By Ryan Watkins, Lead Coach

There a number of different styles of trading. Every trader needs to find the most effective and most efficient way to trade or invest.  It can make the difference between making it as a trader or not making it as a trader.

Some of the best traders have found their trading style and it was not what they originally thought was best for them. Let’s look at some examples of trading styles.

Scalping

  1. Duration: Seconds to Minutes 
  2. Does not hold positions after the closing bell
  3. Example: “I bought five NASDAQ Futures Contracts and it hit my target in three minutes for a profit.”
  4. Pros: Fast results, no overnight trades, small but potential several profit potential opportunities for skilled traders
  5. Cons: The Most Challenging style to learn, everything happened very fast, must be very proactive and skilled

Day Trading

  1. Duration: Minutes up to Several Hours
  2. Does not hold positions after the closing bell
  3. Example: “I bought three Gold Futures Contracts and it hit my target in three hours for a profit. I am done trading for the day”
  4. Pros: Fast results, no overnight trades, large profit potential for skilled traders
  5. Cons: Challenging style to learn

Swing Trading

  1. Duration: Days to weeks
  2. May hold over the weekend, but often close position before the weekend, or does not initiate a new trade on Fridays
  3. Example: “I Sold Short EURUSD five days ago, I have moved my stop to protect profits and price has already hit my 1st target.  I am still in the position waiting for price to hit my second target.”
  4. Pros: Easier learning curve compared to day trading and scalping, slower paced, more time to analyze trades and plan, larger profit potential for skilled traders
  5. Cons: Overnight gap risk, possible earning risk

Position Trading

  1. Duration: Weeks to Months
  2. Holds for longer periods of time, often through earnings reports and many other economic news reports and company news cycles.
  3. Example: “I bought MSFT seven months ago, I have moved my stop to protect profits. I am still in the position waiting for price to break above a resistance area.”
  4. Pros: Easier learning curve, slower-paced, more time to analyze trades and plan, larger profit potential for skilled traders
  5. Cons: Earning risk, ties up money for long periods of time

Here is a summary of the styles of trading.

*In certain circumstances

What trading style is best for you to adopt?

In order to find the best trading style, know yourself.  What do you want? How many hours per day or per week can you realistically spend trading? How much time do you have to commit to learning how to trade?  Trading is a skill, and it takes time to learn just like any other skill. What investment vehicle is best for your trading style?  

Stocks and Forex for most people are easier to learn than Futures or options. You can keep options quite simple to cut down on the learning curve.  In fact, in our OptionsAbilities course, we focus on small watch lists and directional strategies without the need for complex analysis using the Greeks.

Overall, you may need to try a couple of styles before you really know what the best style for you is unless you are fairly certain you already know. 

My suggestion for you

My suggestion to you is, go with what you naturally gravitate toward and then adjust if needed. For example, my first trading style was position trading in 1993, but then in 1999, I did scalping and day trading.  That was a difficult learning curve for me, and I had mixed results at best, so in 2000 I tried swing trading and loved it.  It was perfect for me.  To this day, I primarily swing trade as that is my best trading style.

Another example was when a trader said to me, “Ryan, when I day trade I lose a lot of money and I am inconsistent but when I swing trade and do really well, what should I do?”  This may seem like an obvious answer to you and me, but he was so deep into wanting to be a great day trader he could not see the obvious.  He also spent a lot of money, and time to learn day trading that he did not want to give up.   I did not see it as giving up, I saw it as “do what you are good at”!  Any good business owner will tell you, sometimes you need to “pivot” the business to make it work, it is no different in trading.  We need to find what works and what does not work. 

Good trading has a simple formula: Remove what is not working, multiply what is working!

Until next time,

Ryan Watkins

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