The Different Styles Of Day Trading

There is no foolproof method of earning a profit through day trading, and most people new to the trade start their trading careers armed only with the fundamental knowledge required to inform their initial decisions. As they learn the techniques required to be a successful day trader, however, each will form his or her own trading system based on the various day trading styles.

The following are the various styles of day trading currently available:

Swing Trading - Swing trading was developed in the 1900s and involves making predictions about the future behavior of the market based on the trends or swing that it followed in the past. While a day trade is typically defined as a trade that does not last for a duration of more than a day, swing trades may last anywhere from a single day to several weeks. The principle behind this form of trading is the belief that significant profits can only be realized if a trade is held for a minimum period of time. The advantage of swing trading is that traders have a better chance to take advantage of the trend that the market is currently following.

Momentum Trading - Momentum trading experienced a period of unpopularity before the 1990s, before regaining its popularity thanks to the liveliness of the market during the 1990s. The main advantage of this style for traders is that they experience minimal risk when holding their positions overnight. Momentum traders earn a profit by investing in stocks that are rising in value and attempt to ride this upward momentum until they reach a certain level of profit. At any sign of a downturn in the value of the stock, momentum traders will abandon the stock as fast as possible.

Technical Trading - This style of trading is based entirely on charts, graphs, and various other forms of data, making the style broader in terms of approach and perspective. Technical traders typically base their decisions on past trades, previously proven indicators, and the patterns that led to good trades before. All of this past information is used to inform future trades. The disadvantage to this style of trading is that the sheer amount of technical information available may obscure the judgment of the trader.

Scalp Trading - This is perhaps the most popular trading style, where traders make multiple trades during the course of the day in an attempt to realize small profits from each trade, taking advantage of short-term possibilities. This style of trading is perhaps the safest, as an investor's money is spread out over a large number of investments, so there is little chance of losing on all of them. It can, however, lead to overtrading.