the price of the traded instrument during the night because they usually never hold their positions overnight.

Day Trading

Intraday traders, as well as scalpers, do not keep their positions open during the night, but close them the same day they open them (they rarely hold positions at night, never over the weekend). They may open several positions during the day, but it is certainly not as many as scalpers, and it may happen that they do not open any trades during the day.

Again, this is quite a time consuming activity as traders have to monitor the markets virtually all day. They usually execute their trades at times when the markets are most liquid and volatile, when they try to take advantage of major market movements and then hold them for several hours as needed. Unlike scalpers, they are much more likely to use Stop Losses and Take Profits in their trades, which allows them to manage risk more effectively.

Swing Trading

The main goal of swing traders is to capture longer-term fluctuations in the markets. Unlike scalpers and intraday traders, they hold their trades for several days or even weeks. This style makes it much less demanding to follow what is happening in the markets (you only need a few minutes in the morning or evening). If a trader manages to get into a long-term trend at the right time and is able to hold on to a position despite short-term fluctuations, he can make relatively a lot of money with one trade.

Swing trading, on the other hand, requires a much greater amount of patience. Since a trader holds a position overnight (which may be too stressful for some), he must be prepared for more significant fluctuations and manage his position accordingly. The use of SL and TP (of course, wider, as in Day Trading) is a must.

Position Trading

Position traders keep their trades open for longer periods of time, i.e. weeks, months, or even years. Short-term fluctuations in the markets are not important to them. They follow long-term trends and often use fundamental analysis in their decision-making. Position traders can also be classified as long-term investors who use the "buy and hold" principle and often diversify their positions among several long-term asset holdings.

Clearly, this style is less time consuming, but that does not mean that decision making is easy. A position trader/investor must do a thorough analysis before making any decision and cannot count on it to bring him an immediate profit once a position is opened. Patience and sufficient capital are essential with this style.

In conclusion, there may not be a clear dividing line between trading styles and your approach may be a combination of several styles. The key is to choose the approach that suits you best, is able to adapt to changing market conditions over the longer term, and at the same time allows you to manage risk most effectively so that you can maximise your profits over the long term. Trade safely!