4 Types of Trading Utilized by Technical Traders
7 months ago forexsimulation 0
Technical traders, more often than not, prefer evaluating investments before they decide the ones to investing in for somewhat guaranteed profitability. Technical traders are able to evaluate investments through technical analysis, where they analyse statistical trends collected from trading events, comprising price movements plus volume.
Technical analysis can sometimes offer entirely accurate price estimates, whereas other times it involves probabilities with no guarantees. Therefore, there is need for you to understand the various types of trading, so that you can pick the most favourable to use based on the technical analysis results. You must always opt for the one that tends to guarantee profitability.
The major forms of trading available for technical traders are five, and comprises scalping, swing trading, momentum trading, day trading, plus position trading. The main factor bringing about the difference in the various types of trade is the time frame the trader maintains an open spot. Extended durations expose the traders to systemic risks.
Understanding and being proficient in any or all of the types of trading is key in ensuring success in technical trading.
The following is an explanation on all the forms of trading you should consider using as a technical trader.
It is the most short-term period type of trade. Investors operating as scalp traders can only maintain trading position for very short periods of seconds or minutes for the longest. Such short-lived exchanges aim at minor intra-day fluctuation of prices.
Scalping is mostly implemented by traders aiming at the little profits accruing from the many small price fluctuations happening all day long. Scalping traders benefit from the numerous amount of trades taking place every trading period.
Scalping trading is more suitable with liquid markets. Therefore, scalp traders typically tend to deal with only the main currency pairs. Currency pairs possess great liquidness plus great trading capacity. The liquidity ensures there is great efficiency in the entry and exit of the market. Note that inadequate liquidity may lead to an increase in trade-associated costs related with spreads plus slippage.
Scalp trading also entails trading only when there are tight spreads. This aids in eliminating the spread costs, which may end up eating into possible returns.
It can be time consuming. The trade itself is intense.
2. Day trading
Day trading involves the possibility of entering and exiting a given position on the same day, without having to assume overnight positions. Therefore, as a day trader, you are safe from the risks associated with the huge price fluctuations that may occur overnight.
You get to retire the day by closing your position with either a loss or a profit. The trades are often sustained for shorter time frames of minutes or even hours. Therefore, if day trading, you will require enough time for analysing the market and constantly observing positions during daytime.
Day traders profit from the minimal gains that accrue from the small but frequent trades. You must master the art of using technical trade indicators such as the Stochastic Oscillators, Relative Strength Index, plus Moving Average Convergence Divergence, to help you in identifying trends plus market circumstances. That way you can make wise and calculated trade moves that will guarantee you profits at the end of the day.
3. Swing trading
Swing traders hold positions for periods exceeding one day. Most times it is for periods covering some few days to one week, and other times the period can be as long as some weeks. Swing trading is not time consuming nor intense since the positions you take can be held over prolonged periods, unlike scalp or day trading. Therefore, capturing the short term exchange moves do not require much of your time.
Hence, if you are very busy with other commitments such as a full time job, you can opt for swing trading since it gives you the advantage of trading when you are free, more so, during your leisure hours. However, it would still be wise for you to commit few hours of your day to evaluate the market moves.
4. Position trading
Position investors are often aiming at the long term price fluctuations, waiting on the highest profits that may arise from the significant price movements. Consequently, the trades often happen for a prolonged period ranging from weeks to months, and even to years.
As a position trader, you will tend to utilize weekly plus monthly price graphs to carry out a proper analysis and evaluation of the markets. Here, you may decide to use a blend of the technical plus fundamental analysis tools to define possible entry plus exit points.
Position traders’ positions require no monitoring like other trading techniques since they are not worried about the little price variations or pullbacks. Instead, monitoring can be done occasionally, to observe the main trend.
Understanding the various forms of trading is vital because you get to choose the one that suits you plus your time. If you have the whole day to analyse market moves and trades, you can opt for the scalp or day trading options. On the other hand, if you have other commitments and you want to trade when free only, then opting for the swing or position trading would be best.