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Different Trading Strategies: Day vs Position vs Swing vs Scalping

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Lately, the stock market has become increasingly appealing to investors of all ages and backgrounds. Though things seem quite risky here, especially compared to other market sections, there is just something that evokes the interest of the clients. The key feature that distinguishes this trading activity from others is, you can receive benefits and priorities with owning stocks, such as voting rights, claim on corporate earnings, and other forms of profit such as dividends.

Just the Nuggets

  • Stock market is one of the most appealing trading sectors, and more strategies are forming among traders in hopes of earning as much profit as possible.
  • Day trading is the most common stock trading strategy. It is useful for the majority of traders because of its ability to manage risk. However, it is often subjected to scams and fraud.
  • Position trading requires a lot of patience, and it is focused on predicting price trends based on the current movements.
  • Swing trading consists of benefiting from a break of a trend, which can also significantly affect the value of a security.
  • Scalping is a trading strategy that consists of opening many different trades in hopes of gaining from small price movements of an asset. It requires attention to detail and a clear focus on the research of the asset in question.

Day Trading

Day trading is quite a lucrative and appealing activity that can bring the investors’ profits based on their actions during a single trading day. It implies buying and selling a security during the same trading day. This is the most common activity on the stock market and foreign exchange (Forex) market, which is open 24/7. It is also the most liquid market on the globe, with a daily turnover of over $5 trillion. The investors are able to benefit in this kind of environment, thanks to the appealing leverages, as well as different types of strategies that will be discussed in this article.

Day traders are quick on their feet but also well-educated and skilled in using short-term market moves to their advantage. This takes quite a lot of practice and implies that investors need to be informed at all times so they won’t miss any new movements or trends forming on the market.

There are many things day traders need to take into consideration when forming their day trading strategies, including:

1. Economic statistics

This consists of important data forming on the trading market each day. From the empirical data of economic research to the latest market movements affecting these numbers, investors can find this information quite useful for their strategies.

2. Corporate earnings reports

Each company releases its quarterly earnings report on a scheduled date, and investors consider these latest numbers when creating a lasting trading plan. These corporate earnings releases are no secret, and they usually stir quite a few important movements on the market.

3. Interest rates

Why do you think the central banks are so popular these days? They contribute to the world of finance and investing in many ways, and one of the most important ones is definitely their decision on the interest rates. These policies affect not only the respective countries and their monetary sectors but also the independent investors.

4. Market psychology

The behavior of investors and traders who engage with the market can be explained by using many indicators and factors contributing to this phenomenon. Market psychology is an important section of day trading that gravely affects each investor, as well as their subsequent moves during trading.

Day Trading Controversy

Unfortunately, there is a dark side to day trading, and it comes in a form of many scams and deceits that have formed over the years. Better known as the Internet Day Scamming, these malicious activities are aimed at attracting investors with promises of quick and easy profits. These promises, however, cannot be guaranteed or fulfilled by anyone. Day trading, such as any other form of investing, is highly unpredictable. You can only rely on yourself during the process, as well as your knowledge, skills, and instincts.

Due to particularly high levels of risk with day trading, many experienced investors tend to steer clear of it. This fact, combined with the complexity of the activity, is stripping traders across the globe from necessary and lucrative opportunities to expand their portfolios.

Among other active trading strategies, position trading, swing trading, and scalping should be mentioned. Each one of these is suitable for the particular trading style, as well as traders’ tendencies and goals on the market. Deciding on a perfect trading strategy can be challenging, but the journey is also able to enrich your trading skills in ways you haven’t even thought of.

Position Trading

This type of strategy is suitable for traders who have patience and are willing to wait longer than a single trading day to achieve their financial goals. This consists of using long-term methods and signals, such as weekly and monthly charts to determine the market direction. Depending on how long the position is opened, this strategy could last from several days to several weeks.

Position trading is mainly based on trends. Position traders tend to look at market movements during a long period in order to detect a movement that could form a trend in the future. By jumping on the action early, these traders can get a significant head start, regardless of the direction of the trend. They tend to hold the position open as long as they’re able to ride that high, after which they will exit and collect their profits. It is implied that during increased market volatility, there are fewer positions opened since the volatility makes it harder to detect a trend.

Is Position Trading the Right Choice for You?

