Trading styles are one of the most important factors in your overall market strategy.
When you’re new to the stock market, you try to get a feel for what’s going on. Maybe you see a trader you admire online and want to imitate them. But does their strategy or style suit you?
Finding your trading style is a unique and personal experience.
Some traders find theirs through trial and error. Others listen to many different veteran traders’ stories to find something that clicks.
In this post, we’ll break down the most common trading styles and the strategies that go with them. Plus, you’ll learn some steps for adopting each one. Read on to find your fit.
Table of Contents
- 1 What Are the Different Trading Styles?
- 2 Scalp Trading
- 3 Day Trading
- 4 Swing Trading
- 5 Position Trading
- 6 High-Frequency Trading
- 7 How to Trade According to Your Trading Style: 5 Trading Strategies for Beginners
- 8 Types of Traders
- 9 The Trading Styles Conclusion
- 10 One Platform. One System. Every Tool
What Are the Different Trading Styles?
Over the years, several different trading styles have evolved. If you’re trying to find the best one for you, it’s wise to keep multiple factors in mind.
First, consider how much time you have to dedicate to your trader style. Do you work a full-time or part-time job? What’s your work schedule?
It could be easier for a bartender to day trade during non-work hours. But if you work a 9-to-5, work hours will compete with stock market hours.
Are you single or do you have a family to attend to? Is your spouse able and willing to take on more household work while you focus on day trading strategies?
Once you know how much time you can dedicate to different types of trading styles, it’s time for the next step: know your personality inside and out.
- Are you a patient person or an impatient person?
- Once you get good at something, can you trust your process and let it unfold?
- Do you need to feel in control and keep a close eye on things?
Even personality traits like optimism or pessimism will influence your trading styles strategies. That’s why it’s important to be brutally honest with yourself about what you can and can’t do.
The last thing to consider is your starting capital. Different trading styles can require different amounts of starting capital.
Of course, you want to trade to grow your account, right?
Even so, make sure you start with a solid foundation. That includes your trading knowledge, self-knowledge, and starting capital. Now, let’s look at some specifics…
Scalp trading demands high focus, concentration, and attention to detail. So you need to be OK with spending long hours in front of your screens.
A scalp trader aims to profit from very short-term movements in a stock’s price. These traders hold positions anywhere from a few seconds to a few minutes. Yep, it’s fast.
This is one of those trading styles that means frequent trading and a lot of starting capital. You’d typically make several trades a day.
Professional scalp traders place anywhere from dozens to hundreds of trades a single day.
Needless to say, you have to be over the pattern day trader (PDT) limit. If you don’t have starting capital over $25,000, you won’t be able to make more than three roundtrip trades a week. A scalp trader needs more than three trades in a day to do well!
If you have the capital, there could be some benefits to this trading strategy. If you like feeling in control and don’t have the patience to let a trade work for you, scalp trading might be a great fit.
You learn the results of your trade fast and move on fast. Using this trading style means your trading mindset must be on point.
You don’t want to take negative emotions from a losing trade into your next trade. You have to accept your last trade and move on to the next.
But scalping still requires patience. You need to stay glued to your screen throughout the trading day. Then when you find the best setups, it’s time to act fast!
If you ask me, day trading is the bread and butter of all trading styles. It gets you up in the morning excited for the next opportunity.
If you day trade, you hold a position anywhere from a few minutes to a few hours. You’re out of your position by the end of the day. If you hold it overnight, it becomes a swing trade.
I think day trading allows you to sleep well at night. At the end of the day, all your trading capital is in cash. If a market-disrupting event happens after hours, your money should be safe.
But you must do your homework the night before and in premarket. Prepare for the action.
You also need to pay close attention to your screens during the day. That said, most traders take positions at two key times — at the market open and close. That can mean more time for other things mid-day.
And once you get a feel for how certain tickers move, you can potentially trade them again and again.
I like to say history doesn’t repeat, but it often rhymes. And stocks have personalities you’ll get to know over time. I remember plenty of tickers.
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Up next in our list of trading styles is swing trading. This can be a great choice for traders under the PDT rule.
Swing trading involves holding a stock anywhere from a few days to a few weeks. Some might even hold a swing trade for a few months. That could be from one earnings release until the next.
Because of the kinds of stocks you trade, it’s less likely you’ll get stopped out of a trade on day one .. or three times in a week. So you won’t use up your day trades.
A lot of traders use a combination of both day trading and swing trading styles. It depends on the stock and the overall market.
This style takes some patience. You have to be willing to leave your trade alone for a while. So you need faith in your trading plan.
But if you work full-time or manage a family, this could be a good fit. You don’t have to stay glued to your screen.
A lot of people who work during regular business hours swing trade on the side. This makes it easier to focus on your work and social life and possibly earn extra income on the side.
Of course, your capital is vulnerable to market gap downs. The markets hate uncertainty. So things could get rocky for longer-term strategies.
But if you have a solid strategy, don’t worry. Don’t base your trading style on what-ifs or uncertainties. All trades come with risk and reward. Know what you’re getting into ahead of time.
And if you want access to my best picks for day and swing trading strategies, sign up for my weekly watchlist. I send you my top plays for the week every Sunday.
This is the longest of the trading styles we’ve covered. Position trades can take anywhere from several months to a few years. They’re not far off from a buy-and-hold investment strategy.
