Here we will discuss the trading styles you are likely to come across. What typically separates the trading styles is the length of time you intend to be in a trade, the timing of your entry and in some cases, the frequency of the trades.
There are no strict rules as to which timeframes a particular trader would use to trade, however the table below provides typical timeframes you would expect to see a trader using.
EOD (End of Day)
This is a popular trading style for anyone who works full time and only trade on the side. They may analyze the markets on a daily or weekly basis and set pending orders to catch price moves as they evolve – they will not be watching the screens when their orders trigger.
If you have a busy lifestyle, this may be a suitable method because it requires less time in front of the screen to analyze or manage the trade.
Fundamental (Macro Trading)
Using fundamental information and/or financial models to assess the strength or weakness of a stock, a currency pair, market, or country to anticipate future price value. The source of information would vary between stocks and Forex as they are also affected by internal news of a particular company, as well as macro information.
An intraday trader opens and closes a trade within the same day. Swing trading the 1-hour chart could be chategorized as day trading, and day trading has a lot more emphasis on technicals than on fundamentals.
There are also different forms of intraday trading, which are covered in detail below, including: Scalping; News Trading; Swing Trading; Trend Trading.
News Traders tend to specialise in so-called ‘Red News’ events and trade during, or around the release of an important news release. Extreme volatility can occur if a surprise figure is released, (which is not widely anticipated by the markets). This may create an opportunity to make more profit over a very short period of time. This extreme volatility, though, can also result in great losses. However, longer-term moves may also unfold after an important event, which may get the interest of macro traders to trade on the longer term trend. However, News Trading typically relates to short-term events.
A type of trader who holds a position for the long term (from weeks, to months to years). Long-term traders are not concerned with short-term fluctuations because they believe that their long-term investment horizons will smooth these out.
Position Traders tend to use a lot more fundamental information due to the longer holding time of the trade, yet they may also be purely technical. Position Traders and Swing Traders are more likely to use pending orders to enter the market, as they don’t need to be at the screen when their trade enters or exits.
Scalping is a form of intraday trading, and unlike the other styles, you must stay glued to your screen as if your life depended on it.
Whilst it is an extremely popular form of trading due to the higher potential for profits, it is also one of the harder styles to master, as it requires a lot more discipline from the trader. Despite this last point, scalping typically attracts the most interest from newer traders.
Intraday traders and Scalpers will use one-click trading to enter the market live because a quick entry is very important to them.
As a Swing Trader you are literally trying to trade the swing of a chart and hope to catch a big move. Popular timeframes are to enter on the daily chart, and hold a position for days, or sometimes weeks. However, the one-hour charts are also very popular with a view to hold a position for a few hours, or maybe overnight and potentially for a few days.
Analyze, enter, manage and exit their trading using technical analysis. This can be performed on any timeframe, although generally speaking ‘technicals’ are more popular on intraday timeframes, however technical analysis can also be used for long-term forecasting.
The object here is to identify a trend and only trade in the same direction as the suspected trend. Traditionally, Trend Traders were associated with long-term fund managers, however, in reality, you can become a Trend Trader on any timeframe you choose, as all timeframes trend.