Much like any other strategy, position trading can be quite a beneficial way to earn profits. It all depends on your unique features and skills, as well as your ability to turn your downsides into a learning experience. Position trading is quite useful here in terms of training yourself to be more patient, manage stress, and focus on the details you’d otherwise miss.

Position trading requires a lot of dedication and in-depth research. Nothing is guaranteed here, but you can rely on your instincts to detect something that other market participants have never even thought of. Putting it like that, position trading is not only able to diversify your portfolio but also improve your skills in other areas of life.

Swing Trading

What happens when a trend breaks? 

Typically, that is the time for position traders to exit and conclude their trading day, at least on that particular position. However, the breaking of a trend can also be beneficial, and that’s where the swing traders come in on the scene.

As one trend comes to its natural end on the market, another one is set to form. Although this is quite an early and unpredictable time to even try and determine what that trend will be, there is one thing that will happen with certainty—the price volatility during this time period, which is brief but quite useful if you can detect it. And how long does this period last? Usually, swing traders jump in on the action for about a day or a bit longer, after which the haze will die down.

Swing traders, like any other types of traders on the market, base their strategy and moves on many things. One of the main ones is fundamental analysis. This analytic tool is one of the oldest ones used across all markets, regardless of the goal the traders wish to achieve.

Fundamental Analysis

Fundamental analysis takes into consideration a wide variety of effects and factors contributing to the value of a security on the market. These mostly include the economic and financial factors, as well as other conditions in the trading industry that can affect the ending result of your trading.

The goal of fundamental analysis is to try and detect the value of a security which the investors can use as a guide to determine if the security is undervalued or overvalued. In other words, fundamental analysis tries to determine if the current security price on the market is valid and correct. This type of study includes many factors of the broader market environment, so it implies a lot of research and attention to detail.

Scalping

Scalping is focused on benefiting from the minor price changes in the stock value. Scalpers work a bit differently from other traders—they tend to make more than a few hundred trades in a single trading day in hopes that some of them will bring them gains. They believe that this strategy is much more beneficial than focusing on the big changes, which are a lot riskier and can increase their losses.

The condition for this strategy to work and be useful for your portfolio is to set a clear exit strategy and stick to it. In other words, you need to be disciplined and able to resist temptation. During a hectic trading day, many investors tend to disregard their previously set limit on exit because something unexpected happened. However, this is quite damaging in the long run, considering that sticking to your original plan is always a better option.

Scalping is a strategy requiring a lot of precision when it comes to timing and execution. This is the main reason why it is not useful for a lot of traders, especially the newly-established ones. It also requires a bit of experience and a lot of patience. Considering that you are opening many trades at the same time, you should be able to take more than a few hits at a time in case they don’t pay out.

Downsides of Active Trading Strategies

While they have their unique features and benefits, there are also downsides to all of these strategies. Namely, they are quite cost-ineffective if you are using them on your own, and not through a broker company. This represents a challenge of its own since many trading companies on the market cannot be trusted. So what’s left then?

A lot of research is required in this industry in order to avoid scams and other harmful activities. These strategies are a good start for it, as well as an efficient way to get to know yourself better when it comes to trading and the goals you wish to achieve with this activity. 

The best advice a lot of expert traders can give you is to try time and time again until you find the most suitable strategy. This may sound like a huge hassle, but you can’t know until you try. Often the road will take you where you never imagined would be possible, and you will discover something about yourself and your journey that can surprise and astonish you.

Which Trading Strategy Should You Choose?

In the end, the best trading strategy depends on many things, particularly on your own features and abilities. You may start with one strategy such as scalping and on the road learn that swing strategy is much more your style. This decision is affected by many facts and things you find important—from the amount of capital at stake to the risk tendency and even the stress level involved.

This is, again, where market psychology comes into action. Each trader is different, so they will also react differently to the different events happening on the market. This is impossible to predict, much like any other thing on the market. The harsh truth is, you can never know until it happens to you. This is why a smart trading strategy is a good safety net, but it cannot completely protect you from failure.

Closing Notes

Choosing a suitable trading strategy for your portfolio and market activity is imperative. It is one of the first steps you take as an independent trader, and it is also the factor that determines your trading success later down the road. Deciding on a perfect trading strategy, much like anything else in life, includes a lot of failed attempts until you get it just right.

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