Whether you’re an experienced trader or a complete novice, one of the most important pieces of advice you’ll hear is to have a trading strategy. According to Business Insider, only six percent of people who attempt to become professional traders actually succeed, but having a strong trading strategy will greatly improve your chances of success. Without a strategy in place, you’ll have less psychological control over your trades which can cause you to make reckless choices, and you’ll have a harder time learning what works and what doesn’t – as the saying goes, if you fail to plan, then plan to fail.
The trading style you decide to follow can be influenced by a number of factors, such as your personality and how much time you’re willing to commit to a single trade. It can be difficult to work out what works best, so in this article we will cover four of the most common trading strategies: scalping, day trading, swing trading and position trading.
Scalping is the quickest strategy of the four. Scalper traders know how to quickly establish and liquidate their positions, most often within a few minutes or even a couple of seconds. The goal is to secure small but regular profits, which means that a scalper trader often ends up handling dozens of trades a day – Warrior Trading reports that some scalpers go even further and manage over one hundred trades a day! Although no trade is completely without risk, if you decide to engage in scalping then you have minimum exposure to the forces of your chosen market, which means that although your profits may be smaller, your losses are too.
However, being a scalper requires the same discipline as any other trading strategy, because one large loss could wipe out all your other smaller profits from the day. Even as a short-term strategy, it requires you to have a strong eye for analysing the markets and quick decision-making abilities. As long as you stick to a strict exit strategy and can maintain your concentration for long periods of time, scalping is definitely a trading strategy worth experimenting with.
Day trading is probably one of the most common strategies used by traders, and the reason why is in the name! As another short-term trading strategy, day traders rarely hold their positions overnight, instead focusing on how to profit off market movements across the trading day. Volatile markets are of particular interest to day traders, as these offer the best opportunities for a desired short-term, immediate profit.
A benefit of day trading is that it can easily fit into a 9-to-5 routine, which may be preferable if the anxiety of leaving a position vulnerable to overnight market forces isn’t for you. Day trading can be carried out alongside longer-term trading strategies depending on your personal preferences, which makes it one of the most flexible strategies on this list. To find out more about what day trading is like, read our blog post about it here.
Whether you prefer to make quick trades or hold out for the chance of a longer-term profit, with a little practise and studying you will find a trading strategy that works best for you.
To be a swing trader, you have to possess a degree of patience to be able to follow a position over the course of several hours or days. This time investment means that the potential for a larger profit is greater than with a quicker strategy like scalping or day trading, but also requires a greater element of psychological control to prevent you from closing a position either too soon or too late.
Swing trading also requires you to have a stronger ability to identify patterns in the market that indicate the potential future strength of your position, so it’s essential to stay concentrated and keep an eye out for market events that might affect your position. Swing traders generally commit to fewer trades at a time to allow for this level of focus, so this style of trading may suit you if you’re interested in a longer-term strategy and have the required skills and the right personality.
Do you believe that slow and steady wins the race? If so, then position trading may be the best strategy for you. If you are willing and able to make a long-term investment with your capital and won’t be shaken by short-term market fluctuations, position trading has the potential to be incredibly rewarding. This style of trading revolves around the identification and the following of trends, which can last anywhere from a few days to a few weeks, and perhaps even longer. Therefore, it’s best suited for a bull market, where you can be confident that prices will continue to rise in the future.
A benefit of position trading is that it requires less of a time investment: while you still need fundamental market knowledge, position trades do not require as much regular monitoring as a scalp or day trade does. If you can maintain your confidence over an extended period of time, position trading could be the best strategy for you.
Whatever trading strategy you decide to follow, one thing to keep in mind is that you should always be flexible. If a certain strategy isn’t immediately working for you, don’t give up straight away: step back from your trades for a second and take some time to evaluate whether there’s anything you can do to fix this. Is your emotional state getting the best of you? Are external factors having a stronger influence on the market than you expected? Whatever the reason may be, you should always be studying your techniques and strategies to figure out what works best for you, and don’t be afraid to experiment with different styles, which you can read our advice about here. As long as you practise self awareness and remain confident, your hard work is sure to pay off.
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