Introduction

Hi all, Welcome to new trading guide. In this guide I will go over the different types of trading that exist today.

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Day Trading

The first one is day trading. In this type you will open positions with the intention to close them before the trading day ends. So no overnight positions.

Key Features of Day Trading

• Timeframe: Trades typically last from a few minutes to a few hours.
• Markets: Day traders often focus on highly liquid markets like stocks, forex, or futures.
• Tools: Requires real-time charting software, fast internet, and a reliable trading platform.
• Risk Management: Due to high volatility, stop-loss orders and strict risk management are critical.

Pro’s

• Potential for quick profits if executed correctly.
• No overnight risk, as all positions are closed before the market shuts.
• Develops sharp analytical and decision-making skills.

Con’s

• High stress due to constant market monitoring.
• Significant time commitment, day trading is essentially a full-time job.
• High risk of losses, especially for inexperienced traders.

Example

Imagine you’re day trading the S&P500 futures (ES) and you notice a bullish trend forming at 9:30AM after some positive news about the economy. You buy 1 lot (contract) by 11AM, the price has increased 30 points and you sell for a profit. That’s what day trading looks like

Who’s it for?

This type of trading suits individuals with strong discipline, quick decision making and the ability to stay calm under pressure. If that doesn’t sound like you then you are better off looking for another option.

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Swing Trading

Then we have swing trading. Swing trading is a more relaxed approach compared to day trading. In this strategy you hold positions for several days and aim to capture larget price movements “swings”.

Key Features of Day Trading

• Timeframe: Trades last anywhere from a few days to a few weeks.
• Markets: Common in crypto, stocks, forex, and commodities.
• Analysis: Relies heavily on technical analysis (e.g., moving averages, support/resistance levels) and sometimes fundamental analysis.
• Flexibility: Requires less screen time than day trading, making it suitable for part-time traders.

Pro’s

• Less time-intensive, allowing traders to balance it with other commitments.
• Captures larger price movements, potentially leading to bigger profits per trade.
• Lower stress compared to day trading.

Con’s

• Overnight risk, unexpected news or market gaps can impact open positions.
• Requires patience to wait for setups to develop.
• Moderate risk of losses if market trends reverse unexpectedly.

Example

Let’s say you are swing trading Bitcoin (BTC). After analyzing the chart, you notice that the price has been consolidating for a while and slowly showing more bullish price action. You buy some BTC at support and target the next major resistance level as a take profit. Five days later the price hits your target and you sell.

Who’s it for?

Swing trading is perfect for those who want to trade actively but can’t sit in front of the charts for a whole day. It requires patience and is a lot less stressfull than day trading.

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Position Trading

This is more of a buy and hold strategy, you will open trades and hold them for multiple weeks / months or even years before closing them out.

Key Features of Day Trading

• Timeframe: Trades can last from several weeks to years.
• Markets: Common in stocks, ETFs, and cryptocurrencies.
• Analysis: Relies heavily on fundamental analysis (e.g., company earnings, economic trends) and long-term technical trends.
• Patience: Requires a long-term mindset and tolerance for short-term market fluctuations.

Pro’s

Minimal time commitment trades require occasional monitoring. Lower stress, as short-term volatility has less impact. Potential for significant profits during major market trends.

Con’s

Ties up capital for extended periods. Exposure to long-term risks, such as economic downturns or company specific issues. Requires strong conviction in the trade’s underlying rationale.

Example

Let’s say you’re position trading Tesla (TSLA). After researching Tesla’s growth in electric vehicles and battery technology, you believe the stock will double in value over the next two years. You buy 50 shares at $700 and hold through market dips. Eighteen months later, the stock reaches $1,400, and you sell for a substantial profit.

Who’s it for?

Position trading suits patient investors who prefer a hands off approach and are comfortable with long-term market exposure. It’s ideal for those who enjoy analyzing macroeconomic trends and company fundamentals.

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Scalp Trading

This is the fatest type of trading. Here you aim to make small profits that stack up to something big. All the trades are fast on lower timeframes on small price movenemts so trades only take a few seconds to minutes.

Key Features of Day Trading

Timeframe: Trades last from seconds to a few minutes. Markets: Popular in forex, stocks, and cryptocurrencies due to high liquidity and tight spreads. Tools: Requires ultra-fast execution platforms, low-latency internet, and advanced charting tools Precision: Success depends on precise entries and exits, often using Level II market data.

Pro’s

• Potential for consistent small profits that accumulate over time.
• Minimal exposure to market risk due to short holding periods.
• Exciting for those who enjoy rapid decision-making.

Con’s

• Extremely high stress and mental fatigue.
• High transaction costs (commissions and spreads) can eat into profits.
• Requires significant skill, focus, and expensive trading infrastructure.

Example

As a scalper trading Bitcoin (BTC), you notice a micro-trend on a 1-minute chart where BTC is oscillating between $60,000 and $60,050. You buy at $60,000 and sell at $60,040 within 30 seconds, earning a $40 profit per Bitcoin. You repeat this 20 times in a session, netting $800 (before fees).

Who’s it for?

Scalp trading is for adrenaline junkies with lightning-fast reflexes and a knack for reading short-term market movements. It’s not for beginners or those with limited time or resources.

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Honerable mention: Algo-trading

Algorithmic trading is using algorithms to trade for you. Like trading bots that automatically execute trades. This is for more tech-savy users that can develop models that trade for them.

Key Features of Day Trading

• Automation: Trades are executed by bots or software, often in milliseconds.
• Markets: Used in stocks, forex, futures, and cryptocurrencies.
• Development: Requires programming skills (e.g., Python, C++) or access to pre-built trading platforms.
• Customization: Algorithms can be tailored to any trading style, from scalping to position trading.

Pro’s

• Eliminates emotional biases, ensuring disciplined trading.
• Capable of executing complex strategies at high speeds.
• Allows traders to backtest strategies on historical data.

Con’s

• High initial costs for development or purchasing trading software.
• Technical expertise required to build and maintain algorithms.
• Risk of glitches or black-box trading failures.

Example

You develop an algorithm that trades the S&P 500 futures based on a moving average crossover strategy. When the 50-period moving average crosses above the 200-period moving average, the bot buys; when it crosses below, it sells. The algorithm runs 24/7, executing trades while you sleep.

Who’s it for?

Algorithmic trading is ideal for tech-savvy traders or those willing to invest time into developing trading models. It’s perfect for individuals who want to automate their strategies and minimize emotional interference.

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Conclusion

Trading offers a world of opportunities, but no single strategy is one-size-fits-all. Day trading and scalping cater to those who love fast-paced action, while swing and position trading suit those with a more patient, strategic mindset. Algorithmic trading, meanwhile, opens the door to automation for tech enthusiasts. To succeed, choose a style that matches your personality, time availability, and risk tolerance, then commit to learning and refining your skills.