Here’s a look at some of the most popular trading styles and the pros and cons of each.
Day trading is when a trader performs multiple trades a day. Day traders often trade with different instruments and on different markets to generate as many tarding opportunities as they can. They typically don’t hold trades overnight.
Pros: Getting many signals per day, day traders tend to trade more frequently.
Cons: A stable personality is a must!
Swing traders try to catch greater market swings in order to ride trends longer. Swing traders therefore hold their positions for much longer and may experience retracements in the time period.
Pros: You can have a more relaxed daily routine with this type of trading and have more time for research.
Cons: You need an immense amount of patience. Retracements can happen often.
Scalpers attempt to make many profits on small price changes in the belief that small moves in stock prices are easier to catch than large ones.
The main goal is to buy a large number of shares at the bid and then quickly sell them a few cents higher at a profit. Holding times vary from seconds to minutes.
Pros: A lot of small profits can become a big profit at the end of the day. Losses are limited too.
Cons: Requires full-time attention to trades and negotiation of fee scales with broker.
Algo/Automated trading is a trading system that utilises advanced and complex mathematical models/formulas to make high-speed decisions and transactions in the financial markets. Algorithmic trading involves the use of fast computer programs and complex algorithms to create and determine trading strategies for optimal returns.
Pros: Eliminates emotion from trading.
Cons: Needs very expensive equipment and Internet access.