What are the Characteristics of Different Trading Types?

Are you interested in knowing the types of trading options that are available to technical traders? Technical trading is a method where traders use different charts and graphs to determine which stock to buy or sell at a given set of time.

There are 5 main types of trading styles that are being employed by traders all around the world. It defines the characteristics of trading.

Becoming an expert in any one of the five is very necessary but it is advised to have a little good knowledge about other types of trading as well.

Features of Different Trading Styles

Scalping, Momentum trading, Day trading, Position trading, and Swing trading are trading options available to technical traders. Now let’s understand the nature of each one of the trading options in detail:

➤ Scalping

Scalping is all about making small profits repeatedly. This trade typically lasts from seconds to minutes only. Scalping is a trading strategy that helps in making many profits from very little change in the price. Traders who employ this technique generally place from ten to hundreds of trades in a day with a belief of catching small moves in stock prices is easier than large ones.

Scalping is an expert skill that is attracted and employed by many traders but I personally would not recommend this strategy for beginners.

➤ Day Trading

Day trading as the name suggests all trades need to take place on the same day without holding positions overnight. Compared to scalping this trades deals from minutes to hours versus seconds to minutes. Day traders close all their trades before the market does. Most traders use leverages to magnify the profits generated from small price movements.

Day trading also seems like an easy way to become rich quickly. However, this is a very rare case, as day traders also suffer lots of losses in their first month and some never qualify for profit-making status. Bid-ask spread, trading commissions, and other expenses are the costs paid by day traders while trading. Resulting in adding a condition that day traders need to make significant profits just to come to the break-even point.

Both Scalping and day trading requires very strong discipline and the ability to test trading strategies rapidly and enough capital to support sudden or larger than expected losses.

These two are also known as Intraday trading in which you buy (open) and sell (close) the positions (trade) within the same day and not leaving any trade open overnight.

➤ Momentum Trading

In momentum trading, traders try to identify a breaking out position of stock to jump in to capture as much as momentum possible on the way up or down. They try to identify those stocks which move significantly in one direction and in high volume.

The typical time of momentum trading is generally from several hours to several days depending upon the frequency of change in stock prices and its direction.

➤ Swing Trading

Swing traders are those traders who are not interested in the intrinsic value or fundamentals of the stocks, they are more into short-term price trends and patterns for a stock. It is another art of capturing short term trend, in which traders tries to captures gains in stock through technical analysis within one to seven days.

Both Swing trading and position trading are the only trades that a person with a full-time job can do efficiently, as the holding period is several days. The typical holding period in swing trading is three to seven days.

➤ Position Trading

Position trading is a trade in which traders hold stocks from weeks to months. Position traders try to anticipate whether the current trend will stay the same for a longer term than momentum or swing trade. These are the safest type of trade I would personally suggest for beginners. As it gives traders freedom of holding shares as long as they want hence chances of making profits are considerably high here.

Long-term traders don’t get affected by short-term fluctuations. Position trading is the opposite of day trading or scalping as the goal of making profits is from the move in the primary trend rather than short-term fluctuation that happens in day-to-day trading.

Note: All these trading are not limited to buying only. With certain instruments, traders can also short sell stocks. That means traders can make profits in both rising or falling markets.