There are many participants in the trading market, and the crowd of traders can actually be divided into different styles and techniques. In terms of holding time alone, some people are short-term traders, some are long-term traders, and some are in between. Not to mention other types of division from different angles.
Before talking about different trading styles, one thing that needs to be clarified is how the trader carries out transaction. Generally, the market can be divided into two types: autonomous trading and automatic trading.
Autonomous trading means that traders use their own analysis and judgment to execute and manage transactions. Automatic trading uses the trading system to conduct transactions. All a trader needs to do is set up or program the automated trading system and monitor the execution of the trading system during the transaction.
All of the trading styles discussed below are either autonomous or automated. Before deciding on your own trading style, we must first understand what we are most used to.
Trading Style 1. Scalping
The speed of scalping is very high, so the pressure is also considerable. The scalping transaction needs to continuously look for trading opportunities exposed in the market. In one trading day, scalping traders can trade up to 20, 30 or even 50 transactions, and the holding time of each transaction may be only a few minutes.
For example, EUR/USD scalping transactions may reach a dozen or twenty transactions in a short period of time, with each transaction holding positions for 1 to 2 minutes. The goal of scalping is only a small number of points, so it is necessary to use leverage to increase profits.
Scalping is very popular in the stock market, which can use Level 2 data and get better quotes and the fastest execution. However, you must know the rules of the stock market trading. For example, in the United States, the starting capital is more than $ 25,000.
The biggest difficulty in scalping transactions is the high transaction costs. Sometimes transaction costs can account for 60% -70% of a trader's net profit. In addition, manual trading is even less competitive for scalping. After all, in those high-frequency trading institutions, it’s not a problem for traders to use automatic trading systems, and trading hundreds of transactions in a day.
Trading Style 2. Intraday Trading
Intraday trading is in some ways similar to scalping traders. They also enter and exit the market within one day, but the holding time is not a few minutes, but it will be longer, 30 minutes less, and long hours. Most intraday traders may trade 2 to 5 trades a day.
The scalp traders are more inclined to the automatic transaction execution mode, while most day traders still trade autonomously. Some intraday traders focus on news trading, but most of them are mainly technical analysis trading, they will not pay too much attention to the macroeconomic side.
Doing intraday trading put the principles and patience of traders in test, which is why many newbies are driven out. If there is no principled casual trading, it is easy to suffer losses.
Trading style 3. Swing trading
Swing trading positions usually range from one day to several weeks. They usually use 4 hour charts and daily charts. When it comes to swing trading, there are great advantages in both transaction frequency and transaction cost.
First of all, trading frequency. Swing traders can find a lot of trading opportunities. It is very common to trade 8-12 transactions a month. Therefore, you can trade 100-150 transactions a year, which is quite suitable for novice traders to practice their skills.
Besides, as the transaction frequency is much lower than intraday trading and scalp trading, its cost is also greatly reduced.
Another great benefit of swing trading is that the trading charts they use are relatively long periods of time, so the signals and technical patterns identified are more reliable.
Swing trading uses a variety of methods and strategies, using Bollinger Bands to buy low and sell high, using trends to trade key price breakthroughs, etc., all methods can be selected according to the style of the trader himself.
Trading Style 4. News Trading
News trading is a type of fundamental analysis trading. News traders use the timing of news announcements to capture corresponding price fluctuations. Important economic news events will increase market volatility, such as US non-farm payrolls, central bank interest rate decisions, PPI and CPI, GBP reports, etc.
If these data are significantly different from the results of the previous market analysis, then the market may respond, and the price may plummet or rise by 150 points or more within a few seconds.
Due to the high uncertainty of news events and unpredictable fluctuations, the risks of news trading are very high, and traders must do strict risk management and stop loss.
Even before news trading, the market has already begun to be affected. For example, prices usually enter consolidation because traders are waiting for the results of news statements; another example, pips on trading platforms may increase.
Trading style 5. Trend trading
Trend trading is the favorite method of many commodity trading advisors (CTAs) and professional hedge funds. This method was first known by turtle traders.
There is a repeatedly mentioned story about the turtle trader. To explain briefly, it was that two well-known traders Bill Eckhardt and Richard Dennis made a bet on whether ordinary people from different backgrounds could be trained as successful market traders. The final test result is that even ordinary people can profit from the market through professional knowledge training, and many of the people they train have become highly successful traders and hedge fund managers.
Trading with market trends has also attracted a large number of traders. Trend trading is a long-term transaction. They pay attention to the daily and weekly charts. In the constantly fluctuating market, they look for strong trends that have already begun to appear and trade with the trend.
It can be said that the goal of a trend trader is not to predict the next trend of the market, but to join a trend that has been formed and continues to develop, and to stay as profitable as possible in this trend. The biggest difference between a novice trend trader and an experienced trader is whether a strong trend can be identified early. When most people enter a trend market, the trend is likely to be nearing its end.
Trading style 6. Macroeconomic transactions
Macroeconomic traders are mainly concerned with long-term fundamental data that promotes a country's economic development. Their trading positions last a long time, which may be months or even years, and they may only hold a small number of positions in a year. Macroeconomic traders are very cautious, but the potential profits of this small amount of trading are huge.
Important economic data studied by macroeconomic traders include national GDP, inflation rate, employment rate, interest rate, trade gap, and so on. These data allow them to understand the development of the fundamentals of a country. Their main purpose is to identify and understand the overall market sentiment and trader psychology at the beginning of an economic trend, and to predict possible changes in the future.
Although fundamental analysis is the most dependent technique for macroeconomic traders, it does not affect their use of technical analysis to determine trade entry and exit.
Researches that macroeconomic traders pay most attention to are:
The link between government bonds and the stock market
Impact of some foreign exchange changes on crude oil prices
The relationship between commodity prices and the US dollar
Is there a link between gold and stocks?
. . . . . .
Trading style 7. Arbitrage trading
Many large financial institutions around the world use arbitrage transactions to gain profits. Forex arbitrage trading is the use of the difference between high interest rate currencies and low interest rate currencies to earn profits.
For example, if the Australian dollar interest rate is 4% and the Japanese yen is 1%, then buying the AUD/JPY currency pair will generate a 3% net interest rate, which is a positive spread. In turn, selling the AUD/JPY currency pair requires a 3% interest rate, which is a negative spread.
When doing arbitrage trading, retail traders need to pay attention to the cost between buying and selling foreign exchange, and sometimes the negative spread transaction cost may offset potential profits.
Some people may think, why does such a low interest rate arbitrage transaction attract the interest of speculators? In fact, it is because the very important leverage ratio in foreign exchange transactions is at work. For example, the above 3% interest rate plus 10 times leverage, then the potential profit is 30%.
Arbitrage trading is not without risks. As long as it is a financial market transaction, it will be affected by market fluctuations, and potential profits may also become losses due to unexpected fluctuations.
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