Every trader is different. Some make a great living by jumping in and out of the market all day long. Others need a longer holding period to make money. If you are new to trading or are re-assessing the style that suits you best, here’s a guide to help you:
Day trading: This is for traders who love the action and monitoring their trades and the markets all day long. They try to avoid the risk of holding positions overnight and therefore exit most of their positions before the market closes. They typically watch price action and use technical analysis to decide when to get in or out.
Swing trading: This is not as intense as day trading. You don’t need to be glued to your screen all day, but you still have to pay attention, as entries and exits can happen at any time. Swing traders also typically use technical analysis or quantitative tools to trigger trades.
Longer-term trading: This is not to be confused with investing. These trades take time to develop, but when they work, they can lead to huge gains as you let your winners run. They typically use a stop to ensure losses stay small and you don’t let winners become losers.
These trades usually last a few months. Trade ideas can come from technical or quantitative signals as well as fundamentals or news flow.
Long-term investing Investors typically hold positions for several years or longer. They don’t watch the market all day or worry about each tick higher or lower in their stocks. Ideas are usually generated from fundamentals, though technical analysis may be used to improve timing. Long-term investing produces great returns over the long term but is subject to short-term fluctuations.
Decide which style best suits your personality, tolerance for risk, and time available.
Sven Franssen