By Timothy Sykes
How well defined are your trading styles?
Don’t overlook this. It’s completely dependent on your personality, commitment, and emotional make-up.
One of the first steps of your trading journey is understanding different trading styles and finding yours.
Don’t have a style? You’ll likely end up buying and selling random stocks at random times with no plan. That’s a fast track to blowing up your account.
Be smarter than that. Invest in your education. Create a plan for every trade and stick to it no matter what. And commit to adapting to any kind of market. That’s how my top students and I became self-sufficient traders.*
Yes, you have to study harder than ever. But that’s how you find and master YOUR trading style. Read on to learn how to find and hone your style…
A trading style is how you go about trading.
Everyone has a unique trading style. But there are factors that help group traders into categories.
The main factor is how long a trader typically holds positions.
If they consistently buy and sell stocks intraday, multiple times a day, that’s a day trader. That’s very different from a trader who only buys and sells stocks a few times a month or year.
Risk tolerance is another big factor.
Certain trading styles, like day trading, tend to have more volatility and risk than others. But that volatility and risk can mean the potential for greater gains.
Those are the main factors that help classify trading styles. Now let’s get into specific styles…
The 5 Different Types of Trading Styles
As we go through each style, keep in mind that traders can mix and match or combine trading styles.
There’s no right or wrong. It’s what works for you.
Also, you might avoid a trading style completely because it doesn’t suit you. That’s OK. Just remember it’s smart to learn as much as you can about the stock market. So you may not use all the styles, but understanding how other traders think is never a bad thing.
Always work on building your knowledge foundation. That’s how you can better prepare for whatever the stock market brings. Let’s get to it…
#1. Day Trading
Day trading is buying and selling securities within the same trading day.
Day traders usually place somewhere between one and 10 trades per day. But that also depends on the current market volatility and how many stocks are running.
If it’s a slower day in the markets, sometimes the best trade is no trade. Cash is still a position.
I say that because day trading is one of the riskiest trading styles around. To me, day trading isn’t risky, but that’s because I trade conservatively. If you study hard and learn proper risk management, I think it’s one of the best trading styles to grow an account.
But day trading isn’t right for everyone. Only start day trading if you know you’ll work harder than you ever have. That’s why I only accept the most dedicated students into my Trading Challenge.
The Trading Challenge gives you access to thousands of video lessons, live webinars, an amazing trading chat room, and the ability to learn from some of my previous top students who were once in your shoes. Apply to the Challenge now to find out if you make the cut.
#2. Swing Trading
Swing trading has similar techniques to day trading but on a longer time scale. Swing trades usually last for a few days or weeks.
Swing traders typically open positions based on technical and fundamental indicators that indicate increased volatility. When a stock’s volatile, it can lead to quick changes in price action. That can be good or bad, depending on which side of the move you’re on.
Volatility is intimidating to a lot of traders. If you’re caught on the wrong side of it, your hard-earned cash is toast.
That’s why it’s important you follow rule #1 and cut losses quickly whenever a trade goes against you. There’s no time to argue with the market if you’re in a losing trade. The market always wins. The best thing to do is cut the loss and move on.
#3. Position Trading
Position trading is different from day trading and swing trading. Some people consider it to be more of a buy-and-hold strategy rather than a trading style.
However, when done properly, position trading can be a trading style that involves lower risk and longer holding periods.
Position traders use longer-term charts to follow trends and decide which stocks to buy. They usually buy (or short sell) stocks after spotting an established trend and ride the long-term momentum.
In terms of trading styles, I think this one takes a lot of patience. You don’t cut out the second a trade goes red. You wait and see if the trend is completely over before getting out.
This kind of trading isn’t for me. I’ve drilled cutting losses quickly into my brain. But this might be a good strategy for you if you have more of a buy-and-hold type of mindset.
This trading style focuses on profiting from frequent, small price fluctuations. With this style, traders hold positions for a few minutes or seconds.
A scalper’s goal is to make lots of small profits that eventually add up to greater profits. They often use lots of leverage to boost profits, since they trade tiny price fluctuations.
My #1 rule, cutting losses quickly, is important for scalpers too. If they don’t cut losses quickly on a losing trade, they might wipe out all their gains from the past 10+ trades. To me, that risk is too high compared to the potential reward. That’s why I stay away from scalping.
#5. Momentum Trading
Momentum trading is all about riding the hype. If everyone’s piling into a stock, you can assume that all the momentum traders are there too.
The idea behind momentum trading is that increased volume will bring increased volatility and push the stock further in the direction it’s already headed.
This trading style has proven itself over the years. More and more traders find themselves trading momentum stocks.
The potential for gains can be great, even for those with small accounts.
I started trading with the roughly $12,500 I received for my bar mitzvah. Now I’m up to over $7.1 million in trading profits all thanks to my two favorite trading styles — day trading and momentum trading.*