A matter of choice: the 2024 Octa guide to trading styles
The experts at Octa provide an overview of the most fundamental trading styles suitable for both new and experienced traders.
A trading system, also called a trading strategy, is a set of rules on how to manage trading orders and apply risk mitigation techniques in order to achieve positive financial outcomes. All strategies fall under one of four common trading styles: day trading, swing trading, scalping, and position trading.
You significantly increase your chances of achieving consistent gains by picking a trading style tailored to your temperament, starting capital, and financial goals. It will enable you to take a proactive approach to wealth management and become more analytical and less emotion-driven in your day-to-day trades, eventually leading to better results.
Another crucial step to successful trading would be choosing a trustworthy financial broker with extensive expertise and global reach such as Octa. An internationally recognised investment platform, Octa offers all users an unlimited demo account where you can hone your trading skills in real-life conditions without any risk to your capital.
Below are four trading styles that are used by millions of traders worldwide.
1. Day trading
Day trading is a fast-paced form of trading in which a trader buys and sells a financial instrument within one trading day. If you want to engage in day trading, you should focus on high-liquidity assets and diligently apply risk management techniques and tools such as Stop loss orders.
Core elements:
* Prioritising highly liquid instruments to ensure fast order execution
* Using technical analysis (identifying promising trading patterns based on historical trends) to identify entry and exit points
* Ensuring effective risk management by setting Stop Loss orders.
2. Swing trading
Swing trading is a strategy where an instrument is held for a day up to several months in an effort to profit from long-term price changes. This system is based on identifying broader trends and uses various approaches, including mathematical analysis, to define them. An important advantage of this strategy is that it does not require precise timing to make a profit since broader price oscillations allow for more leeway. On the other hand, the time to profitability goes up as well, so it is up to you to pick a time frame according to your goals.
Core elements:
* Identifying trends and using technical analysis to establish entry and exit points
* Setting profit targets and Stop Loss levels
* Keeping a cool head when overnight price fluctuations occur
* Adjusting your strategy depending on the changing market conditions.
3. Scalping
Scalping is using various short-term strategies to profit from minor price movements. With this method, time frames vary between minutes and seconds. Scalpers execute orders very quickly and focus on low-spread instruments. In this highly dynamic trading environment, employing technical indicators for short-term analysis and maintaining strict discipline is critical.
Core elements:
* Using short timeframes and quick order execution platforms
* Prioritising low spreads and fees to minimise costs
* Employing technical indicators like moving averages for short-term analysis
* Maintaining strong self-discipline and risk management practices.
4. Position trading
Position trading is a long-term strategy where traders hold positions for months or even years. This approach involves fundamental analysis and a variety of factors, including interest rates and geopolitical events.
Core elements:
* Performing in-depth fundamental analysis for each asset
* Considering factors like interest rates, geopolitical events, and economic cycles before applying the strategy
* Monitoring fundamental factors and adjusting your positions accordingly.
Conclusion
In the long run, consistently successful trading is only possible with a strategy that suits you in terms of time frames, risk tolerance, and tradable instruments. Given that, no system, no matter how sophisticated and time-proven, guarantees success, and adapting as market conditions change.