How To Assess What Type Of Trading Styles Suits Me?

What Type Of Trading Styles Suits Me - Thinking man

First order of business, ask yourself, “What Type Of Trading Styles Suits Me?“. Embarking on a journey into the world of stock trading is an exciting endeavor, filled with the promise of financial opportunities. However, it’s crucial to remember that success in the stock market is not solely determined by market conditions or luck; it also depends on your trading style. 

Your trading style is your unique approach to buying and selling stocks and finding the right one that suits your personality, risk tolerance, and financial goals is a pivotal step in your trading journey. 

In this article, you might find an answer to the question, “What Type Of Trading Styles Suits Me?” after we provide you with high-level information on the different types of trading styles. Then based on the list, try to assess what type of trading style suits you best. Whether you’re a newcomer or an experienced trader looking to refine your approach, understanding your trading style is a crucial element in achieving success in the dynamic world of stock trading. 

Questions Why Should You Start Investing In The Market

Investing in the stock market

Before we start, shouldn’t you be assessing first your goal? You should be asking yourself some of these questions:

  1. Why should I invest my money in stocks, cryptocurrencies, forex, ETFs, etc.?
  2. What is my goal why I am investing? For school funds, emergency funds, travel funds, retirement plans, etc.?
  3. For how long should I invest my money?
  4. How much money can I invest – initially and periodically?
  5. How much money can I afford to lose in trading?
  6. How much time can I spend or allot for analyzing my trades?
  7. Am I emotionally ready to enter the market?

In short, you have to be fully ready before you enter the market. Yes, there is an opportunity to earn money by trading or investing in the stock market. But as well as lose money too!

10 Commonly Known Types Of Trading or Traders?

When we initially dived into the stock market, we often hear 2 things, fundamental and technical analysis. Although any of these two can be used as your path when it comes to approaching the market, you might miss some other styles that might suit you best. Nowadays, there are other trading styles that you will hear from other traders such as position trading, swing trading, day trading, etc. However, these other trading styles were derived from the two aforementioned trading analyses.

So, let’s start first by giving you the different types of traders and then reflect or do a self-assessment. Try to discover the trading style that aligns perfectly with your aspirations and preferences. Then you might find the answer to “What Type Of Trading Styles Suits Me?“.

1. Fundamental Traders

Fundamental analysis is a comprehensive method used to assess stocks by gauging their inherent value. This approach involves a thorough examination of various factors, encompassing the broader economic landscape, industry-specific conditions, as well as the financial stability and managerial competence of individual companies. Essential elements such as earnings, expenditures, assets, and liabilities all undergo meticulous scrutiny within the purview of fundamental analysis.

A fundamental trader conducts a thorough examination of company-specific events to determine the optimal timing and suitability for purchasing a particular stock. Their decisions are rooted in rational analysis and factual information, often aligning with longer-term investment or buy-and-hold strategies rather than short-term trading approaches. 

While this method can yield success, it does tend to demand a more substantial time investment due to its heavy reliance on in-depth research and comprehensive analysis.

2. Technical Traders

Technical analysis serves as a methodology for assessing financial markets and forecasting forthcoming price shifts by scrutinizing statistical trends and trading data patterns, including price and volume. By closely examining charts and various technical indicators, analysts aim to uncover patterns, trends, and signals that may offer insights into future price movements. 

This approach is underpinned by the belief that all pertinent information regarding the value of a financial asset is already embedded in its price. 

By studying historical price patterns and trends, analysts gain valuable insights into potential future price movements, enabling them to make informed decisions.

This technique finds widespread use in trading various assets, including stocks, bonds, currencies, and commodities. It is frequently employed in tandem with fundamental analysis, which delves into a company’s financial and economic fundamentals to ascertain its intrinsic value. 

Together, these two analytical approaches provide traders with a well-rounded perspective for making investment decisions.

In short, technical traders employ an array of tools, including charts, graphs, and historical data, as part of their analytical toolkit. Their primary objective is to identify indicators of divergence or convergence within these historical patterns, offering valuable insights into opportune moments for buying or selling assets. In contrast to those who focus on current events, technical traders place greater emphasis on past data, operating under the belief that history tends to exhibit recurring patterns that can guide their decision-making processes.

3. Day Traders

Day traders seize all available trading opportunities within a single daytime session, diligently opening and closing positions to avoid overnight exposure. They generally favor liquid assets for their ability to facilitate swift entry and exit from trades. 

Day traders often employ a diverse array of strategies to execute their trades efficiently. They closely monitor real-time market developments, enabling them to capitalize on rapid price fluctuations and capitalize on short-term positions. 

Although day trading typically demands a substantial initial capital investment, it can prove advantageous for those seeking short-term gains realized within a single trading day.

4. Intraday Traders

An intraday trader shares similarities with a day trader in their practice of closing all positions within the same trading day, avoiding overnight exposure. However, intraday traders tend to have even shorter durations for keeping positions open and executing a more substantial volume of trades compared to day traders. 

These traders frequently rely on technical analysis and indicators as part of their strategy, utilizing tools to make informed decisions throughout the trading day. 

