The article on Trading Style is the opinion of Optimus Futures, LLC.
- Finding your ideal trading style goes beyond trade duration; you have to factor in personality, time, and risk tolerance.
- Match your trading style to your inner trader, letting your experience guide you to eventually decide which one works best for you.
- You may have to try all four styles over a period of time as you develop in order to find which style best resonates with your personality.
In financial trading, there are generally four main trading styles you’ll adopt: position trading, swing trading, day trading, and scalping. There are more categories or subcategories, of course, but for our purposes, let’s focus on these four.
What distinguishes these four are the different timeframes they entail. That’s how it appears on the surface. But by changing the timeframe or duration, these four trading styles also require different time commitments, research and preparation, knowledge and skills, financial risk, and, ultimately, temperament or “personality.” So, in other words, there’s more that distinguishes these trading styles besides trade duration.
As a novice trader, you may not know which trading style is best for you. However, as you gain experience, you will develop a better understanding of which style is most compatible with your personality. This means choosing a style that aligns with your strengths, time constraints, risk tolerance, and capital resources. Let’s start off by exploring the differences between each style.
Trading Style: Position Trading
Duration of Trade: Duration wise, position trading is the longest of all, from months to several years.
Time Commitment: This trading style requires lower daily commitment as it’s more focused on long-term trends.
Research and Preparation: To trade longer-term trends, you will need to do plenty of technical and fundamental research to make solid valuation forecasts.
Knowledge/Skills: Position trading requires a strong understanding of market fundamentals and macroeconomic trends in addition to technical analysis skills. Possibly, fundamental knowledge may be much more important than technical analysis, as you’re trading economic trends.
Financial Risk: As long as you have the capital resources to trade long term, you will have the time to manage your positions actively in order to mitigate your risks. But again, this requires you have the resources to do this. In short, position trading stocks can be less risky than futures, as futures typically carry more leverage than stocks.
Personality:This style is best suited for patient individuals who are confident in their long-term analysis and able to resist the temptation to react to short-term market fluctuations.
Trading Style: Swing Trading
Duration of Trade: Short to medium-term, usually a few days to several weeks.
Time Commitment: The time commitment for this trading style is relatively moderate. It requires you to check your positions regularly, but without having to constantly monitor the markets.
Research and Preparation: This approach is all about forming and executing your technical trading set up.
Knowledge/Skills: To be a good swing trader, you need to have a solid grasp of technical analysis, chart patterns, market trends, and the ability to prepare for multiple outcomes and to manage your trades depending on the likely outcome.
Financial Risk: The financial risk for this trading style is relatively moderate; while trades are shorter, they’re less susceptible to intra-day market noise.
Personality: Swing trading is best for those who can think strategically and balance patience with the ability to act quickly when opportunities arise.
Trading Style: Day Trading
Duration of Trade: Very short, within a single trading day.
Time Commitment: High, period. This style requires you to constantly monitor the market throughout the day so as to not miss trading opportunities.
Research and Preparation: The research demands are not as intense, but the preparation can be. You have to analyze daily market conditions, economic releases, and news events. You also have limited time to use technical indicators to analyze the markets.
Knowledge/Skills: This trading style is skill-heavy, requiring quick decision-making, strong focus, and a solid understanding of technical analysis and market indicators.
Financial Risk: The financial risk is high, as you’ll need to capitalize on small price movements using high leverage which can significantly amplify your losses.
Personality: This style is more suited for those who can maintain intense focus and make rapid decisions without emotional influence.
Trading Style: Scalping
Duration of Trade: Extremely short, often seconds to minutes.
Time Commitment: The time commitment is very high, and you’re virtually glued to your screen for minutes to hours.
Research and Preparation: This style requires high tactical performance, as strategy, from a market or economic perspective, has little to do with the micro movements that you’re trying to exploit.
Knowledge/Skills: You need the fine-tuned ability to make decisions instantaneously. This means you need excellent reflexes and a deep understanding of market microstructure.
Financial Risk: The risk is high. You’re virtually trading market noise, and many of these small movements you’re trying to capture aren’t necessarily significant. You will need to make many small trades, where fees and slippage can add up. Plus, your high leverage can severely amplify your losses.
Personality: This is best for highly active traders who can make instant decisions and thrive in a high-stress, fast-paced environment. Scalping is not for everyone, and most traders don’t have the temperament and stamina to sustain this type of approach for long periods.
Which Style Best Suits You?
If you’re aiming to be a successful short-term trader, then position trading is off the table. It’s virtually the same as investing. And unless you have ample trading capital, position trading futures isn’t something you should do, unless you have enough capital to deploy a long-term investment strategy using micro-futures.
Besides, even as a short-term trader, you should always have funds in a long-term investment portfolio. But that’s for another article, as it doesn’t really fall within the realm of short-term trading.
This leaves you with the other three possible trading styles: swing trading, day trading, and scalping. If you’re a novice trader, take scalping off your list. You can try it, of course, but chances are you’ll be more successful with a day trading or swing trading approach. This depends on your personality, and the only way to find out is to try it in a live market.
Let’s dig deeper into the difference between day trading and swing trading.
