How to Know Which Trading Style is Best for You
You need to understand the difference between a trader and an investor before choosing a trading style. Traders perform their magic over shorter periods, sometimes within minutes or hours, while investors are more passive, purchasing equities and holding them for months or years, relying on a long-term return.
Traders use technical analysis to evaluate buys and sells, tracking historical price trends using graphs and charts, while investors use more fundamental analysis, studying industry research, company balance sheets, and news releases. Traders' activity windows are too small to get into that level of detail.
If you're a trader, you need to be vigilant and watch the market closely for intra-day movement. Review the trading styles below to see which is the best fit for you.
Boost Your Trading Game with Scalp Trading
If you're a thrill-seeker who craves high-speed action, scalp trading might be just the adrenaline boost you need. This intra-day trading style involves buying and selling positions in mere seconds and minutes, without holding anything for too long. The goal is to make larger trades that have a high chance of upward movement, and while the pace is frenetic, the potential rewards are significant.
To succeed at scalp trading, it's crucial to avoid holding any position for more than a few minutes, whether it results in a gain or a loss. The key is to treat it as a numbers game, making enough trades throughout the day to end up on the plus side, assuming your technical analysis is sound. Keep in mind that you'll need a minimum equity balance of $25,000 in your trading account to engage in scalp trading, as trading platforms typically require this.
Scalp trading profits are commonly referred to as "base hits," as they are small wins that accumulate into larger, compounding profits. Some people liken scalp trading to playing blackjack, where you can win quickly, but also rack up losses just as rapidly. To become a successful scalp trader, you'll need sharp research skills and an in-depth understanding of finance.
Master Momentum Trading for Intra-Day Success
While some may use the terms interchangeably, day trading and momentum trading are not one and the same. In fact, momentum trading is a more commonly practiced intra-day strategy. Unlike scalp trading, which requires full-time attention, momentum trading can be done alongside another job.
The basic concept of momentum trading is to purchase a position when it's low, ideally at the bottom of a trough, and then sell it once it starts to climb upward. The challenge is to sell before it starts to decline again. To achieve success, technical research is crucial in predicting where the position will peak. While it's possible to work on another task while monitoring your position, it's important to stay vigilant and not miss your sell window.
One way to streamline momentum trading is to utilize automation to set sell prices and stop loss amounts. As with scalp trading, the success of momentum trading hinges on accurate technical analysis. It's worth noting that media coverage, such as articles on Seeking Alpha and Business Insider, are geared towards investors rather than day traders.
Mastering momentum trading takes practice and dedication. But, with patience and a solid strategy, it's possible to reap significant rewards through this intra-day trading approach.
Position Trading and Swing Trading
Looking for a more passive approach to trading? Consider swing trading or position trading.
Swing trading is similar to momentum trading, but with the added benefit of holding your position overnight or even for a week. Position trading, on the other hand, is a more long-term strategy, with trade cycles that can span several months or even up to a year. It's important to note that this type of trading is not the same as investing. Instead, trade decisions are made based on technical analysis and price projections rather than fundamental analysis.
In recent years, position trading has become popular with new traders, thanks in part to discount brokers offering no-fee trades. Unlike day trading, position trading doesn't require a large amount of equity. Aspiring traders can open an account with brokers such as Schwab or Robinhood and start trading with just a few dollars. It's the perfect option for those looking to dip their toes into the world of trading.
When it comes to choosing your trades, it's worth noting that the larger the position, the higher the potential return. While penny stocks (anything under $5 per share) may seem tempting, they can be incredibly volatile and may not yield significant profits. For best results, consider looking at slightly more expensive equities and leave the penny stocks for cheap option trading, which is another skill worth mastering at some point.
Automated Trading (Algorithmic Trading)
If you're a day trader, you know that speed is crucial, and machines are faster than humans. That's where automated trading comes in. With an automated trading system, you can create buy and sell orders and set rules for entries and exits. This technology can dramatically increase the output of one trader and eliminate the need to constantly monitor the market.
While automated trading platforms are not ideal for long-term investors, active traders using momentum, position, or swing-style trading methodologies should definitely consider using automation if it's available. Scalp traders can also benefit from it, but the programming is more complex, and the risk factor is high.
At Tickeron, we use automation to track volatility and provide buy and sell recommendations. Our proprietary AI algorithm analyzes past scenarios similar to any trade you want to make, giving you valuable insight into what's likely to happen in the time frame you choose to hold your position. Additionally, we offer an automated trading platform for paper trades, so you can try it out risk-free.
Check out our Forex automated trading bot, which has been demonstrating a positive dynamic since its inception. It's just one example of how our automation can help traders like you make better, more informed decisions.
The Psychology Behind Successful Day Trading
Day trading is not for the faint of heart. While anyone can trade for a brief period, it takes a specific mindset to succeed in the long term. A successful day trader must be bold and willing to take risks, but not recklessly. Trading penny stocks on Robinhood doesn't qualify as true day trading. True day traders seek out high-value opportunities, not small ones.
Day trading is a serious business, and it requires a substantial investment to get started. The minimum equity requirement of $25,000 should make that clear. Those who are committed to this profession must be disciplined and dedicated. Most successful day traders follow a structured schedule that includes regular exercise, a high-protein diet, and plenty of caffeine.
It's essential to understand that day trading involves dealing with large sums of money every day. Your job is to grab the biggest slice of the pie. However, some days, that may not happen, and losses are inevitable. A successful trader must have the mental strength to pick themselves up and start again tomorrow. If you can't handle the occasional loss, this may not be the profession for you.
Making the Decision to Become a Trader
The ultimate goal of every trader is to make a profit. Those who are willing to take risks often reap the greatest rewards. Scalp trading involves high-stakes betting, with large holdings and rapid gains and losses. In contrast, position trading is less risky, with several market cycles to recover from any losses.
Choosing the right trading style depends on the type of lifestyle you want to lead. Day trading, regardless of the style, is stressful and requires constant market monitoring. Position trading and long-term investing are more passive, allowing you to buy and sell at your leisure. Consider your available time and level of commitment before deciding which approach to take.
Another crucial factor to consider is the level of education required for each trading style. Active traders need direct access to trading and charting platforms and should be familiar with concepts such as Sharpe ratios, drawdowns, puts, and calls. Passive investors, on the other hand, use media and financial reports to make trade decisions. Understanding these concepts will help you choose the trading style that suits you best.
Start by Practicing on a Trading Simulator
Before making a final decision on which trading style to adopt, it's important to practice each one. However, there's no need to risk real money in the process. Tickeron's "Paper Trade" simulator offers a risk-free environment, complete with access to their features and knowledge base. Check out their YouTube video, dive in and experiment for free, without the need to add any funds to trade.
WATCH this FREE VIDEO TUTORIAL
Remember, knowledge is power, and mastering trading takes time. It's normal to lose money when starting out, but those who persist can build a successful trading career. While we don't suggest quitting your job and jumping into day trading, it's a possibility for the future, and the freedom it can bring is worth considering.
Keep in mind that the trading style you choose isn't permanent. Many traders start with position trading and gradually progress to swing or scalp-trading. Others may begin with day trading and then switch to a more passive investment strategy. With Tickeron, you can experiment with all styles and find what works best for you.
We invite you to check out our premium products -- they’ll help you be best prepared to take on the market. One of the premium products that might be helpful for a new trader is the AI Pattern Search Engine. For a continuing trader, AI Real Time Patterns and our Screener, are a great way to pinpoint exactly what you’re looking for and to monitor the securities for an extended period of time.
Contributor
Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.
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