February 6, 2014

Do NOT Trade Until You Know Yourself

People from every corner of the globe are finding success in the markets. Many of them even make a full time living from it. Whether it’s with currencies, stocks, or futures there is a new fortune to be made every day. Furthermore, it’s an awesome feeling to have a hunch about an asset and then make a cool profit from it. However, there are a few different styles of trading. Each of them also requires extensive research and practice in order for the speculator to have success with them.

Hopefully by reading this you will start to figure out for yourself what type of trader, or investor, you are. Each method will fit a different lifestyle, risk profile and personality. For instance, if you are impulsive and rash, daytrading may not be the suitable strategy for you. However, a slower swing trading method may be better suited to your internal make-up.

You Are Not A Daytrader!

You Are Not A Daytrader!

Scalping & Daytrading

Making money in the markets is exciting no matter how it’s earned. However, the scalping technique definitely takes this excitement to a whole new level. Speculators use this method to capture extremely short margins of profit that can take place within minutes. The goal is to make several of these quick trades throughout the course of a day, and hopefully end up with a nice profit from the effort. They typically close out all their positions before the market closes to minimize risk.

However, this is still often considered a risky trading practice by many investors. Scalping the market takes little notice of fundamental analysis as opposed to price action. They also incur heavy transaction fees as their rate of buying and selling is far more frequent than other trading styles. Therefore, it’s a good idea to find a broker with easy entry fees to lighten this burden as much as possible. When done right, scalping can be very lucrative and far more exciting than waiting weeks, months, or even longer to see a return on their positions.

However, using this style of trading can start to rack up costs very quickly. You need to keep a close eye on your trading and money management. It is essential or you will end up broke, quick!

Swing Trading

Swing trading is all about spotting the next momentum. These traders rely heavily on technical analysis by reading charts and indicators to spot any new breakouts. They thrive in a more static type of market that is poised to run in one direction or another. If they time these swings in momentum just right, they’ll be the beneficiary of big profits. Their positions are anywhere from a few days to a few weeks before they cash out. This makes it one of the more popular styles of trading. Unlike scalpers, they don’t need to sit in front of their computers all day watching the markets. Many of them have full time jobs and use this strategy for extra funds each week or month.

Investing

Investing, or position trading, is much different than either one of the above methods. This is generally considered the safest way to put money into the market. Investment traders can hold positions for weeks, months, or even years to realize their full return. They rely heavily on fundamental analysis while giving little credence to technical indicators. They keep up to date with industry movements, financial reports, or any other news that may affect their assets causing them to make changes. In other words, this is more of a buy and hold type of strategy that is equally efficient at building long term wealth.

In the end, there are several ways to profit in the market, and certainly a few ways to lose. Research is a trader’s best friend, especially about the assets they are working with. Either way, trading is an adventure like no other, and one that everybody should try.

Max Hansson

Max Hansson is a guest author to the site. Writing about risk, chart strategies and money management. Max is an active day trader of forex, mainly EUR/USD and GBP/USD.