Additionally, many intraday traders specialize in trading instruments that are exclusively available during standard business hours, capitalizing on the dynamics of the intraday market.

5. Scalpers/Scalping Trading

Scalpers are known for their high-frequency trading approach, executing numerous trades ranging from dozens to even hundreds within a single day. Their aim is to secure a modest profit from each trade, capitalizing on the incremental fluctuations in a security’s price. 

This strategy hinges on exploiting the bid-ask spread, representing the margin by which the asking price of an asset surpasses its bid price in the market. 

Scalpers prioritize the accumulation of a multitude of incremental gains over aiming for a few more substantial profits. However, it’s worth noting that this approach demands extensive time and near-constant engagement in trading activities.

6. Position Traders

Positional trading demands that traders hold their positions over extended durations, paying little heed to minor market fluctuations. Profit in positional trading materializes when traders are patient, waiting for a substantial period before executing their sell orders.

Position traders concentrate on macroeconomic trends and asset growth potential. Their approach involves monitoring market trends and macroeconomic indicators to discern assets with the potential for long-term appreciation. Position traders aim for sustained, long-term gains, with some of their trades unfolding over weeks, months, or even years, contingent upon the optimal timing for their selected assets.

7. Momentum Traders

A momentum trader actively seeks out stocks that exhibit significant movement in a particular direction, aiming to profit from the impetus behind such rapid shifts. Momentum trading can occur within a brief timeframe, spanning a few hours, or extend over several days, contingent upon the speed and steadiness of the stock’s movement, as well as any shifts in momentum.

Momentum traders base their decisions on the prevailing trend direction. For instance, if the momentum is upward, traders opt to sell for a more substantial profit. Conversely, in the case of a downward trend, the strategy pivots towards buying stocks at a lower price, with the anticipation of capitalizing on potential future gains.

8. Swing Traders

A swing trader’s objective is to secure short to medium-term profits, as opposed to aiming for long-term gains. Their toolkit predominantly comprises technical analysis, although they may also incorporate fundamental analysis to gain deeper insights into price trends and overall market patterns. Swing traders strategically position themselves to harness significant price shifts, minimizing idle periods by accumulating smaller gains from the same investment over a time frame ranging from several days to a few weeks.

In swing trading, the approach centers on scrutinizing short-term trends, allowing traders to discern emerging market patterns and execute transactions with precision.

9. Price-action Traders

A price action trader deliberately disregards the metrics of fundamental analysis, concentrating their attention on the realm of technical trading. Their approach centers on charting the price movements of a particular asset over a specified period, from which they derive subjective judgments about when to buy or sell based solely on these price dynamics and broader market conditions. 

Price action trading is a versatile strategy applicable to various asset types and serves as a complementary tool for various other technical analysis methodologies. This approach is particularly favored by individuals seeking short-term trading opportunities due to its compatibility with such objectives.

10. Sentiment Traders

Sentiment traders are dedicated to recognizing and engaging with market trends. Their strategy combines elements of both fundamental and technical analyses, allowing them to seek out securities that align with the prevailing market momentum. 

Successfully executing sentiment trading often necessitates thorough research, involving the study of trends and market dynamics. This approach may entail early morning market reviews, during which traders diligently identify potential securities for either purchase or sale.

Self-Questions To Find Your Trading Style Wisely

The list of different types of traders we have shared are just some of the commonly known trading strategies. But do you know by now which one best suits you? Have you already found the answer to the question, “What Type Of Trading Styles Suits Me?“? If you are in the planning phase or just started investing, you might still be lost.

Maybe, these questions might help you more to decide for yourself.

  1. Most of the trading strategies require careful monitoring and trading engagement. So, how much time are you willing to dedicate to your trading, and what time of the day? 
  2. Some trading strategies involve high risks while others are not. Remember, not a single trader knows or can predict the market. So, how much risks are you willing to take?
  3. You have read this article, other books, videos, etc., do you think they are enough? Are you now comfortable to start? If we may suggest, why not start first with virtual trading? There are market trading platforms such as eToro where you can practice trading through a virtual account. The eToro platform provides users with $100,000 in virtual funds for learning how to navigate the platform. Take the opportunity to open and close trades, experiment with different settings and buttons, and become well-acquainted with the platform’s interface and features. It’s advisable to begin by testing the process of copying other traders in the virtual environment as well. This hands-on experience will help you build confidence and familiarity before you commence actual trading.
  4. How do you want to earn? Do you want short-term or long-term gains?
  5. Do I have the right set of trading skills or what should I still develop?

Concluding Words

To be successful in trading or being a successful trader in a short span of time is not an easy feat. Like any business investment, you don’t just throw your money and expect that it will grow by itself. It is a fulfilling type of investment with continuous growth but it requires:

  1. Analytical skills
  2. Patience
  3. Confidence
  4. Discipline
  5. Budget
  6. Decision-making
  7. Risk management
  8. Constant learning, review your trades regularly
  9. Market Awareness
  10. Interpreting price-action graphs

Since the market is unpredictable, even experienced traders still continue to learn. They review why their trades were successful or lost. 

If you are a trader, beginner or not, what other tips can you share for those who are willing to dive into trading?