Determining your trading style is definitely one of the most important things you need to discover before moving forward in your trading career.
Trading strategies, systems, and methods that aren’t compatible with your profile and personality will drastically lower your chances of success.
Who you are as a trader will assist you in determining your style. Its a form of self-reflection of your habits, traits, and overall personality.
There are four main types of trading styles:
- Scalp trading
- Swing Trading
- Day Trading
- Position Trading
Remember. Less is more. Focus on ONE strategy that works best for you, and then perfect your craft onwards from there. So let’s take a deep dive on each of these different trading strategies and which one applies to you the MOST
One of the quickest strategies employed by traders is Scalping. The primary focus is to take profits from small price changes, which frequently occur. Scalpers often make trades within just a few seconds of each other and require traders to have a STRICT exit strategy. They go short in one trade, then long in the next; small opportunities are their targets. One large loss can wipe out the numerous small gains that the trader worked towards.
Personality traits for a scalper:
- You are able to make quick and precise decisions
- You are able to act on your decisions without any hesitation
- You are able to focus and concentrate while you are in a trade
- You are not easily distracted while trading
- You are able to devote time to the markets
- You are able to act swiftly
- You are able to handle stress
Do not scalp if:
- You tend to lose focus very easily
- You aren’t able to make quick decisions on the spot
- You hesitate while making a trade
- You are distracted easily
- You are not quick with your actions
- You can not devote time to the markets
Swing trading is a style of trading that doesn’t require a trader to constantly monitor their trades since positions held for a period of a few days. Swing traders are considered as “trend followers.” If there is an uptrend, they go long, and if the overall trend is towards the downside, they could go short.
Pro tip: this trading style would also best be suited for any individual who has a tough work schedule. You don’t have to constantly monitor your screen, so it’s perfect!
Personality traits for a swing trader
- You have the patience to wait for the right trading opportunity
- You are able to remain calm when a trade is going against your intimated position
- You are unable to stay glued full-time to the markets
- You have fluid decision making, and not necessarily rapid
- You have a moderate stress level, doesn’t have to be extreme
- You are short on time
Do not swing trade if:
- You tend to become anxious in such situations
- You are impatient in trades
- You lack the precision required to understand trends
- You are not organized at all
Day traders are typically well-educated and well-funded. They use short-term trading strategies and are attuned to events that lead to short term market moves. They usually enter and exit positions in one single day, profiting from small price movements. The goal is to earn a tiny profit on each trade and then compound those gains over time.
Personality traits for a day trader
- In-depth knowledge of the market place
- You have a large amount of capital
- You do not prefer carrying positions overnight
- You maintain strict discipline about how you approach your trading day
- You are quick-witted, and act quickly when you see a buy or sell opportunity
- You are persistent after finding a strategy
Do not day trade if:
- You are a complete beginner
- You don’t have in-depth knowledge of the market place
- You do not have a large amount of capital
- You ten to sell winners too early and hold losers too long
- You lack discipline while trading
- You can’t afford to lose money
Position trading is similar to holding an investment for an extended period of time with the expectation that it will appreciate in value.It contains trades that can last from several weeks to several years depending on the trend, focusing on the overall price move of the stock. They rely on general marketing and long term historical patterns to choose a stock that they believe will grow significantly in the long run. Sticking to their core belief that once a trend starts, it’s likely to continue.
Personality traits for a position trader
- You are short on time, and not able to constantly monitor the markets
- You have a significant amount of patience – waiting for weeks until you see some sort of outcome
- You are least excitable as a trader
- You prefer delayed gratification over instant gratification
- You have a large portfolio
- You are trading in a bullish market
Do not position trade if:
- You enjoy instant gratification over delayed gratification
- You lack patience and want to see outcomes immediately
- You have a smaller portfolio
- You are not trading in a bullish market
Picking the Right Style for You
No single trading strategy is necessarily better than another and there’s no magic answer to the question of which is the best option for you. It boils down to your personal characteristics and requirements after taking other variables into consideration.
Be honest with yourself when reading these characteristic traits. Which trading style can you actually handle? Which one is best for you in your current conditions? Your personal/ work life may cause you to stick with a temporary trading strategy but that’s all a part of the process.
After deciding your trading style, become faithful and consistent towards it. Stick with the right trading style through your ups and downs. Don’t give up the moment you lose money and take on a bad trade. Learn from it. Understand the mistake. Move on and make improvements. It’s the best way to elevate and perfect your trading.
Once you become persistent with one style, it will reward you for your loyalty in the long run.