It’s not my cup of tea, but it works for some. If you want little daily involvement in your trades, this could be a good choice for you.
Position trades require in-depth knowledge of the companies you trade. Some day traders get away with only using technical analysis. For swing trading, it’s good to know both technical and fundamental analysis.
With position trading, you need more fundamental analysis. There’s no way around it. Would you put your money into a single company for years at a time not knowing much about it? I sure hope not!
Position trades can require less maintenance. So if you have a high-powered career that takes up a lot of time, this might suit you.
You’ll need a lot of patience and belief in your decisions. No matter how many ups and downs the market experiences, you have to ride out the storms to reach your goals.
Odds are you won’t make as much money year to year as with day trading or swing trading styles.
This is nice work … if you can get it. The problem is it’s out of reach for most retail traders.
High-frequency trading depends on computer algorithms to execute trades. The systems are complex and require expensive hardware to operate.
For this reason, you’re more likely to find high-frequency traders in a brokerage firm or investment firm. You won’t find them in the family basement with the latest MacBook.
It takes a lot of education to get hired as a high-frequency trader. Most of these traders have skills both in math and engineering. They design unique trading algorithms for the firms that hire them.
How to Trade According to Your Trading Style: 5 Trading Strategies for Beginners
Let’s check out a little more must-know knowledge for trading styles…
If scalp trading is the right fit for you, you’ll need to learn candlestick patterns like the back of your hand. Yes, they’re important for every trader to know. But scalpers look closely at one-minute charts to see the candlestick patterns develop.
Here, you need to know your key levels. I talk about these all the time. When a stock breaks through a key level, it moves with conviction. You want to be ready when that happens. Things rev up fast. These are the kinds of trading setups that can keep you coming back for more.
Support and resistance are your best friends here. There are many strategies to use in swing trading. But chances are, any pattern you look for will happen in a certain range of movement. These are your support and resistance zones. Some people swing trade within these ranges.
When you position trade, you risk a lot on one company. You want to be sure you know what you’re doing. If this is the road you choose, I recommend starting with a good book.
“The Intelligent Investor: The Definitive Book on Value Investing” by Benjamin Graham is a good place to start. Value investing is a buy-and-hold strategy that aims for outsized returns over time.
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If you’re interested in high-frequency trading, you have many years of serious studying ahead of you. The best firms look for candidates with degrees in a mix of hard sciences. These include math, physics, computer science, and electronic engineering.
Types of Traders
Remember when I said your optimism or pessimism impacts your trading style? That’s where long and short selling come in.
In reality, most veteran traders have tried both at some point in their careers. But everyone has a preference for one or the other. That’s your bias.
If you’re a long-biased trader, you might still short sell a bit when the market requires it. But you feel more comfortable and excited when you’re trading long positions.
Short-biased traders may take long positions in an unstoppable bull market. Otherwise, they’re leaving money on the table. But these traders tend to be happiest when the stock market is in a downtrend and they get to short sell again.
It can take experimenting with a few different trading styles before you find one that works for you. But once you do, you’ll know it’s the right strategy. Things start to click.
And sometimes it helps to have a team at your side…
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Long Trading Styles
Long-biased traders buy stocks with the intention of selling higher. It’s the classic ‘buy low, sell high.’
And most traders don’t risk more than 1%–2% of their account on a single trade.
Let’s say bad news affects a company in an uptrend. Its shares drop several percentage points down and stop at a support level.
If the support level holds, you might buy the lower price. You expect the trend to reverse once the problem’s resolved. Depending on the severity, you might need to hold the position for the longer term. But in penny stock land, that can happen fast.
ARK Invest’s ETF manager, Cathie Wood, did this when Peloton Interactive Inc. (Nasdaq: PTON) recalled its treadmills. Since then, the stock is slowly grinding back up. Sometimes trading long requires courage, conviction, and optimism.
Short Trading Styles
If you’re skeptical by default, you might love short selling. Short sellers sell borrowed shares when a price is high hoping it will fall. When it falls to their target price, they buy to cover.
Technically, shorts still buy low and sell high … They just do it in reverse!
Short selling is a high-risk strategy with the potential for high reward. The danger with short selling comes when a position goes up instead of down. Remember, you don’t own the shares you short — you borrow them.
And you can end up with a bigger loss than the amount of actual cash in your account. If all this doesn’t scare you, congratulations. You might have the risk tolerance of a short seller.
The Trading Styles Conclusion
I hope you find the trading styles (or style) that best suit your lifestyle and personality.
Sometimes it takes a while.
When you’re new, it’s natural to keep trying new styles and strategies. But it’s important to know why you choose to change things up.
Sometimes we opt for a new technique or strategy when we’re on a losing streak. We want to escape the pain of loss through the excitement of novelty. But that won’t help you in the long run.
If you find a trading style that makes sense to you, stick with it for a while. I’ve used the same handful of patterns and technical indicators for many years now. It makes me a better trader.
After years of practice, I know when I’m making a mistake. And I can tell when the market turned against me. It happens. It’s part of the game.
Stick with a trading style that matches your needs and personality. In a few years, you’ll be grateful you did.
What do you think? Which trading style makes the most sense to you? Have you tried any of these strategies before? Let us know in the comments below!
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