Hello Traders, I'm Luke from Disciplined Trader
This video is part of the trading basics series and in this one we are going to be looking
at and discussing different trading styles.
We look at the characteristics of each and then compare them against each other.
In the main, there are three styles of trading that the majority of trades will fall into.
These are scalping, day trading and swing trading.
You may have heard the term position trading, this refers more to the holding of a certain
position over a very long time frame, usually measured in years.
Personally I think of this approach as more a long term investment than a trade per se,
but technically it is still trading.
However, we will be focusing on scalping, day trading and swing trading in this video.
Something you may have noticed as you develop your trading knowledge is that the definition
of certain terms do start to become a little ambiguous and this follows into the three
styles we are going to look at.
I am going to describe and explain these styles as I interpret them, you may see or hear differences
when talking or listening to others.
Don't let this throw you, just think of them as more general terms.
Lets start by looking at scalping.
Scalping usually refers to very short term trades, by this I mean anything from a few
seconds to a number of minutes.
Due to the very fast nature of these trades, analysis is usually done on the very small
time frames.
Think 1 minute, 2 minute and 5 minute charts.
These trades also tend to have smaller profit targets in terms of points or pips than longer
term trades due to their duration . This is obviously because price doesn't tend to move
that far within very short periods of time.
A typical number of points or pips can be estimated by looking at the Average True Range
(ATR) of the 1, 2 or 5 minute time frames on the markets the scalping trades are taken.
Because the trades tend to be smaller, the goal from a scalping trader's point of view
is to take lots of trades with small risk and small reward.
This means that within a typical trading day, a scalping trader will look to take a good
number of trades.
For this reason, it's important that a scalper keeps their risk low as it's easy to see how
quickly you could become emotional when trading this frequently within small periods of time.
As you may have already guessed, the commissions or spreads on trades taken don't become any
smaller just because the trade duration is very small.
So a scalper has to be very precise with their entries and exits as small mistakes can have
a large effect on their performance.
Lets move on to day trading.
Day trading refers to trades that are typically opened and closed within a day.
These trades typically last anywhere from 15 minutes to a number of hours.
The analysis for these trades is usually done on the 30 min, 1 hour and 4 hour time frames
although this is just a guide.
These trades tend to have larger targets than when scalping as typically a trader will look
to take advantage of one of the main moves a market makes within that day.
Using the ATR again is a good way to gauge how large the moves targeted by this style
may be on the markets you are looking at.
As the trades take longer to set up and play out compared to scalping, the frequency of
these trades is lower.
I would say on average a day trader may take between 2-10 trades per week and so they tend
to risk a little more on each trade than a scalper would, somewhere between 0.5% - 2%
is the amount I would recommend.
Entries and exits can also be a little less precise than when scalping as typically a
day trade won't be as impacted by small mistakes.
That said, I think it is good practice to have precise entry and exit techniques when
day trading to maximise your profitability.
The last style we are looking at is swing trading.
Swing trades pretty much cover anything longer than what we have looked at already, up to
position trading that is.
Swing trades can typically last anywhere from a day to a number of months or even longer
in some cases.
Analysis for these trades tend to be on the daily, weekly and monthly timeframes.
Due to the extended time frame of these trades, the targets tend to be significantly larger
than those targeted by the previous two styles.
And so as mentioned before, looking at the ATRs on the daily, weekly and monthly time
frames of the markets you are looking at will give you a good gauge of how large can moves
will be.
Another by product of the longer trade durations is that the trade frequency of this style
is even lower than the previous style.
I would say typically a swing trader would take somewhere between 2-12 trader per month.
This also tends to mean that a swing trader may risk a little more on each trade, especially
if their trade frequency is on the lower end of that scale.
The entries and exits on swing trades can be less precise as the trade typically takes
place over a much larger price range.
For example, if you missed your entry by 5 points on a swing trade, it probably won't
matter too much as the target is likely to be 50, 100, 200 points plus in size.
Therefore a small mistake on the entry has a relatively small impact on the risk and
reward of that trade.
Compared against a scalp trade, where the profit target may only be 5 points in total.
And so looking at the styles side by side, you can see the main differentiating factor
is time.
Each style looks at price movement over a longer time frame than the previous.
And so targets get bigger and the trade frequency reduces.
The analysis within each style doesn't really change.
It doesn't matter which style a trader is implementing, they will still be analysing
multiple time frames using whatever analytical methods they like to use.
The frequency of that analysis will be affected however as the price will develop quicker
on the lower time frames.
And so you may be thinking, well how do I know what style I should use?
And this comes down to a couple of factors.
The first is your personality, you may be someone who likes a lot of time to approach
the markets and so scalping is probably not for you.
Or the opposite, you may really struggle to hold on to trades for prolonged periods of
time and so swing trading may not be for you.
The second factor is your life style.
You may not have the time available to day trade and so scalping where you can sit down
for an hour or two my be more suitable.
Or even swing trading by looking at the markets for a short period on time on a morning and
evening may suit.
You may not know which one suits you best yet and so I would try them all.
You don't necessarily have to fit into one style, you may have different strategies that
fall into different styles and some traders like to take this approach.
I would say that is something that comes with more and more experience.
I firmly started out day trading and day trading only.
Its only after having traded for a number of years I started to look more into swing
trading and continue to look more into that style of trading now.
And that wraps up this video on trading styles.
I hope you found it useful.
If you enjoyed the video, please feel free to leave a like on it.
If you have any questions or want me to cover any other topics in future videos, please
let me know in the comments below.
Also subscribe to the channel for more videos like this one.
I will be continuing this trading basics series to provide new traders with all the knowledge
they need to get started.
Thank you very much for watching and I hope you all have a good trading week.