There are three (or possibly four) main trading methods for you to choose from when you are looking to enter a position. These are scalping, day trading, swing trading, and position trading.
For the sake, of course, we will be looking at the first three methods just mentioned. This is because position trading involves holding a position for months and possibly even years – it’s a buy and hold method that doesn’t really qualify as active trading.
With that being said, let’s break down the three individual methods and explain what each one entails.
Scalping is a highly active and fast-paced trading style. The idea of scalping is to take 10’s or 100’s of small profits each day, aiming to take advantage of tiny market movements.
Typically, a scalper will be in and out of the market within a few seconds up to a maximum of a few minutes.
It is for this reason that a scalper will predominantly be looking at the charts on very low time frames, such as the 1 minute, 5 minute, and the 15 minute. Some traders even prefer to go lower than that.
To be a successful scalper you must be able to react quickly to market movements and have a high level of discipline. You must know when to take your profit and know when to cut your losses.
One small blip can ruin a whole day of successful scalping, which can be very frustrating. If you can maintain high levels of focus and can concentrate for long periods of time without getting distracted, then scalping may be a good option for you.
Screen time: High
Number of trades per day: 25+
Timeframes: M1, M5, M15
As the name suggests, day trading is the opening and closing of trades within the same day. Day traders normally scan the market for a trade, set up a position, enter it, and then close it all on the same day.
You don’t need to have the same laser focus and concentration that a scalper would, however, it does still require discipline.
Typically, day trading is best suited to those of us who don’t like to keep our trading positions open overnight. If you prefer to get a good night’s sleep without worrying about what your trade is doing, then day trading is probably your best bet.
This is the reason why day trading is so popular – you can open your positions, make a profit, close your laptop down, and the job is done.
Screen time: Medium
Number of trades per day: 0-5
Timeframes: M30, H1, H4
Last but not least, we have swing trading. This is very similar to day trading however the positions are kept open overnight and can be held anywhere between two to six days – sometimes even a few weeks.
As this is a more hands-off approach, it is best suited for people who don’t want to be staring at a screen all-day yet don’t mind having open positions.
The markets tend to fluctuate quite a lot, so swing positions may be at a loss for days at a time before finally turning into profit. This requires a certain mental toughness and the discipline to stick with your trade and to trust your own analysis.
This is a very popular form of trading as it does not require a lot of time to manage, however, it does leave traders at risk during the weekends and during market closes, which upon reopening can produce volatile and abrupt market movements.
Screen time: Low
Number of trades per day: 0-3
What timeframes: H1, H4, D1, WK