Trading comes in various techniques and styles. Individuals can either choose to be long or short term traders. While these two techniques are comparative, they vary in terms of meaning to various traders.
For instance, one trader may translate short term trading to be several days while to another it mean a few minutes. Below is an illustration of the different trading styles and their features.
Automated vs Discretionary Trading Technique
As a trader, there are two basic application techniques you can adopt. The automated trading technique is system based meaning that the trading system initiates and regulates the trade. Within the system trading territory, the trader is responsible for the inaugural structure and setting up of the automated trading system.
Traders also regulate the system regularly to ensure it is functioning appropriately. When it comes to the discretionary technique, the trader makes trading decisions according to the existing market conditions. A trader is at liberty to choose any trading technique which experts say mainly depends on their level of comfort and psychological composition.
For instance, individuals with a strong personality and who are comfortable being in control may want to choose the discretionary technique. However, traders who would rather have the system based algorithm implement the market trades should choose the automated trading technique.
Trading styles can either be automated or discretionary based. It is, however, worth mentioning that as a discretionary trader, you are obligated to adhere to a rigid rule based plan. While this can make the technique systemic, traders still have to implement some discretion along the way.
On the other hand, an automated trader must adhere to each trade that the automated trading system provides to become certified system traders. This means that they cannot make any trading decisions.
Before choosing any trading technique, research extensively, and do lots of practice in order to understand which among the two is convenient and makes you feel more comfortable. Thankfully you can do so via a forex demo account.
Scalping is an hasty and intense style which can sometimes be stressful. It involves searching the market for constant opportunities. In scalping, one can trade between 20 to 50 positions in a trading session.
Many traders using this style can be in and out of their position in a matter of minutes. Scalpers utilize massive influence and search for limited moves they can leverage on with consistent frequency.
For instance, a scalper trading USDEUR can trade twelve or more positions within a shorter time frame which can range between 1 and 2 minute chart depending on the daily chart breakout.
Scalping is commonly used in the Equity markets. Here, traders can use level 2 data to transmit orders for speedy implementation, and great pricing. However, traders intending to scalp in the Equity markets should understand the PDT (Pattern Day Trading) rule which states that a $25,000 trading account qualifies to implement numerous round turns amid the trading session.
Using scalping however, involves high transaction fees which is attributed to big turnover brought about by the trading activities. Sometimes, commissions can take up to 70% of a trader’s total profit. Therefore, a scalper should strive to get low commission rates from exchanges and brokers if they want to succeed while using this style.
· Day Trading
There are similarities between day trading and scalping because in both styles, traders want to get in and out of a position within the same trading session. Still, there are differences. For instance; day traders have a longer limit as compared to scalpers.
Day traders cannot enter and exit positions in a matter of minutes because they operate through day trading approaches that identify and capture large swings during the day. This means that day traders can hold on to a position for between 30 minutes, various hours, and even the whole trading session from start to finish.
To become a competent day trader, one should be disciplined enough to close every open position once the trading day closes.
While there are various trading styles, one should choose a style that resonates with their personality, comfort, and convenience.