Just as we are all unique, so are the trading styles people adopt when investing.

When you choose a trading style that suits your personal traits, you will have more chances of becoming a successful trader.

You will be more confident in developing a trading strategy and a trading plan, which are the two most important elements influencing your prosperity in trading. 

Trading Styles

In the world of trading, we can identify numerous trading styles, which we can classify by different factors. If the factors are the frequency of buying and selling products and the time frame of holding a position, we can single out three trading styles: day trading, swing and position trading. These four are most represented among traders. Additionally, there are two more types of trading styles - algorithmic and event-driven, that are equally common. 

Table 1. Trading styles

 

#1 Day trading or intraday trading style

In this article, we will go into details about the first three trading styles - day trading, swing and position trading.

So far, the most popular trading style is day trading. Day traders, as the name implies, buy and sell assets within the same day. Day traders hold positions from a couple of minutes (scalping) up to a couple of hours. Since they trade only during the day and avoid the overnight risk, they must think fast and easily adapt to changes. However, they utilize a predetermined strategy, complete with entry and exit levels. 

One of the ways to reduce the risk of loss is by using stop and limit orders, which for day traders is very usual. They have developed strong analytical skills, both technical and fundamental, that help them choose the right assets and the right trades. 

Their number one way to increase the profit is by using the advantages of leverage. Therefore, when choosing a broker, day traders will opt for the one with the highest leverage ratio. Day traders open multiple positions in one day in order to increase the chances for gains. 

If you recognize yourself here, you are: 

• focused and pay attention to details,
• a fan of strategies,
• very keen on analytics,
• consistent,
• avoid high risks.  

Even though this trading style corresponds to more experienced traders, high-end technology allows beginners to try it, too, which we believe is one of the reasons for its popularity. 

Interesting fact: Brett N. Steenbarger is a trader, a coach and even more, a PhD in clinical psychology. He’s also the author of several books on investing, among which “The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist” is of particular importance for day traders. The book describes practical ways investors can help themselves and solve the challenges they face.

#2 Swing trading style

This style refers to traders who hold their positions from a day to a couple of weeks. Actually, that depends on the duration and the frequency of the oscillations. Swing traders pay close attention to the market’s moves and wait for the trend to break before entering it. To spot this situation, they use analytical tools and constantly develop their analytical skills, like chart analysis. In particular, swing traders value more technical analysis over fundamental. They do this because technical analysis predicts when these major changes will occur and what will happen with the prices - if they will swing back or forth.

The more volatile the market, the better it is for swing traders since, in these markets, these price movements are most likely to occur. This being said, it comes as no surprise that they like to trade in the foreign exchange market the most.

Since swing traders hold their positions for a longer time, an overnight risk is a common risk for them. As a result, this requires additional security by setting a larger stop-loss order. This trading style requires traders to stay calm when a trade is going against the position opened.

If you like this strategy and want to pursue it, it would be beneficial if your main traits are:

• strong analytical skills, especially good in technical analysis,

• patience,

• flexible with the time of trading,

• plan the trades with the market swings,

• aim for high profits.

This trading style is perfect for those who wait for the right time to enter the market but won’t hold the position too long. Big earnings are their main goal.

Interesting fact: One of the simplest charts, primarily designed for swing traders, are Gann Swing Charts. These charts show the relationship between price and time and have no “noise”, which makes them more transparent.
William Delbert Gann was a mathematician and one of the greatest traders of stocks and commodities. 

#3 Position trading style

Position trading is the long-term trading style where traders hold their positions from several weeks up to several years. This trading style is suitable for those who are patient by nature and expect disproportional reward value at the end. Individuals who enjoy the long-lasting processes and have a need for flexibility are usually great as position traders. 

Position traders have a sound knowledge of both technical and fundamental analysis, which, when combined, provide traders with all crucial elements they need to follow. For example, the longer-term charts are crucial for determining the trend of the current market direction. 

Unlike the other two trading styles where traders must monitor the market almost all the time, position traders only keep an eye on major trends. Likewise, they open only a few positions that are of higher value. This allows them to be less tense and have more free time during the day. 

These traders must deposit a large amount of capital if they want to endure potential volatility and avoid a margin call. However, they have the lowest fees for holding positions in the long run. 

A trader perfect for this trading style is the one who has:

• immense patience and discipline,

• a good amount of knowledge regarding analysis,

• a daily need for more free time,

• a passion for gaining large profits.

Interesting fact: Joe Ross is a well-known position trader and investor. He is famous for holding a position on the S&P 500 index for 9 years (from 1991 to 2000). He earned $16 million when he closed this long-term position. He is an advocate of a low-risk trading concept and the author of 12 books, plus, numerous articles and essays.

Conclusion

A trading style reflects a trader’s temperament and personality. When one complements the other, a trader is on his way to success.

Depending on the time frame of holding a position and the frequency of buying/ selling, we can identify three different trading styles: day trading, swing and position trading style.

Day traders are the ones who hold positions just for the day, avoiding the overnight risk. They open more than a couple of positions and thus collect the profit from each one. 

Swing traders and position traders are long-term traders. As individuals, they have patience and discipline and like to have a great victory in the end, rather than many smaller victories along the way. 

In the next article, we will introduce you to two more trading styles: algorithmic trading and event-driven trading style.
 

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