Traders generally prefer a particular trading style over another, and this is just one aspect beginners should be aware of as online trading requires a lot of knowledge and experience. If you are one, you need to select the right broker, understand the markets to trade, use the right platform, and identify the suitable trading style and strategy to use before you start trading.
In this blog, we’ll focus on the different types of online trading styles to help you determine which one may work best for you.
What is a trading style?
Trading styles are often confused with trading strategies. Although they are related, the two are actually different.
A trading style refers to a set of preferences that are unique to you, as they are based mostly on your trading plan, your personality, and availability to trade. This mainly includes factors such as the time you can devote to trade, your capital, and your risk appetite. By developing a trading style, you will be able to manage your trades better and be more disciplined, which in turn allows you to maximise your potential earnings.
Another great thing about a trading style is that it isn’t subject to any strict rules. To help you understand it better, here are the 4 types of trading styles that traders adopt.
Day trading is generally the most popular type of trading style. As its name implies, day trading involves buying and selling assets or opening and closing positions before the market closes within the same day.
This trading style is considered short-term, lasting for one day at most, with no positions held overnight. It allows traders to benefit from short-term market movements and avoid the risks and costs of keeping positions open overnight.
If you’re someone who prefers to complete tasks by the end of the day, day trading may be ideal for you.
Scalping is frequently referred to as the quickest form of trading because scalpers (traders who adopt it) primarily hold positions for only a few seconds or a minute. Scalpers take advantage of an asset’s bid-ask spread. This spread refers to the difference between the highest price a seller is willing to accept and the highest price a buyer is willing to pay. Basically, a scalper is buying or selling contracts at a bid-ask price, then closing their position at a higher or lower price for a profit shortly after.
Focus and attention are crucial in scalping, as you need to exit your trades immediately if the market starts moving against your predictions. If you like making instant decisions and acting on them without hesitating, this trading style could be for you.
Position trading is a trading style that focuses more on large price movements and lasts for several weeks, months, or even longer. Traders use it as a long-term passive strategy to buy a contract and keep it for an extended period, whether it rises or falls in price.
Position traders collect data using long-term charts and technical analysis to forecast when trends will change. Such traders are looking for that one major market shift, which is why they open only a few high-value positions. This approach increases potential profits but also increases the risk exposure at the same time.
You may benefit from position trading if you’re patient, stick to your trading plan firmly, and enjoy taking your time with your trades.
Swing trading is similar to position trading, but it only lasts a few days or weeks. This trading style exploits short to medium-term price fluctuations by capturing dips and peaks. A swing trader relies on technical analysis to determine these price points.
Swing trading involves two types of market movements: swing highs and swing lows. Swing high refers to an asset’s price moving upwards, while swing low refers to its price moving downwards.
Swing traders prefer highly volatile markets in which swings occur more frequently. If you want to take on more volatility, this trading style may be the right choice for you.
Not sure which style works better for you? On Deriv you can apply all four on each trading platform. Now that you know their differences, why not give them a try and see which one suits you best. Set up your free Deriv demo account with 10,000 USD of virtual money and practice any of these trading styles risk-free!
The information and content posted within this blog are for educational purposes only and it is not intended as financial or investment advice.