Whether you are a beginner or an expert in currency trading, like all other traders, you have your own unique trading style. No two traders have the same trading style. Even if they follow the same rules and receive the same information, it is very likely that two traders will have different trading results.
Know Your Trading Strategy
Trading is an active participation in the financial markets. Through trading, you seek to gain additional capital from the fluctuations of various financial markets.
There are many ways for traders to enter and participate in trading, but each trader has a unique way to achieve their goals in this global arena. Understanding your own trading style is a vital part of achieving success. In this article, we will take a closer look at the trading styles that traders use the most. Traders should not be bound by any of the specific rules below, but should find the style that suits them best and enjoy trading.
Short-term and medium-term trading
Short-term trading, like medium-term trading, refers to entering and exiting the market (closing positions) in a short period of time when trading in the stock and futures markets, which can last from a few minutes to a few days. Short-term and medium-term trading can make huge profits, but at the same time, the risks are also very high. The reason for the high risk is that the market is unpredictable, and at any given time, many forces affect the stock market, and the market changes greatly.
Understanding the risks and rewards of each transaction will help you achieve the success of your strategy and supplement and enhance your strength to buffer and prevent unpredictable market events that appear quietly. Finding the structure of a successful short-term and medium-term transaction requires understanding and mastering the basic concepts.
Basic factors for short to medium term trading:
Identify market potential – the difference between a market opportunity and a market to avoid. Sometimes it is wiser to hold on to your money rather than risking losses in an overactive market
Follow the moving average – this is the average price of a stock over a defined period of time (specifically 15, 20, 30, 50, 100 and 200 days). By looking at the moving average, you can tell if the stock is trending up or spiraling down.
Identify overall cyclical patterns – markets often move in cycles, and paying attention to these cycles will guide traders to the best time to enter the market.
Market trends and patterns - can form over a period of days. If you study market trends and patterns carefully, you will notice certain patterns of up and down trends. Find the trend of the asset you are trading and “ride the wave” of it.
Manage risk – It is extremely important and every trader should master: “minimize risk and maximize reward”. You can use entry and stop orders on the platform to prevent over-utilization of available funds in your trading account.
Use technical analysis – This is a method of evaluating and studying stock trends: using the previous price and patterns of a certain stock to predict its near-term trend.
Taking the above factors into consideration, combined with the fact that most retail traders prefer to hold trading positions for one day or more, the mid-term is best defined by using the current state of technology.
Long-Term
Based primarily on the fundamentals that influence the market, traders hold and maintain positions for a long period of time, which can span months or even years. Because most investors believe that their positions need to withstand or "ride out" the many market changes while the position is open, long-term traders generally need more money from the beginning. The idea behind long-term trading is that returns accumulate slowly over time.
Ironically, the time spent on long-term buy and hold trades is much less than the time spent on short- to medium-term trades. The latter also involves the effort of responding to market trends immediately. Risk management strategies need to be in place. A few things to remember about this:
Use small leverage – stick to a small portion of your net worth so that you can withstand intraday or intraweek fluctuations.
Always remember your SWAPS – Swaps are fees that all brokers charge for holding positions overnight, also known as swaps. Swaps can be positive sometimes, but most of the time they are negative, so be prepared for this expense.
Time vs. Profit Potential – Consider the time you spend trading and compare it to the potential return you will receive. Long-term traders must use relatively large amounts of money to make the time investment worthwhile. They often make the mistake of not being able to reach their profit targets even with the best strategies. This can happen when leverage is too small.
Breaking down the subcategories of traders and their most common trading strategies:
Scalping
This is a very fast day trading strategy: positions are opened and closed in seconds or minutes. Scalpers accumulate profits by buying and selling frequently with minimal intraday price fluctuations. Another benefit of scalping is that traders do not have to pay overnight interest (rollover fees), which eliminates this additional cost.
Scalpers make many trades at the same time per period. To help manage entry and exit positions, traders set profit targets and stop-loss orders. This feature determines that scalpers have no patterns, analysis, etc., but rely on 1-5 minute tick charts to make quick decisions.
Day Trading
As the title suggests, day trading is buying or selling an asset and entering and exiting it on the same day. This type of trader uses leverage to gain returns from small price fluctuations in highly liquid assets. Day trading is a strategy where all trades are opened and closed on the same day. So, with this strategy, you also don't have to bear overnight costs.
Day trading is high risk and high reward. The fact that traders use this strategy requires two important details to ensure: liquidity and volatility. Having market liquidity allows you to enter and exit stocks at the best price. How is this done? Traders take into account the bid-ask spread (spread), low slippage and count on low spreads.
Volatility is measured by the expected intraday price range (that's when day traders are active). The higher the volatility, the higher the profit potential vs. loss ratio.
Applying the following methods can greatly help you improve your day trading ability:
Identify possible entry opportunities – Intraday candlestick charts, ECN quotes and real-time news are all good entry indicators
Find price targets – Identify the best price targets. When entering the market, you need to be sure that the entry price is a good price and you will definitely make a profit when you exit
Stop loss – Margin trading does increase your risk. You will be exposed to the risk of rapidly fluctuating prices, and use stop-loss orders to limit position losses
Beat the odds – evaluate your performance by closely following the strategy, rather than evaluating your performance by chasing profits
Swing trading
Swing trading refers to a trading style that is more inclined to fundamental trading, and positions opened in this style are maintained for several days or weeks. The reason why swing trading is more fundamental is that it consolidates fundamental changes over a few days, ultimately profiting from medium-term market fluctuations. There is usually a fee to hold a position overnight, and positions can also be held for weeks.
Swing traders are generally between day traders and trend traders. Day traders hold stocks for seconds to hours, but never more than a day. Trend traders tend to study long-term trends by studying fundamental trends from weeks to months.
Swing traders hold a stock for a few days, up to two weeks, and up to three weeks, and during this time they look for highs and lows in the stock's fluctuations within various markets. This style is well-known in trading circles and is best suited for novice traders who are looking for opportunities to enter the financial markets. This style of trading will also provide obvious profit potential for advanced or intermediate level traders.
Trading Positions
For traders who like to hold open positions for months to years. This type of trader invests in the long term and believes that small market changes will eventually be smoothed out by time, so they don't pay attention to short-term market fluctuations. Position trading is the exact opposite of day trading, and the goal is to profit from changes in trends over a long period of time rather than short-term fluctuations.
In order to understand where their chosen asset is in a trend, many traders who adopt this strategy will look at weekly or monthly charts. These are derived by evaluating price charts and market activity using both technical and fundamental analysis. Positions held overnight are subject to fees, known in the trading world as rollover fees.
Why open an account with AvaTrade
Now that you know about the different trading styles, you can open a risk-free demo account with us to try them out one by one and see which one suits you best.
Get the best educational information, build your market knowledge, download MT4 and start trading with strong support 24 hours a day, five days a week. We offer many free trading tools to help you enter the market with confidence. Join AvaTrade now and get the most out of the trading market.
