The idea that using a methodology that suits your personality is an essential component of trading success also helps explain why most people lose money using trading systems they bought.
I will try to shed some light and provide some guidelines that you can use in your own trading to adjust your trading approach based on your personal situation.
Many traders ask me what the best timeframe is and my answer always is: it depends.
Whereas I like to trade the higher timeframes (2H – Daily), Moritz trades the 5min and 15min. There is no right/wrong or better/worse and it only depends on your own profile and what you can handle personally.
There are four main styles of trading, namely scalping, day trading, swing trading, and position trading.
The difference between the styles is based on the length of time that trades are held for.
- Scalping trades are only held for a few seconds, or at most a few minutes.
- Day trading trades are held for anywhere from a few seconds to a couple of hours.
- Swing trading trades are usually held for a few days.
- Position trading trades are held for anywhere from a few days to several years.
Choosing the trading style that best suits their personality can be a difficult task for new traders, but is absolutely necessary to their long-term success as a professional trader.
If you are a new trader (or even an experienced trader) that does not yet feel as though you have found your trading style, the following are some of the personality traits that are compatible with the different styles of trading.
By choosing the trading style that best suits your personality, you will have a better chance of being a profitable trader.
Scalp trading is one of the most challenging styles of trading to master. It requires unbelievable discipline and trading focus.
Scalping is a very rapid trading style. Scalpers often make trades within just a few seconds of each other, and often in opposite directions (i.e., they are long one minute, but short the next).
Scalping is best suited to active traders that can make immediate decisions and act on those decisions without hesitation.
This method requires an enormous amount of concentration and flawless order execution. Lastly, some scalp traders will follow the news and trade upcoming or current events that can cause increased volatility in the market.
Impatient people often make the best scalpers because they expect their trades to become profitable immediately, and will exit the trade promptly if it goes against them.
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So it is not a suitable trading style for people who are easily distracted or who often find themselves daydreaming, so if you’ve been thinking about something else while reading this, then scalping is not for you.
Day trading is a trading strategy that involves opening and closing positions within the same day.
Day traders tend to have no positions held overnight, opting instead to close their positions each evening and reopen positions the following day.
Day trading is a short-term strategy that intends to profit from small, intraday fluctuations in price, instead of longer-term market movements.
Day trading as a style is more suitable for traders that prefer starting and completing a task on the same day. For example, if you were painting your kitchen, and you would not go to bed until the kitchen was finished, even if that meant staying up until 3:00 AM.
Many day traders would not consider making swing or position trades because they would not be able to sleep at night knowing that they had an active trade that could be affected by price movements during the night (such as those that cause opening gaps).
Day traders can speculate on a variety of markets, including stocks, forex, commodities, and futures. Shares are particularly popular because closing positions at the end of each trading day removes the risk of markets gapping overnight.
Day trading is not for the part-time trader. It requires focus and dedication, as it involves making fast decisions and executing a large number of trades in a single day.
Swing trading is compatible with people that have the patience to wait for a trade, but once they have entered a trade they want it to become profitable quite quickly.
Swing traders primarily use technical analysis to look for trading opportunities. These traders may utilize fundamental analysis in addition to analyzing price trends and patterns.
They almost always hold their trades overnight, so it is not suitable for people that would be nervous holding a trade while they were away from their computer.
Swing trading generally requires a larger stop loss than day trading, so the ability to keep calm when a trade is against you is a necessity.
Swing trading is one of the most popular forms of active trading, where traders look for intermediate-term opportunities using various forms of technical analysis. If you’re interested in swing trading, you should be intimately familiar with technical analysis.
Position trading is the longest term trading of all and often has trades that last for several years.
Therefore, position trading is only suitable for the most patient and least excitable traders.
Position trading targets are often several thousand ticks, so if your heart starts beating fast when a trade is 25 ticks in profit, position trading is probably not suitable for you.
Position trading also requires the ability to ignore popular opinion because a single position trade will often hold through both bull and bear markets.
Hopefully, now that you understand the right way to choose a trading system that fits your personality.
Choosing a trading system requires the flexibility to know when a trading system is not working for you, but also requires the consistency to stick with the right trading system even when it is not performing optimally.
One of the biggest mistakes that new traders often make is to change trading styles (and trading systems) at the first sign of trouble.
Constantly changing your trading style or trading system is a sure way to catch every losing streak. Once you are comfortable with a particular trading style, remain faithful to it, and it will reward you for your loyalty in the long run.