Day Trading versus Swing Trading
Again, the durational requirements differ significantly. Day trading and swing trading are two distinct styles in trading. Swing trading involves operating on higher time frames like weekly, daily, and sometimes 4-hour charts, adopting a longer-term approach.
In contrast, day trading focuses on shorter time frames such as 1-hour, 30-minute, and 15-minute charts, emphasizing a much more short-term strategy.
Don’t Be Hasty in Choosing a Style
When choosing a trading style, traders often make this critical decision hastily and without much thought. The skill sets needed for these two styles are significantly different, and selecting an unsuitable style can make trading an unfavorable practice. Still, it helps to try both styles over time to determine which one’s right for you.
Don’t Underestimate the Time Commitment
As we already mentioned above, the choice between day trading and swing trading should consider the time commitment required. New and part-time traders often find swing trading more compatible with their daily life.
Day trading requires traders to be constantly attentive to their screens, closely following price action for hours, leading to more trading opportunities but demanding continuous market monitoring.
In contrast, swing trading offers greater flexibility. You’d typically spend more time planning your trades and analyzing charts and markets. In the end, you’d execute fewer trades without the need to constantly monitor your positions. This approach is more suitable for part-time traders, allowing for a better work/life balance.
The Skills and Mindset Required of Both
Although we touched upon this earlier in the article, let’s take a deeper dive into what it means.
The skills and mindset required for swing trading and day trading are markedly different. Choosing the wrong style can lead to issues in trading, often not due to a flawed trading system, but due to a mismatch with the trader’s characteristics. Four key attributes determine whether one should be a swing or day trader:
Patience: Swing traders need patience to wait for setups, sometimes for days or weeks, and resist taking suboptimal trades. They must also endure longer holding periods and market fluctuations. Day traders, in contrast, face many opportunities daily and have shorter holding times, reducing the need for such patience.
Focus and Attention Span: Day trading demands prolonged focus, as traders often spend hours at a time without leaving their screens. This concentration is crucial to avoid poor decisions. Swing traders have more time to process information and don’t need to make rapid decisions.
Fast Thinking and Alertness: Day traders must make quick decisions without hesitation to avoid missing opportunities. They need to process information rapidly and trust their intuition while adhering to their trading rules. Novice traders often struggle with this, making day trading less suitable for them initially.
Emotional Calmness in Trading Discipline: Day traders may face multiple losses in a session and need the ability to move on quickly without letting these affect future decisions. Swing traders, however, may experience frustration over missed or mismanaged trades, as the next opportunity might not arise for days, leading them to seek less optimal trades to compensate for losses.
The choice between the two trading styles should align with your patience, ability to focus, decision-making speed, and emotional discipline.
The Personality of a Trading Pro
Once you’ve found the right trading style, the next level up, at least with regard to mindset and approach, is slightly more nuanced. If you’ve been successful in your trading thus far, there are certain personality traits you’ll want to get rid of, as there are traits you’ll want to develop.
Not many traders will get this far. But if you do, here are a few things to consider.
Confidence without Ego: Confidence is crucial for following trading rules and believing in one’s system. However, an inflated ego can lead to emotional attachment to trades, believing in one’s superior ability to pick winners, which can be highly detrimental to your progress.
Humility without Fear: A humble trader accepts uncertainty and lack of control over outcomes. However, humbleness should not devolve into fear, as fear can cause missing out on good trading opportunities.
Flexibility without Sloppiness: Traders need to be flexible and adapt to changing market conditions. Yet, there’s a thin line between flexibility and sloppiness; the latter involves indecision and lack of a clear trading plan. Always be flexible, but don’t be indecisive.
Risk-Taking without Gambling: Trading involves calculated risk-taking, unlike gambling, which is driven by excitement and entertainment. Successful traders focus on high-probability setups and avoid unmanageable risks.
Analytic Thinking without Getting Lost in Detail: While analysis and understanding of statistics are crucial, getting overly caught up in minute details can be counterproductive. It’s important to focus on aspects that genuinely aid trading and not get lost in excessive detail. In short, analysis paralysis will get you nowhere, and it’s easy to fall into, especially if your personality leans toward the analytic.
Process vs. Reward: Process-driven traders focus on the strategy and making sound trading decisions, whereas reward-driven traders are often too fixated on profit and loss (P/L). Of course, P/L is critical, but not at the expense of process and discipline (then you’re simply riding on luck).
Long-Term vs. Short-Term Thinking: Professional traders (even day traders) view trading as a long-term business, while amateurs often seek quick, substantial gains. A long-term, realistic approach is key to avoiding burnout and achieving trading success.
The overall message here is that successful trading requires a balanced approach, blending positive attributes like confidence and flexibility with caution against pitfalls like ego and sloppiness. This mindset is essential for long-term success in the trading world.
The Bottom Line
Choosing a trading style that aligns with your personality is crucial for you to achieve success. This involves understanding the distinct requirements and characteristics of position trading, swing trading, day trading, and scalping.
Each style demands different levels of time commitment, research, skills, financial risk, and temperament. As a trader, it’s your job to explore these styles and eventually to recognize which one best resonates with your strengths, time constraints, risk tolerance, and capital resources is key to achieving long-term success. Good luck!
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
