| In search of finding the right Trading System you
first must find a trading style that suits you.
There are four main styles of trading, namely scalping, day trading,
swing trading, and position trading. Technically, scalping is a
type of trading within day trading, but scalping is so different
from all other forms of day trading, that I consider it to be a
separate style. The difference between the styles is based upon
the length of time that trades are held for. Scalping trades are
only held for a few seconds, or at most a few minutes. Day trading
trades are held for anywhere from a few seconds to a couple of hours.
Swing trading trades are usually held for a few days. Position trading
trades are held for anywhere from a few days to several years.
Choosing the trading style that best suits your personality can
be a difficult task for new traders, but is absolutely necessary
to your long term success as a professional trader. If you are a
new trader (or even an experienced trader) that does not yet feel
as though you have found your trading style, the following are some
of the personality traits that are compatible with the different
styles of trading. By choosing the trading style that best suits
your personality, you will have a better chance of being a profitable
trader, so be honest, even if you don't like some of the personality
traits that are listed.
Scalping
Scalping is a very rapid trading style. Scalpers often make trades
within just a few seconds of each other, and often in opposite directions
(i.e. they are long one minute, but short the next). Scalping is
best suited to active traders that can make immediate decisions
and act on those decisions without hesitation. Impatient people
often make the best scalpers because they expect their trades to
become profitable immediately, and will exit the trade promptly
if it goes against them. Being a successful scalper requires focus
and concentration, so it is not a suitable trading style for people
who are easily distracted or who often find themselves day dreaming
(i.e. if you've been thinking about something else while reading
this, then scalping is not for you).
Day Trading
Day trading as a style is more suitable for traders that
prefer starting and completing a task in the same day. For example,
if you were painting your kitchen, and you would not go to bed until
the kitchen was finished, even if that meant staying up until 3:00
AM. Many day traders would not consider making swing or position
trades because they would not be able to sleep at night knowing
that they had an active trade that could be affected by price movements
during the night (such as those that cause opening gaps).
Swing Trading
Swing trading is compatible with people that have patience to wait
for a trade, but once they have entered a trade they want it to
become profitable quite quickly. Swing traders almost always hold
their trades overnight, so it is not suitable for people that would
be nervous holding a trade while they were away from their computer
(i.e. overnight, in the shower, at the movies, etc.). Swing trading
generally requires a larger stop loss than day trading, so the ability
to keep calm when a trade is against you is a necessity.
Position Trading
Position trading is the longest term trading of all, and often has
trades that last for several years. Therefore, position trading
is only suitable for the most patient and least excitable traders.
Position trading targets are often several thousand ticks, so if
your heart starts beating fast when a trade is 25 ticks in profit,
position trading is probably not suitable for you. Position trading
also requires the ability to ignore popular opinion because a single
position trade will often hold through both bull and bear markets.
For example, a long position trade may need to be held through an
entire year when the general public is convinced that the economy
is in a recession. If you are easily swayed by other people, then
position trading is going to be difficult for you.
Being Faithful to your Trading Style
Choosing a trading style requires the flexibility to know when a
trading style is not working for you, but also requires the consistency
to stick with the right trading style even when it is not performing
optimally. One of the biggest mistakes that new traders often make
is to change trading styles (and trading systems) at the first sign
of trouble. Constantly changing your trading style or trading system
is a sure way to catch every losing streak. Once you are comfortable
with a particular trading style, remain faithful to it, and it will
reward you for your loyalty in the long run.
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