We all know that investing is different from trading. Investing in stocks has a long time horizon while trading has a relatively short one. However, it is also important to note that within trading, there is a myriad of trading styles. Not coincidentally, they are also segmented by time frame. This time frame can vary from a few seconds to a couple of months, depending on the trader’s expertise and preference.
1. Day Trading – Day trading refers to a style of trading that is strictly kept within the same day. A trader that day trades does not hold positions overnight and cashes out all stock positions before the market closes. A day trader usually has to do extensive research on stocks to trade every single day. More experienced day traders like to establish a daily routine so that everything becomes very organized, systematic and disciplined, this minimizes overhead and allows them to make the most efficient use of their time. Day traders typically use technical analysis to spot opportunities and gaps in the market where they can make profits. A handful of day traders also use fundamental analysis pre-market to further profile the stocks that they plan to trade on that specific trading day.
2. Swing Trading – Swing trading has a slightly longer time horizon than day trading. A swing trade can last anywhere from 3 days to a period of a few weeks. Swing traders hope to capture short-term market momentum and sell when the momentum has run its course. As with day traders, swing traders usually set a profit target, which needs to be hit before they exit their positions. If it doesn’t, the trader usually uses support/resistance as well as the invested time frame to determine the next best exit strategy. Swing trading does not require gluing traders’ eyeballs to the screen for long hours per day, and it is growing increasingly popular with new, retail traders.
3. Scalp Trading – Scalp trading refers to repeated making trades over a very short period of time, a few seconds to a few minutes. It is commonly referred to as “high frequency trading”. Scalp traders usually aim for very small price increments and make small profits in high frequency. A typical scalp trader can make hundreds of trades in each trading session, and due to its nature scalp trading requires full attention from the trader at every single second. There is powerful machines and software that have been programmed to make trades for professional traders, such technology allows them to gain the upper hand in exploiting market loopholes.
When picking your trading style, always bring into consideration the amount of starting capital you have. Additionally the amount of time you have, your personality, patient or impatient, and your level of experience. Choosing the right style will go a long way in helping you avoid potentially disastrous mistakes.