The types of traders, which are you?
There are several types of trading styles that persons seeking to profit from short term trades in the market may wish to use. Here is a brief description of the most widely used short term trading styles.
Day Trading
Day traders buy and sell throughout the day in the hope that the prices will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a position anywhere from a few seconds to a few hours, but will always sell all of those positions before the close of each day. The day trader will therefore not own any positions at the close of any day, and there is overnight risk. The objective of day trading is to quickly get in and out of any particular position for a profit anywhere from a few cents to several points per position on an intra-day basis.
Day trading can be further subdivided into a number of styles, including:
Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of positions within seconds or minutes. The objective is to earn a small per position profit on each transaction while minimizing the risk.
Momentum Traders: This style of day trading involves identifying and trading positions that are in a moving pattern during the day, in an attempt to buy such positions at bottoms and sell at tops.
Swing Traders
The principal difference between day trading and swing trading is that swing traders will normally have a slightly longer time horizon than day traders for holding a position. As is the case with day traders, swing traders also attempt to predict the short term fluctuation in price. However, swing traders are willing to hold positions for more than one day, if necessary, to give the price some time to move or to capture additional momentum in the price. Swing traders will generally hold on to their positions anywhere from a few hours to several days.
Swing trading has the capability of providing higher returns than day trading. However, unlike day traders who liquidate their positions at the end of each day, swing traders assume overnight risk. There are some significant risks in carrying positions overnight. For example news events and earnings warnings announced after the closing bell can result in large, unexpected and possibly adverse changes to prices.
Position Trading
Position trading is similar to swing trading, but with a longer time horizon. Position traders hold positions for a time period anywhere from one day to several weeks or months. These traders seek to identify where the technical trends suggest a possible large movement in price is likely to occur, but which may not be fully played out for several weeks or months.
Online Trading
Online trading is not really properly described as a trading style. Rather, online trading is simply a term that refers to the medium used to enter and execute trades. Online traders, which can include long term investors, as well as day, swing and position traders, use either an Internet connection or a direct access online trading platform to access and execute trades with Web based brokers.
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