What is Trading?
Trading, simply put, is the act of buying and selling stocks based on market movements in order to make a profit. It is the opposite of investing, which is the process of buying and holding for a long period of time. Traders use many financial instruments in their trade, which include bonds, stocks, currencies, and commodities. Futures, options, and derivatives can also be used by traders to increase returns or to hedge positions.
What Are The Different Styles of Trading?
All traders use at least 1 of 4 main trading styles on a daily basis. There are several styles of trading, such as scalping, day trading, swing trading, and position trading. Let's check out what sets each style apart:
Scalping
Scalping us when traders buy and hold positions for a short position of time and profit from the price fluctuations during that period.
Strengths
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Quick profits from a short amount of time
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Low commitment, can take on other opportunities
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Focuses on tiny price jumps, not sensitive to overall market movement
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Develops an eye for precision and focus
Weaknesses
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High frequency of trading
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Extremely stressful and can be emotionally draining
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Limited profit earned per trade
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Need to have excellent risk management skills to juggle multiple positions
Day Trading
Day Trading (intraday) is when traders enter positions and exit them on the same day.
Advantages
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High earning and quick profits
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Can trade from anywhere
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No overnight risk
Weaknessess
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Short term thrills can lead to potentially obsessive behaviour or addiction
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Can potentially lose a large sum of money in a single day
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Crunching strategies on how to trade within a short amount of time
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Stressful and too fast-paced
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Only works with short-term trends
Swing Trading
Swing Trading is when traders keep up with short-to-intermediate trading trends, which can last anywhere between 1 to 30 days.
Advantages
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Easier to understand than day trading
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Less risk since there is more time to make informed decisions
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Less time to manage unlike day trading
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Far less stressful than day trading
Weaknesses
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Intricate and requires more research to make informed decisions
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Holding onto positions may lead to emotional decisions
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May lead to reckless behaviour as high discipline is required
Position Trading
Position trading (trends) is when traders buy and hold positions for a long period of time.
Advantages
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Easier to understand and learn
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Not as harsh as other styles of trading, mistakes can be earned back over time
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Can start small and slowly build it with time
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Less time consuming
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Market trends are easier to predict
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Far less stressful than day trading and swing trading
Weaknesses
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Need to commit money, therefore will have less opportunity to trade elsewhere
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Risky to leave positions open for a long period of time due to market changes
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Only long term profits, not suitable for short term profits at all
With that, you now have a better understanding of trading styles. Each trading style has its own benefits and risks, so it all depends on the type of trader you want to be. It takes time to discover which one suits you the best, so we'd advise our users to try it all until you figure out what works for you!
Where do I start Trading?
You can start trading right here on Toobit! We offer an array of options for every type of trader; beginners, novices, and professionals. Sign up now and claim your free bonus vouchers to use for your first trades with us.
Toobit always encourages our users to utilise our platform to the fullest, and to research thoroughly before making any decisions. Manage your risks accordingly and trade well, Toobiters!