There are many ways to be part of traders, with no one size fits all. Skills vary from one individual to another, budgets are not the same, and temperaments differ considerably.
These factors are largely what dictate the type of trader you will become, or the approach you’ll take. Regardless of the path you choose however; the idea that one way of trading is inherently more successful than another simply isn’t true.
Each style of trading comes with it its own set of demands, risks and potential for gains. It’s how you handle these that usually determine how successful you’ll be.
There are of course several types of traders that generally dominate the financial markets. These are scalpers, swing traders, position traders and day traders.
Scalpers
Scalpers are traders whose primary objective is to make small, incremental profits from tiny price movements. They hold onto positions for a few seconds to several minutes, entering and exiting trades multiple times a day.
Scalping is an incredibly fast-paced approach to trading that requires quick thinking, intense focus, and strong mental resilience. A successful scalper is usually someone who has fast reflexes and can make rapid trading decisions.
They cope well in high-pressure environments, with remarkable control of their emotions. They are well-versed in technical analysis and understand the importance of managing risk effectively.
Day traders
Day traders have a similar disposition to scalpers. They have quick reflexes, a strong trading psychology and thrive in volatile market conditions. Day traders execute frequent trades throughout the trading day, closing positions when the market closes.
They usually hold onto those trades for minutes to hours. A successful day trader is typically somebody who has an extensive understanding of the markets, knows how to properly use technical analysis, and has substantial trading experience. For these reasons, many consider day trading more suited to a professional trader.
Swing trader
Unlike scalpers or day traders, a swing trader holds onto positions for several days to weeks, exposing themselves to potential weekend price gaps and overnight risk. Swing trading requires less time commitment as there isn’t a need to constantly monitor the markets all day every day.
While a swing trader requires a good understanding of both technical and fundamental analysis, this approach offers more time for a trader to conduct that analysis and come to trading decisions. Its why swing trading is thought to be an optimal choice for beginners.
Position traders
Position traders are those who hold onto trades for extended periods, ranging from a few months to several years. This trading style is a more long-term approach, with decisions primarily based on fundamental analysis rather than quick price movements. These traders typically focus on long-term trends, making fewer market updates compared to other strategies.
As a result, they tend to monitor their positions less frequently than short-term traders. To achieve some measure of success, a position trader must have an interest in researching markets; understand economic trends and company fundamentals; and be mindful of market moving events like geopolitical conflicts, economic releases, natural disasters, etc.
How does one pick the strategy that is best aligned with potential for success?
For a trader to increase their chances of success, they need to pick a trading strategy that they are capable of managing.
To do this, they must establish the following:
- How much time they can commit to trading daily should impact your choice of trading style significantly. Day trading and scalping are time intensive and require a significant number of hours per day for analysing the markets and managing positions. Swing trading and position trading on the other hand require far less of one’s time for studying the markets as trades are hold for a longer time. This gives swing and position traders the flexibility to conduct their analysis in their own time, without the pressure of constant monitoring.
- The level of risk they’re willing to incur. Short-term approaches to trading like scalping and day trading are inherently volatile, with aggressive price fluctuations often occurring unexpectedly, leading to substantial losses. Effective risk management is vital for limiting losses and safeguarding one’s capital. This includes techniques like stop-loss orders, take-profit orders, position sizing, and portfolio diversification.
- Commitment to ongoing trading related education. Regardless of the trading strategy one chooses, having a proper understanding of the financial markets, staying updated on market trends and developments, and committing time to ongoing education is key for longevity and success in this domain. A well-informed trader is better able to deal with evolving markets and adapt their strategies accordingly.
- How strong their trading psychology is. One of the most important components of successful trading is mental resilience. Feelings are powerful and can influence trading outcomes significantly, often adversely. Emotive trading can lead to poor financial decision making and negative trading behaviours. This is why a trader, regardless of their trading approach, must work on strengthening their trading psychology to be able to cope with the stress, anxiety, and fear that trading evokes.
Becoming a successful trader: top tips
Regardless of the type of trader you choose to become, achieving success will depend on implementing certain strategies:
- Develop a trading plan that includes your financial objectives, your rules for trading, prospective entry and exit points, the level of risk you’re willing to take on, and your budget. This plan must also include the risk management techniques you’ll deploy to protect your money.
- Ensure you engage in consistent trading related learning to widen your scope of knowledge and boost your expertise. Ways in which this can be achieved is through resources like blogs, articles, e-books, videos, podcasts, seminars, webinars, and more. Other ways to gain trading insights is by joining community forums to share ideas, concepts, and tips. A demo trading account offers a practical way of gaining critical trading experience. Using virtual funds, you can open and close trades in a simulated trading environment and test even the most complex trading strategies, without putting your own money at risk. It also offers the opportunity to learn more about technical analysis to make more informed trading decisions.
- Keep a trading journal to monitor your trades and the rationale behind those trades. Having a historical record of why you executed the trades that you did and their outcomes, allows you to make adjustments to your plan as and when necessary.
- Ensure you work on building a strong trading psychology so that will be emotionally equipped to handle the stress that trading will throw your way. You need the mental resilience to avoid emotive decision making.
Remember, regardless of your approach, be sure you understand your own unique strengths and weaknesses, never stop learning, and ensure you manage risk in the best way you can.
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A variety of videos, podcasts, eBooks, webinars, and videos-on-demand are curated by in-house specialists, catering to all types of traders.
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Penafian: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
