Trading Styles - Swing and Position Trading

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Swing Trading

Swing Traders tend to hold their positions for a couple of days to a few week for larger gains. This is the second most popular way to trade after day trading.  The goal of many swing traders is to identify a medium term trend and enter that position when there's a high probability of winning.  Different money management settings must be in place here, as the swing trader needs to weather larger volatility to stay in the medium term trade - stop/loss positions and profit target will be larger.  Swing traders will therefore hold less volatile markets that are less likely to move overnight, or markets that are open 24 hours.

Reasons to Swing Trade:
  • You don't mind holding positions for several days with the larger risks involved with that
  • You'll make fewer trades with more research into winning set ups. More planning goes into your chosen position
  • You like the idea of day trading and position trading and this is a happy medium.
  • You've got patience
  • You can sit out trades going against you for a longer time
  • You have a full-time job and can't dedicate time in front of charts all day
  • You like lower transaction costs than day trading
Reasons not to Swing Trade:
  • The increased risk per trade.  You get anxious when trades go against you and you like to stop out more quickly. Swing trades need more breathing room to iron over volatility.
  • You're exposed to overnight risk - i.e. holding an individual stock overnight when a profit warning occurs can lead to large losses.
  • You can afford time in front of charts
  • You can't spend 2 hours a day doing research
  • You like fast paced trigger action
  • You don't like following the markets closely, i.e daily. You still need to follow markets avidly when swing trading. 
Position Trading

Position traders, or trend traders hold positions for a few months to several years, where a very good understanding of fundamentals in a requirement.  It's important to understand about business and economics prior to entering a position trade.  You must have knowledge of what worldwide economic policy will do to your investments.

Because of it's long-term nature stop/loss positions should be larger to take into account large swings in volatility.  Position traders will be confronted with reversals that may need to be weathered, so patience and an absolute trust in your analysis is a must.

Reasons to Position Trade:
  • You have a full-time job and can only spend a few hours per week analysing markets 
  • You understand Fundamental Analysis and have a good grasp of economics
  • You don't mind your positions holding more risk. Positions need even more breathing room than swing positions - wider stop/loss orders
  • You're analysis will be done thoroughly and you'll pick your entry spot and stop/loss position carefully prior to the trade
  • You are patient
  • You have a large amount of starting capital
  • You are aware that you're in it for the long run
  • 50 pips doesn't excite you
  • You prefer the extremely low transaction costs per trade
Reasons not to Position Trade:
  • Your capital is limited 
  • Your capital is tied up for longer periods - meaning you miss out on other trading opportunities
  • You are trigger happy
  • You don't like wider stop/loss orders
  • You don't have a full-time job
  • Your understanding of fundamentals isn't what it should be
  • You are impatient and 50 pips does excite you
  • You get sweaty when the market goes against you
  • Results in a few weeks is acceptable, but years? 
To Sum Up

You should now have a better understanding of the 4 main trading types that are employed by professional traders and retail traders alike.  Often different styles work better under different market conditions, so a number of trading styles may suit you to take advantage of these differing market conditions.  Saying that, always changing your style may mean loosing money.  You need to incorporate these conditions into your plan and stick to it!  But above all, pick the style that suits your personality

Technical analysis is not an exact science and although these ideas can increase the probability of making the correct trade, many will go against you and large losses can be incurred. Your own trading strategy needs to be formed and hopefully you'll be on your way to achieving this on completion of this course.

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Previous...


Swing Trading

Swing Traders tend to hold their positions for a couple of days to a few week for larger gains. This is the second most popular way to trade after day trading.  The goal of many swing traders is to identify a medium term trend and enter that position when there's a high probability of winning.  Different money management settings must be in place here, as the swing trader needs to weather larger volatility to stay in the medium term trade - stop/loss positions and profit target will be larger.  Swing traders will therefore hold less volatile markets that are less likely to move overnight, or markets that are open 24 hours.

Reasons to Swing Trade:
  • You don't mind holding positions for several days with the larger risks involved with that
  • You'll make fewer trades with more research into winning set ups. More planning goes into your chosen position
  • You like the idea of day trading and position trading and this is a happy medium.
  • You've got patience
  • You can sit out trades going against you for a longer time
  • You have a full-time job and can't dedicate time in front of charts all day
  • You like lower transaction costs than day trading
Reasons not to Swing Trade:
  • The increased risk per trade.  You get anxious when trades go against you and you like to stop out more quickly. Swing trades need more breathing room to iron over volatility.
  • You're exposed to overnight risk - i.e. holding an individual stock overnight when a profit warning occurs can lead to large losses.
  • You can afford time in front of charts
  • You can't spend 2 hours a day doing research
  • You like fast paced trigger action
  • You don't like following the markets closely, i.e daily. You still need to follow markets avidly when swing trading. 
Position Trading

Position traders, or trend traders hold positions for a few months to several years, where a very good understanding of fundamentals in a requirement.  It's important to understand about business and economics prior to entering a position trade.  You must have knowledge of what worldwide economic policy will do to your investments.

Because of it's long-term nature stop/loss positions should be larger to take into account large swings in volatility.  Position traders will be confronted with reversals that may need to be weathered, so patience and an absolute trust in your analysis is a must.

Reasons to Position Trade:
  • You have a full-time job and can only spend a few hours per week analysing markets 
  • You understand Fundamental Analysis and have a good grasp of economics
  • You don't mind your positions holding more risk. Positions need even more breathing room than swing positions - wider stop/loss orders
  • You're analysis will be done thoroughly and you'll pick your entry spot and stop/loss position carefully prior to the trade
  • You are patient
  • You have a large amount of starting capital
  • You are aware that you're in it for the long run
  • 50 pips doesn't excite you
  • You prefer the extremely low transaction costs per trade
Reasons not to Position Trade:
  • Your capital is limited 
  • Your capital is tied up for longer periods - meaning you miss out on other trading opportunities
  • You are trigger happy
  • You don't like wider stop/loss orders
  • You don't have a full-time job
  • Your understanding of fundamentals isn't what it should be
  • You are impatient and 50 pips does excite you
  • You get sweaty when the market goes against you
  • Results in a few weeks is acceptable, but years? 
To Sum Up

You should now have a better understanding of the 4 main trading types that are employed by professional traders and retail traders alike.  Often different styles work better under different market conditions, so a number of trading styles may suit you to take advantage of these differing market conditions.  Saying that, always changing your style may mean loosing money.  You need to incorporate these conditions into your plan and stick to it!  But above all, pick the style that suits your personality

Technical analysis is not an exact science and although these ideas can increase the probability of making the correct trade, many will go against you and large losses can be incurred. Your own trading strategy needs to be formed and hopefully you'll be on your way to achieving this on completion of this course.

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