Types of trading: advantages and disadvantages

There are quite a few types of trading. Each novice trader can choose any direction for himself - high-frequency trading, swing trading, scalping, intraday trading, medium and long-term investing. To make the right choice, you should familiarize yourself with each type of trading on the exchange in more detail, understand their differences, features, advantages and disadvantages. Today we will look at swing trading and scalping.

The market is very diverse and volatile. To make big profits, you need to choose the trading style that best suits the trader's personality, skills and other circumstances. If he is prone to one type of trading, then his trading results in a different style will be much worse and may even lead to a loss of capital.

You can only get the maximum profit on the exchange if you choose the right trading style.

Let's take a closer look at the types of trading. However, it is worth considering that the boundaries between them are rather blurred. One trading style can smoothly transition into another, so their pros and cons may be related to the types of trading that are close to the one under consideration.

Scalping

If a trader has difficulties programming a trading robot, he can choose an alternative option to HFT trading - scalping. It is a trading strategy in which deals are opened for a few seconds, sometimes minutes. Scalping is the execution of a large number of small trades. It differs from high-frequency trading in that it is not the robot that participates in the trading process, but the trader himself.

The purpose of trading using this strategy is to make a profit on the basis of the trading day. In scalping, a trade is never left open overnight. It is necessary to choose highly liquid securities as assets, otherwise the likelihood of receiving losses significantly increases. It is important to track simultaneously price changes for several securities and choose the best option for buying it at a certain moment.

Scalping gives newcomers to trading the following benefits:

quick development of the necessary skills and experience;

studying the principles of the market;

the development of important psychological qualities.

no need for a large initial deposit - $ 100-200 is enough as a start-up capital (for one contract on the Moscow Exchange);

high potential for increasing the deposit due to multiple capital turnover;

relatively simple formation of a trading plan, since scalping operations cannot be called complex;

a large number of signals even in one market during the trading day;

no risk of transferring the transaction to the next day through the night.

The disadvantages of scalping are the following:

scalping comes with high commission costs due to frequent trades. It happens that the profit from a trade corresponds to the size of the commission. In connection with these, the percentage of profitable transactions in scalping should be high;

there are high requirements related to the quality and speed of the Internet and the operation of computer equipment;

the trading style is quite grueling, as it requires constant presence at the monitor and concentration in order to track the progress of the trades. This is required in order not to miss the right moment to open a deal. In addition, each transaction requires special attention to be followed. To simplify this task, it is better to choose a specific time for trading, for example, about two hours from the start of each session.

focusing on small timeframes, you can lose sight of the impact of older trading periods;

This trading style is suitable for active people; scalping becomes more difficult with age. The scalpers' strategy consists of a large number of small trades and closing the trading day with positive results. Scalpers tend to catch small impulses triggered by various factors. Scalping is suitable for those traders who like extreme sensations caused by the adrenaline rush as a result of fast trading.

Typically, the scalper's workspace is a set of order books and cluster charts, which have trading periods from one second to several minutes.

Swing trading

Swing trading involves holding a trade for more than one trading day. As a rule, the deal is held for several days or even months - there are no limited frames in swing trading.

This trading style is based on the analysis of price fluctuations in stocks, currency pairs and other assets that last for several days (months). Compared to day trading, swing trading does not take the trader a full day.

Anyone with investment capital and valuable ideas can try this trading style. Longer trading periods, which are one hour, four hours, or a day, allow the trader to be distracted from the monitor and not spend an entire day at it. In addition, he can combine trading with other types of employment. We also advise you to read about swing scalper forex dashboard indicator .

The positive aspects of swing trading include:

A trader can leave a trade open for several days or even weeks. This contributes to obtaining a larger profit than trading the same assets several times in one trading day.

Since this style of trading rarely becomes full-time, the trader is much less overworked due to the constant stress that accompanies trading on the exchange. He has time to do other things, to keep the nervous system in a healthy state, to store up energy.

You can engage in swing trading using any device - an ordinary computer, laptop, smartphone or tablet, on which you need to install the broker's trading terminal. There are no strict requirements for software, Internet speed.

Traders who choose swing trading usually have alternative sources of profit in the form of permanent jobs, etc. This helps to offset or reduce trading losses.

The negative sides of this strategy are as follows:

As with any type of exchange trading, trading based on price fluctuations can also entail large losses. Since swing traders hold trades longer than intraday traders, they also run the risk of serious losses, which are increased by holding the trade every other day.

Swing traders often do not enter the market at the best prices. By monitoring the price chart once or twice a day, they have to be content with the prices that the market offers at the time a deal is opened.

Too long waiting period for a trading signal indicating the moment to open a trade is another drawback of this trading style. Scalpers receive trading signals very often. Swing trading participants can wait for a setup for more than one day. A trading setup is a price chart formation formed by price. It gives you the opportunity to open a profitable deal.

Conclusion

Each trading style has its positive and negative sides and carries with it some risks. In addition, global markets are becoming more and more competitive.

It is difficult to say which type of trading is better. To choose the best one, you need to focus on the preferences of the trader, his experience and knowledge, capabilities and character traits.

Regardless of which trading style a trader chooses, it is necessary to use fundamental analysis methods for profitable and effective trading. This is because they investigate the factors that create price fluctuations in the market. These factors include the state of equilibrium between supply and demand, cash flows, the mood of other trading participants, the relationship between markets and others.