Last time, I discussed the differences between technical trading and fundamental trading. Mainly the difference boils down to what information you look at to make a decision whether to trade a security or not. Whether the specific and general fundamental data, or the charts along with technical indicators is what you use to primarily base your trading decisions Today, I am going to mainly focus on technical trading and what style of trader you are. There are several different trading styles that I will discuss. These will mainly be categorized into three main types, very short term “scalp” trading, mid-term “swing” trading and long-term position trading.

First of all, let’s tackle short term day trading or “scalp trading.” Scalping as it is commonly called is very short term trading, looking for quick short-term gains. This is especially popular in the Forex and futures world of trading. A “scalper” will generally use shorter term charts like a 1-minute, 5-minute or 15-minute chart. This type of trading is very active and can be very exciting, but can also be very stressful and demanding. Typically you will need to dedicate entire blocks of time to this type of trading to be successful and while you can do very well, there is increased risk in more volatile times and markets. Generally scalpers are looking to get in and out of trade during the current trading session. The idea is that as a scalper you would be more of a “jump in get your profits and get out,” trader or if the market moves against you close the loss quickly while it is relatively small. As all type of trading it is very important to use strict risk management but especially in quick short term trades.

The second type of trading is mid-term swing trading. Typically a “swing trader” is looking for longer trades then the scalper with larger profit targets with longer-term trades. Swing trades can run anywhere from several hours to several days depending on the market. A swing trader is looking at longer-term charts than the scalper, generally between 1 hour, 4 hour and daily charts. The idea is to allow your trades to develop over a longer period of time to larger profit targets that take some time to reach.

The third style of trading is more of a “position trading” style which is longer term than even swing trading and is typically looking for long-term trades in good trends that can last for weeks to months. Generally a position trader is not too concerned with short-term charts or markets and will use most often use daily or even weekly charts to determine longer-term market momentum. Larger targets that come with longer term trades also can have potentially larger losses if you are not using good risk management, so again it is very important to identify your maximum allowable percent loss and limit you potential trading losses to this amount. Typically 1-2 % should be the maximum allowable loss.

In conclusion, regardless of what markets you trade, you need to decide what style of trader you are; either a short term intensive scalping type of trader, a mid-term slower paced swing trader or a long-term position trader and then adjust your charts targets and risk management to fit that style.

Jim Scharman

Jim has been helping traders become successful for more than 20 years and is Profits Run’s resident ETF expert ready to help you make sense of the Electronically Traded Funds market. Connect with us on Google+