10 Different Types of Identify Your Trading Style

Listen to this article

The stock market offers innumerable trading opportunities and lucrative investments in various timeframes to add to one’s wealth. Traders can grab market opportunities following varied trading styles depending on their unique personality, risk profile, orientation towards stock trading, and financial goals. Broadly, there are two forms of trading – short-term and long-term that can be further divided into various trading styles or strategies.

If trading interests you, you’re undoubtedly already aware of the wide variety of trading approaches available. Every trading style, from day trading to swing trading, scalping to position trading, has its own distinctive qualities and necessitates a different methodology. In this post, we’ll examine trading styles in more detail, as well as the various kinds of trading styles and how to create a trading plan that suits your needs.

How do Trading Styles Work?

A trader’s approach to the markets constitutes their trading style. It combines a trader’s temperament, risk tolerance, and trading goals. Scalping, day trading, swing trading, and position trading are the four basic categories into which trading styles can be generally divided.

10 Types of Trading Styles

1. Position Trading

Position trading refers to holding a trade for a long period, i.e., weeks, months, or years. Position traders focus on long-term market perspective and remain unaffected by short-term market fluctuations. This trading style is for patient individuals. Investing is a form of position trading. It involves opening fewer trades than other trading styles and tends to be of higher value.

2. Intraday Trading

Day traders trade multiple securities multiple times a day to take advantage of short-term price movements and make small profits per trade daily. Traders with good market understanding, focus and dedication can consider this trading style. It is risky trading and needs a well-defined trading plan to reduce losses. It is a simple answer to ‘what is Intraday trading‘. It is a vast topic and requires dedicated time to prevent losses.

3. Swing Trading

Swing trading involves holding securities for several days or weeks to take advantage of short-term or medium-term price movements. Swing traders spot a trend and focus on drops and peaks (swing low and swing high). The time frame for swing trading depends on how long each trend lasts.

4. Scalping

Scalping is a rapid trading style and involves holding a trade for a very short time – a few seconds or a few minutes – to make small and frequent profits. It can be said as a more intense form of day trading. Traders want to open a trade and exit it as soon as the market turns in favor.

5. Event-Based Trading

Traders taking advantage of corporate events are involved in event-based trading. They keep an eye on events that have occurred or are about to occur, like mergers and acquisitions, earnings declarations, bankruptcy, etc. Individuals with technical analysis skills can understand how these events can affect the market beforehand. Online trading apps offered by reputable discount brokers allow users to add various stocks to their watchlist and keep a track of price movements.

6. Arbitrage Trading

Arbitrage traders make profits from stock price differences on two or more exchanges. Therefore, it is a trading style followed by experienced individuals in the stock market. They can find such opportunities based on their skills and require speed to grab these short-term opportunities.

7. High-Frequency Trading (HFT)

High-frequency trading involves placing trade orders at a high speed based on tried and tested algorithmic trading strategies. This is computer-based trading and trading frequency is much higher. Typically, it is a trading style for investment banks, institutional traders, and hedge funds as they transact for huge orders at high speeds. For these quick calls, there is no place for analysis. Individuals are not advised to try hands-on mechanisms of HFT as they are advanced enough.

8. Money Flow-Based Trading

Money flow-based trading involves identifying upcoming trends based on promoter deals, stake sales, FII (foreign institutional investors) inflows and DII (domestic institutional investors) flows in and out of stocks, etc. It is a trading style for individuals who possess skills in analyzing money flows to identify trends.

9. Quantitative Trading

Quantitative analysis is the base for quantitative trading. An individual with a statistical or mathematical background and skills in programming can consider this sophisticated trading style.

10. Momentum Trading

Momentum trading involves capitalizing on market volatility. Traders put efforts to identify the stocks that are either breaking out or will break out and capitalize on such momentum. Stock buys and sells timed incorrectly can result in significant losses. Therefore, it is the trading style for individuals with high-risk profiles. They must use stop loss and follow risk management techniques to minimize losses.

Traders can open online demat and trading accounts and consider one of these trading styles that match their financial objectives, psychology, and personality.