When you start trading, you create a trading strategy and follow a pattern. Your strategies will fall under any of the various types. These types depend on various factors, such as your trade triggers and loss and profit order. Deciding on a trade type is essential as it will help you follow a method and effectively manage your trades. It is hard to tell which trading type is the best because every strategy has different advantages and disadvantages. Therefore, it is better to identify the best type by evaluating all your options. To get you started and keep you on the right track, we will explain three common types of trading in this article. Understand these types and choose a clear path to lead your way to success. The common trading types include:
- Intraday trading
- Day trading
- Swing trading
All these three trading types are based on price action and time. If this is your first experience in trading, you should understand the effects of price in making a decision. The nature of price in trading is not straight. Instead, there is a continuous fluctuation in the price. Various factors can cause a shift in the price of the instruments. The change boosts the buying and selling process. Therefore, you can decide if you want to trade in the slow-moving or fast-moving market.
There are different sets of rules, price action patterns, and technical indicators in the above-mentioned trading types. Let’s understand these types in detail to get a bigger picture about choosing the best one for you:
Intraday trading has a rapid motion in their prices. Because of the short time frame and a single session to trade, traders need to make quick decisions and hold their spots in the open positions. These positions are available for hours, minutes, and even seconds, so they have to understand the market and make the most out of their trades. This type of trading has high price fluctuation because many traders are trading at the same time.
While trading in an intraday trading system, you should have an understanding of price action and technical analysis of the fluctuation. This technique is more challenging as you have to make crafting decisions in a compressed timeframe. Here are some strategies that you can consider while trading in an intraday trading system:
- Order-flow analysis
- High-frequency trading
Markets with substantial liquidity and depth are best with this type of trades. You need to choose an efficient strategy that helps you enter and exit the market with better decisions. When you have insufficient liquidity, your trade-related cost will consistently increase in this type. Consequently, it associates with slippages and spreads. So, you need to be more careful and properly manage your liquidity. The best approach in this type of trading is by focusing on small profits instead of long trades. This strategy will decrease your risks and increase your chances of making a profit.
Day trading is the complete opposite of intraday trading. In this type, market positions open early morning and close when the bells ring. The duration of the open positions depends on the market you are trading in. There are some similarities between day trading and intraday trading, but day trading does not offer deals with high volumes. Instead, the positions are available early in the morning, and it shifts throughout the day with each session. Here are some popular strategies to ace day trading:
- Trend following
The best feature of these trading types is the inherent volatility of the markets and considerable range. Some depending factors for day trading include price action, liquidity, and technical analysis.
The trading sessions in a swing trading system may last two days or a week. However, the session may also extend for several weeks. In this trading type, you can hold the open position of your commodity for at least a session. These trades involve buying and selling commodities and futures in different sessions. In this trading type, traders should depend on fundamental analysis. As a swing trader, you should not only focus on the market conditions but also keep an eye on geopolitics and macro-trends. Here are some strategies to consider while trading with swing trading:
- Systematic risk exposure
- Carry and finance costs
- Account for extensive margin requirements
Swing trading includes engagement with forex, equities, and agricultural futures. Furthermore, the factor that drives the market is central bank policies, corporate earnings releases, and seasonality.
Your survival in the trading market depends on the type of trading. You should choose a type based on your personality, resources, and capabilities. All these trading systems require dedication, discipline, and tenacity. Therefore, you should align your resources and plan a strategy for success.