The goal of trading is to buy a security and then sell it at some point to make money. There are several trading styles to choose from in order to fit a trader’s lifestyle. One way to differentiate these trading styles is by looking at the time period in which traders hold a security. This time period can range from a few seconds to even years. Some of the most popular trading styles are scalping, day trading, position trading, and swing trading. In this article, we would talk about two trading styles which are on the opposite ends of trading: scalping and swing trading.
Traders who opt for the scalping method are called Scalpers. Scalping is done by extracting profits from small price movements. A typical scalp trade usually takes from a few seconds to minutes. Because it only takes such a short time and results to small gains, scalpers make a number of trades per day that ranges from at least a dozen to a few hundred. With this amount of trades, scalpers are able to reap small profits that add up to a significant amount at the end of the day. This fast paced type of trading requires focus, precision timing and immediate execution to become successful because one large loss can wipe out all small gains made.
Scalping is not for everyone, as it requires access to real time feeds, a direct access to a broker (for instant execution of orders), and the stamina to be able to make a huge amount of trades per day. Scalpers make use of one-minute and five-minute charts to make sure they are updated as close to real time as possible. They often trade in the most liquid pairs during the busiest times of the day to take advantage of the short term price fluctuations. Despite the very little amount of possible gains, scalping has proved to reduce the risk of losing a lot due to the limited time exposure involved.
Swing trading is another type of trading style in which traders attempt to capture larger gains from the market by holding a security overnight or up to several weeks. The idea of swing trading is to ride a wave in one direction, then exit or switch to the opposite side before it reverses direction, without being overly precise to avoid the risk of missing an opportunity. Its success is based on correctly identifying profitable securities and what kind of trend the market is currently experiencing. Compared to scalping, swing trading can result in larger profits with less effort, but it is also exposed to larger potential losses because of market volatility.
Swing trading is for traders who are patient in holding on to their positions since it requires a longer holding time to generate income from larger price movements. It also uses smaller position size compared to scalping where a bigger size enables the trader to gain more profits despite the small price movement. Since swing trading usually lasts from a few days to several weeks, it relies on larger time frames like 15-minute, 60-minute, daily, and weekly charts. The use of stop losses is also very important because swing traders are not able to check the market around the clock.
No matter what kind of trading style a trader chooses, he should make sure it suits his personality. Just like for this comparison, risk takers who can handle stress and has a high level of focus may do better in scalping while calculating persons who have the discipline to hold on to trading plans may do well in swing trading. Nevertheless, if one is confused on which trading style to take, it would be better to practice through demo accounts to identify which style he would be more comfortable to take.
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