Scalping, Day Trading, Swing Trading and Position Trading: Trading Styles Compared

Scalping, Day Trading, Swing Trading and Position Trading: Trading Styles Compared

Reading time: 6 minutes

Trading styles are repeatedly mistaken for trading strategies. Unlike the latter, which can assume countless arrangements, trading styles are defined by four distinct categories: Scalping, Day Trading, Swing Trading and Position Trading. The differences among these four divisions are largely determined by the timeframes that the trader or investor employs to trade and the length of time the trades are held. 

Trading Styles Explained

Scalping and day trading are defined as short-term trading styles; traders in these categories liquidate their trading positions ahead of the day’s close, meaning no overnight risk exposure. This could be the New York close for some Forex traders or an exchange close for equity traders. 

Scalping reflects a style of trading that involves executing numerous positions throughout the day, targeting small, frequent returns usually based on technical analysis. One of the downsides to scalping, nonetheless, is the risk/reward ratio is often unfavourable: risk is greater than the reward. The rationale behind this approach is that the scalper should have more winning trades than losers, and the small winning trades should offset the losing positions incurred throughout the day. Positions may only be open for a few seconds or a handful of minutes and are, therefore, more suited to traders who prefer fast-paced trading. Timeframes traded for scalping are usually no higher than the 1-minute or 5-minute charts.

Day trading, on the other hand, entails holding trades open for a longer duration in a day, with a day trader perhaps only executing one or two trades. Holding times can vary for those who day trade, but, as highlighted above, trades tend to be closed by the end of the day. Like scalping, technical analysis is generally the primary method of research for day traders, but fundamental analysis may also play a big role in the decision-making process. Timeframes traded for day trading are seldom higher than the 1-hour timeframe.

Swing trading is considered more of a medium-term approach, a trading style that regularly incorporates both technical and fundamental analysis into the equation and largely uses the 4-hour and the daily charts. Overnight risk in swing trading is common; holding periods for active trades are from a couple of days up to a few weeks (depending on the trading strategy and market conditions). This type of trading style suits ‘part-time’ traders who find the demands of scalping and day trading too challenging and prefer having more time to plan trades. The idea here is to trade swings; this could be entering and exiting a market based on the swings found within trends or playing the ranges by buying and selling at the boundaries of consolidations. 

Position trading is an approach more suited to an investor’s mindset that focusses on the longer-term trends, using daily, weekly and monthly timeframes. This trading style requires holding positions open for months and, at times, even years and tends to rely more on fundamental analysis, which may only employ basic technical analysis tools (think support and resistance, moving averages and technical indicators, for example). 

Which Trading Style is Right for Me?

Irrespective of the trading style selected, it is highly recommended that you learn about technical and fundamental analysis. The fundamental side of things helps inform you why a market is moving the way it is, and technical analysis helps answer when one should enter and exit a market (this is particularly useful for risk management).

Patience is key in any trading style. You must be patient not to overtrade when trading both shorter and longer-term trading styles and have the discipline to adhere to your trading rules, which should be defined clearly in your overall trading plan. 

Determining which trading style is best for you will depend on your circumstances, such as your risk tolerance, your patience, your goals and your obligations outside of trading. For example, do you prefer to be in and out of the market in a day and have time on your hands to be at the screen, sometimes for hours each day? If so, scalping or day trading could be for you. 

On the other side of the spectrum, if you have full-time obligations that allow limited screen time during the day, swing trading could be something to explore. Swing traders generally check their terminals once or twice per day, so once in the morning and once in the evening. This could be to look for additional trading opportunities or monitor open positions. 

Finally, if you have a busy lifestyle and prefer to check open trades only a few times per week, then position trading might be a good option for you. Finding trading opportunities might be a bit more time-consuming, but for position traders, this is usually done on the weekend while markets are closed. 

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