Types of trading

Every trader must develop his own trading style, because God made each of us different with a unique combination of strength and limitations. Even those people who excel at the same things excel in different ways. Look at some of the top traders, some excel through value investing by identifying true gems even before it blooms, some are great day traders/scalpers who are cut to profit from tiny price movements, making hundreds of trade a day. They use their talent to make up for the areas that they are lacking. How do you find your trading styles? There is no other way but through trial and error. Some traders have only one style of trading, while others use a combination of techniques. The stock market also provides opportunities for short-term investors. Market skittishness can cause prices to fluctuate quite rapidly and investor psychology can cause prices to fall or rise – even if there is no financial basis for these variations.Short term traders are divided into 3 categories: Position Traders, Swing Traders, and Day Traders.

Which type of trading should a trader adopt? My answer is it really depends on the prevailing market condition. In a trending market, be it a bull or a bear market, I would adopt Position Trading and to a certain extend Swing Trading. These combination of trading style will allow the stocks `time to breathe and grow’ and to take advantage of its trending nature. However, in a sideway market, it’s best to day trade because the market is range bounded. In a side way market, prices are up one day and down another day, your profit will evaporate if you don’t take them at the end of the day.

Position Traders
Position trading is the longest term trading style of the three. Stocks could be held for a relatively long period of time compared with the other trading styles. Position traders expect to hold on to their stocks for anywhere from 5 days to 3 or 6 months. Position traders need to watch not only the technical aspects but also for fundamental changes in value of a stock. The secret to position trading is to be able to catch the stock at the initial stage of its reversal. When you have got your initial block of share at a good price and the stock rallied subsequently, your low will help you to ride your position. Position trading is especially fun when you are in a commanding position or in the `Driver's seat’, just waiting to reap the profit by riding the trend. Position trading does not require a great deal of my time because I’m watching either the daily or the weekly charts. Most of my biggest percentage gains are made from position trading. Position trading is riding on trends; you should only take profit when there is a major change in trends. The time needed to study the stock market can be as little as 30 minutes a day and can be done after regular work hours. It is a fairly laid back approach as you have to deal with fewer whipsaw, ignore short term gyration, to see the bigger trend play out. Its biggest drawback is the significant risk that it has to assume by carry position overnight.

Swing Traders
Swing traders hold stocks for shorter periods than position traders – generally from one to five days. The Singapore trading context, it’s the contra trading period which one is allow holding his long position for 5 trading days before full payment is required or risk being forced sold. The swing trader is looking for changes in the market that are driven more by emotion than fundamental value. This type of trading requires more time and attention than position trading. Swing trading really is a short term trend trading but at a slower pace than day trading. I only engaged in swing trading when have reason to believe that the stock have started to trend, or stocks that have just broken out of a critical resistance or broken down from a critical support. My style is primarily based on trend trading. Where a day trader try to scalp fractions of dollars on ultra short trades, I try to ride the trend a little longer for hours to days or weeks to net more profit. Trend trading is a little more relaxed trading style. It requires a sound trading plan and anticipation of price movement. The only drawback is that you have to contend with the overnight risk. Swing trader usually relies on daily and intraday charts to plot stock movements.

Day Traders
Day trading is a hyperactive stock trading where traders can makes hundreds of trades each day though capturing the small price fluctuation. It refers to buying and selling stock in very short periods of time – less than a day but often as short as a few minutes. True day traders thrived on intraday volatility. They usually trade in larger volume, to make a small percentage gains worthwhile. My typical scalp is between 0.1 and 0.2 percent and I trade in volume of 100,000 to 1million lot size per trade with value not exceeding $500,000. This is very high risk to reward ratio, plus the stress of having to monitor the every bid price movement on your computer until the position is closed. At the same time, the trading commission can be very huge because of the number of times you jump in and out of trades per day. The problem of day trading is that the intraday volatility is so high, prices change direction so fast, and profit evaporates as fast as they come. Although I still day trade a lot, I realized that my major profits are still comes from riding on trends whether they are up or down trend. The satisfaction I derived from day trading is the instant realization of profit without taking the overnight risk. As for making the big bucks, day trading will not be my primary strategy. I like it because its fun, it helps me to sense the pulse of the market and keeps me on `Alert 1’ all the time. That’s for me, though. For some like my trading partner, who is a hugely successful day trader, day trading is perfectly suited to his abilities and personalities. To all the day traders out there, I wish them the best, keep buying and selling in huge lots; you will create the volatility that I need to survive in this market!