Scalping – Trading Styles
Scalping is an intraday trading style, which capitalizes on small price movements. It is faster paced and widely considered more difficult than other trading styles. A scalper is in and out of a position very quickly, often within seconds. A pure scalper can wrack up hundreds of trades in a session capturing small profits. These add up over the course of the trading session.
Scalpers typically use leverage and oversized positions to maximize the profits of these small price movements. This type of trading requires the trader to be very fast in decision-making and quick on the keyboard. If a trade goes against the scalper he or she will kill the trade without hesitation. Hesitating can wipe out profits fast. This can send an inexperienced trader into a tailspin of revenge trading which can ultimately destroy an account.
Successful scalping requires a specialized set of trading skills. Among them are mastery of price action and/or tape reading, emotional control, decisiveness, intense focus and the ability to strictly adhere to their trade plan. He or she shows no loyalty to a trade. If the trader is in a long position and the tape or price action tells them something different they will exit or even reverse the position in a split second.
A scalper will usually stop trading when their plan tells them to. Generally this is when they have hit their predetermined daily profit target or max loss, the market is no longer accommodating their entry and exit strategy or the are simply mentally fatigued, distracted and/or unable to maintain the required focus. Understanding yourself and knowing when you are not performing at your peak is paramount to being a successful scalper.
Good and Bad
Commissions can make scalping a prohibitive trading style for the small retail trader. Because of the number of trades a scalper takes commissions can stack up quickly, outweighing profits. For a trader with the skills, account size and discipline, however, scalping can be a very lucrative style of trading. Professional scalpers typically have high win rates and limit their time exposure in the markets. A pure scalper will never hold a position overnight. Mastery of this style takes time and discipline. A master scalper can generate consistent profits which amount to astounding annual returns.
If you think scalping may be the right style of trading for you, you should find a successful trader who can train you in this style of trading and consider practice on a demo account or with very small size until your entries and exits become repetitive and you are able to stick to a plan and consistently profit from the markets. When you enter the markets with real money and size you will likely experience heightened senses and emotions. It will be important to have a foundation of repetition and confidence in your strategy.
Commonly referred to as Day Trading. Intraday Trading is a style designed to capture profits from markets based on short term, intraday movement. These traders will attempt to identify short term trends in their chosen markets and close all positions by the end of the day.
Some intraday traders will be in and out of positions very quickly similarly to a scalper. Others will hold trades for several minutes to hours. Some will hold for a swing, for example buying on a dip in price and selling on the swing up. They’ll perform these types of trades multiple times per day on both the bull and bear side.
Another approach is to try to identify an intraday trend and hold for the duration of the trend throughout the day. Often times these traders will add to their positions in the pullbacks. This maximizes the profitability of the trend. This is often referred to as intraday position trading.
Regardless of their individual approaches, true intraday traders will be flat at the end of the day. They never expose their capital to overnight risk.
Indicators that Intraday Trading may be right for you:
- Make good decisions quickly.
- Can’t sleep with money in the market overnight or over the weekend.
- Comfortable with being active in trading throughout the day.
- Perhaps, you don’t have the patience to hold a position for days or weeks to learn the outcome.
Take a look at the various intraday trading methods taught by coaches in the Trading Coaches section of TradersInfoHub.
SWING TRADING – Trading Styles
Swing Trading is a style of trading in which the trader holds positions for anywhere from a day or two to a couple of weeks. The approach is to identify and take advantage of swings in the market typically on a daily chart. Swing traders will attempt to identify pullbacks in a trending market. They take a positions anticipating a short term continuation of the trend over the next few days or weeks.
A swing trader can identify entries based on their criteria during non-trading hours and enter pending orders. This places stop or limit orders to enter a trade along with a stop loss and target. This eliminates the need to be present at the computer when the trade is triggered. This makes Swing Trading a preferred trading style for many people who cannot watch the markets throughout the day but want to be active in the markets.
A swing trader has much more time than trading styles such as scalping or intraday trading to analyze a potential trade against his or her criteria before entering an order. This is beneficial to the new trader who is learning to trust his or her ability to following the plan.
If you don’t mind holding positions overnight or over weekends. If you prefer to analyze your trades rather than making split second decisions, you can’t watch the charts during the day, are prone to revenge or over trading, swing trading might be a style that fits you. Explore the Trainers/Coaches section to find a swing trading style that appeals to you.
TREND TRADING – Trading Styles
In simplest terms, Trend Trading is a style of trading where a trader identifies an instrument has begun trending up or down. The trader enters in the direction of the trend, expecting it will resume. He or she will stay in his position for weeks months or even years until he concludes the trend has ended. At which time the trader will exit the trade and wait for a new trend to develop or find another instrument that is trending to enter.
A trend trader will have rules for entering or exiting trades. For example: a stock has begun a strong uptrend. a trader may wait for a pullback to a moving average, support level or a fibonacci level to enter the trade in order to get the best price. Some traders will wait for the stock to consolidate sideways and buy when the stock breaks to a new high above the consolidation area.
Exit rules can vary as well. A trend trader may exit the trade if it falls below a moving average, breaks an important support level or declines in price buy a certain percentage.
This style of trading is excellent for people who have patience and/or cannot be involved in trading the markets every day. It is probably the least stressful type of trading. It gives the trader a lot of time to analyze the trade before making a decision to enter or exit. It requires less time and attention than other trading styles.