Each individual is unique and trades their own belief system. However, trading can be categorised into different styles. The trading style that best suits you depends on several factors such as: your account size, personality, risk tolerance and the amount of time you can dedicate to trading.
There are four main trading styles, which are detailed below: scalping, day trading, swing trading and position trading.
Scalpers usually analyse tick charts, 1-minute charts, and 5-minute charts, and typically hold trades for seconds or minutes at a time. This trading style aims to enter many trades in a day with quick profit taking on small percentage moves. The ideal conditions for scalping are when the spreads are as tight as possible.
Therefore, the aim of a scalp trader is to profit from small moves as many times as they can during the busiest and most volatile periods of the day. Even in relatively calm markets, there are opportunities for scalpers. Since these traders are only exposed to market movements for a small period of time, there’s less risk of getting caught out by a shock or a severe market movement and they don't have to pay much attention to the funding fees/rebates.
However, scalpers will not make lots of profit on each individual trade. Instead, they want to quickly cross the spread: when entering at a bid or ask price, instantly the position’s PnL is at a loss due to the spread, so they want to see the bid or ask price move in the same direction as their trade. Scalpers generally have a larger account size since each individual move is relatively small in percentage terms.
Low trading fees are more beneficial to scalpers who enter many positions in a day. With the higher trading frequency, the trading fees add up over time and can be considerable. To save on fees, scalpers can make use of limit orders or join the Interdax referral program to earn 20% of trading fees from their referrals.
Scalpers must be ready to react to fast-paced markets, requiring you to think on your feet, display quick reactions and remain focused. Therefore, scalpers have to monitor their trades very closely. Scalpers may be required to be glued to the charts for several hours at a time. Markets can change direction in an instant, so you have to recognise your bias and cut losing positions very quickly. One big loss can eat into your trading capital. When cutting losses quickly, many small wins add up over time.
Since scalpers are making many orders and traders per day, they need to understand and be skilled with order execution, since a slight mistake could be costly. Pay attention to volume and order book analysis, as these traders require sufficient liquidity to quickly get in and out of positions. Since the risk-reward ratios is typically lowest for this type of trading style and moves are smaller, scalpers need to be able to win a high proportion of the trades placed.
Day trading involves keeping positions open between a few minutes to a few hours per day. These traders usually utilise anything between the 5-minute chart to the 4-hour chart to analyse intraday trades. Day traders may only enter one or two positions and will close these positions by the end of the day.
Day traders basically pick a side (long or short) at the start of the day, holding the position through and then closing for a profit at the end of the day (although they may sometimes close the trade the next day). You require a trading system and a set of rules that you will follow each day before most trading activity occurs, as well as discipline to follow the trading plan through.
Similar to scalpers, low trading fees and liquidity are important to day traders as they may enter/exit a few positions every day. In contrast to scalpers, day traders typically use slightly larger position sizes, enter fewer trades per day, but take advantage of larger price fluctuations and hold their positions longer than a scalper would.
Swing traders usually hold a trade for a few days and mostly use the 4-hour to weekly charts to analyse and enter positions, making few traders but holding them longer for exposure to bigger swings in the market.
This trading style requires more patience than day trading/scalping, but the upside is that position sizes can be smaller since swing traders are able to capitalise on bigger percentage moves in the market.
From a risk management perspective, stop losses also have to be larger to account for the higher volatility at these timeframes. On the other hand, swing trades have larger profit potential so these trades do not need to worry about spread and liquidity as much as scalpers/day traders.
You may be suited to swing trading if you are unable monitor the market throughout the day like a day trader or dedicate hours of focus to the chart like a scalper. Therefore, if you can only dedicate a few hours at the end of the day or during night time to analyse the charts, submit orders, and set up positions, then swing trading may be best for you.
Also known as 'zen trading', this style of trading analyses the highest timeframes (daily, weekly, monthly, and even yearly), cutting through the noise of short-term price action to enter positions for a few days, or even months or years, at a time
Position traders enter very few trades per year but aim to ride long-term trends that are mostly driven by fundamental factors. This trading style is closest to investing given the long timeframes involved and emphasis on fundamental drivers, but differs in that position traders may go long or short.
Patience is important, more so than any other trading style, since you want to capitalise on trends that have the potential to last weeks or months. Trading these long-term trends requires you to hold a position for long periods of time. Therefore, funding rates are important for these traders as the longer a position is open, funding payments/rebates will be more frequently applied.
Fundamentals and analysis of high-timeframe technicals are key. Position trading requires large stop losses, which means there are high capital requirements but more potential profits since the trends are potentially the largest out of any trading style. Trades are only placed infrequently, maybe a few times or more per year. This trading style is not recommended if you have a small account size, since you could lose a significant amount on one trade that goes wrong.
Which Trading Style is Best for Me?
It’s important for traders to find out which style is best suited to them. If you can remain intensely focused and are able to spend hours in front of a chart, then scalping or day trading may be best for you. If you have less time for trading, are not fazed by daily fluctuations and are patient, then a medium-term to longer-term trading style might be better.
Interdax allows traders to execute different trading styles through the sub-account feature, displayed below. Traders can divide their funds up between several sub-accounts and trade using different styles/strategies.
For instance, you could have one sub-account dedicated to scalping short-term price movements and another sub-account solely for swing trades that are held for a few days at a time. The risk associated with a position in one sub-account does not affect the balance of another sub-account.
Suppose you are in a long position on BTC-PERP in your scalping sub-account, even if you are liquidated, the balances of all other sub-accounts remain unaffected. Therefore, the PnL of each sub-account is isolated, allowing you to execute multiple trading styles with ease.