Before selecting a trading style, it's important to comprehend the distinction between a trader and an investor. Traders operate on shorter timeframes, often within minutes or hours, whereas investors take a more passive stance, acquiring stocks and holding them for periods ranging from months to years, banking on long-term returns.
Traders employ technical analysis to ascertain buying and selling decisions by examining historical price trends through graphs and charts. In contrast, investors use fundamental analysis, delving into industry research, company balance sheets, and news releases, as their investment horizon allows for such detailed scrutiny.
As a trader, monitoring the market for intra-day movement is essential. The trading styles explained below will help you find one that suits you best.
Scalp Trading: A Fast-Paced Trading Game
Scalp trading could be the ideal choice for those who enjoy high-speed action and are seeking an adrenaline rush. This intra-day trading strategy involves swift buying and selling positions within seconds or minutes, avoiding long-term holdings. The objective is to execute larger trades with high potential for upward movement. While the pace is intense, the possible rewards are substantial.
To excel in scalp trading, it's imperative to hold any position for no more than a few minutes, regardless of gains or losses. The strategy relies on volume, making numerous trades throughout the day to achieve positive outcomes, provided your technical analysis is accurate. Note that a minimum equity balance of $25,000 is required in your trading account for scalp trading due to platform requirements.
Scalp trading earnings are often termed "base hits," as they represent small gains that aggregate into larger, compounding profits. The fast-paced nature of scalp trading can lead to quick wins but also swift losses. Success in scalp trading requires robust research abilities and a deep understanding of finance.
Momentum Trading: A Technique for Intra-Day Gains
Momentum trading, a frequently employed intra-day strategy, is distinct from day trading. Unlike scalp trading that requires constant attention, momentum trading can be performed concurrently with other tasks.
The fundamental principle of momentum trading involves buying low, ideally at a trough's bottom, and selling once the price ascends. The challenge lies in selling before a potential decline. Accurate technical research is critical to predict the peak of the position. Though it's feasible to multi-task while monitoring your position, vigilance is crucial to not miss your selling opportunity.
Streamlining momentum trading can be achieved through automation to set sell prices and stop loss amounts. Like scalp trading, the success of momentum trading depends heavily on precise technical analysis. Note that media resources such as Seeking Alpha and Business Insider cater more to investors than day traders.
Mastery of momentum trading requires practice and commitment, but with patience and a sound strategy, substantial rewards can be reaped.
Position Trading and Swing Trading: More Passive Approaches
If you prefer a less active trading strategy, consider swing trading or position trading.
Swing trading resembles momentum trading but allows for holding your position overnight or even up to a week. Position trading, however, is a more long-term strategy, with trade cycles lasting several months to a year. This trading style is distinct from investing as trade decisions are based on technical analysis and price projections rather than fundamental analysis.
Position trading has recently gained popularity among novice traders due to discount brokers offering fee-free trades. Unlike day trading, position trading doesn't require a large equity. Brokers like Schwab or Robinhood allow traders to start trading with minimal capital. This makes it an excellent choice for beginners.
Keep in mind, larger positions can offer higher potential returns. Penny stocks, though attractive, can be highly volatile and may not provide substantial profits. Consider more costly equities for better results, leaving penny stocks for inexpensive option trading, another skill worth learning.
Automated Trading (Algorithmic Trading)
For day traders, speed is of the essence and machines outperform humans in this regard. This is where automated trading steps in. An automated trading system allows you to set up buy and sell orders and establish rules for entries and exits. This technology significantly enhances a trader's productivity and eliminates the need for constant market monitoring.
Automated trading platforms may not be suitable for long-term investors, but active traders employing momentum, position, or swing trading strategies should consider automation if accessible. Scalp traders might also find this advantageous, although the programming involved is more complex and the risk level is higher.
At Tickeron, we employ automation to monitor volatility and provide buy and sell suggestions. Our proprietary AI algorithm evaluates past scenarios similar to any trade you plan to make, offering valuable insights into the likely outcomes within your chosen holding period. We also provide an automated trading platform for paper trades, allowing you to test it without any risk.
We encourage you to explore our Forex automated trading bot, which has shown a positive trend since its introduction. This is just one instance of how our automation can assist traders like you in making more informed decisions.
The Mindset of Successful Day Traders
Day trading is not for the timid. Success in this domain requires a certain state of mind. The triumphant day trader should be courageous, embracing risks judiciously but not recklessly. Trading low-cost shares on Robinhood doesn't equate to genuine day trading. Real day traders aim for larger opportunities, bypassing minor ones.
Day trading is a serious undertaking, demanding a significant initial capital. The minimum equity requirement of $25,000 underscores this fact. Those dedicated to this career must exhibit discipline and determination. The majority of prosperous day traders adhere to a structured routine that incorporates regular physical exercise, a protein-rich diet, and an ample intake of caffeine.
A critical aspect to remember is that day trading involves managing large amounts of money daily. Your goal is to secure the largest possible share. However, not every day will be profitable, and losses are an inevitable part of the journey. A successful trader possesses the psychological fortitude to bounce back and begin anew the following day. If you struggle with occasional setbacks, this profession may not be suitable for you.
Deciding to Embark on a Trading Career
The ultimate objective of every trader is to turn a profit. Risk-takers often reap the most substantial benefits. Scalp trading entails high-risk speculations, with substantial holdings and swift fluctuations in gains and losses. Conversely, position trading is less risky, offering multiple market cycles to recover from potential losses.
Choosing the right trading style is influenced by your preferred lifestyle. Day trading, irrespective of its form, is stressful and necessitates constant market surveillance. Position trading and long-term investing are more relaxed, granting you the freedom to trade at your convenience. Weigh your available time and commitment level before settling on a trading approach.
Another important aspect to consider is the educational level necessary for each trading style. Active traders need immediate access to trading and charting platforms and must understand technical concepts like Sharpe ratios, drawdowns, and options trading such as puts and calls. Passive investors, conversely, rely on media and financial reports for decision-making. Familiarity with these concepts can guide you towards the trading style that fits you the 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.
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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.
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