introduction
Traders use different trading strategies and trading styles based on their beliefs and knowledge of the market. The thing about trading is that what works for one trader may not work for another and that is why different traders have different trading processes.
Thanks to years of financial innovation, there have been many new additions to the world of trading and now traders around the world have more room to choose their trading style.
Basically, trading style can be related to the soul of a trader. A reversal trader will find it very difficult to follow a trend following system and vice versa. Therefore, it is important for traders to explore all types of trading before finally reaching a trading style that suits the trader's personality and belief system.
With an attempt to introduce different types of trading approaches, this blog explores different types of trading based on trading strategies, timeframes and timeframes trades are opened, analytical techniques based on trades and asset classes traded.
Different Types of Trade
By Trading Strategy:
Momentum trading:
Momentum trading is a technique in which traders buy and sell according to the strength of the current price trend.
Here traders are looking to find stocks that have a high percentage and volume mover over a period of time, move significantly in one direction and try to make the desired profit by taking positions in those stocks.
Momentum trading strategies seek to profit from buying stocks moving in an uptrend and selling stocks moving in a downtrend.
Trading with Average Returns:
The opposite of Momentum trading is trading based on the concept of reversal of the average. This stems from the concept that a stock that deviates from its historical average price will tend to return over a period of time to its average value.
Traders can take long or short positions to benefit from the stock's average return behavior. In contrast to the momentum-following strategy which works on the principle of buy high and sell higher (in an uptrend) and sell low and buy lower (in a downtrend), the reversal strategy tries to take advantage of the classic buy low, sell high principle.
In general, momentum trading results in trades with a low probability of success but high profit potential and trades based on average returns produce trades with a high probability of success but low profit potential.
By Terms:
Scalping:
A trade in which the trader "fixes" small profits on each trade by taking advantage of the bid-ask spread by darting in and out of stocks or other asset classes, several times a day to reap small gains on each trade to add up to a big batter at the end of the day.
Daily Trading:
It is the act of buying and selling a financial instrument within the same trading day, or even several times a day, taking advantage of small price movements, so that all positions are closed before the market closes for the trading day.
Intraday trading and scalping give traders the opportunity to take leveraged trades and make more profit than usual. Leveraged trading is also the main reason behind almost all intraday traders not succeeding in longer timeframes.
Swing Trading:
Swing trading is a type of trading style in which a short-term strategy is played on the most liquid stocks or indices to take advantage of price changes, either returning to the median or fading the rally and lasting from one day to several days to several days. week.
Trading Position:
In contrast to swing trading, the trade length is much larger for position trading. Position trading consists of trades lasting from a few weeks to several months and sometimes several years as well. Trading positions as close as possible to long-term investments.
In general, the probability of success continues to increase from day trading to position trading. Due to the long term market structure for most markets, position trading has a fairly good chance of success.
Based on Analysis Techniques Trading:
Technical Trading:
Trading obsessed with charts and graphs, monitoring lines on stock or index charts for signs of convergence or divergence that might indicate buy or sell signals. Technical trading relies on technical analysis and is based purely on the price action depicted by the asset class.
Basic Trading:
Trading is based on fundamental analysis, which examines things like corporate events such as actual or anticipated earnings reports, stock splits, reorganizations or acquisitions. Fundamental analysis is more appropriate for long term trading avoiding short term price fluctuations or noise.
Techno-fundamental trading:
Trading based on technical and fundamental analysis is techno fundamental trading. In techno fundamentals trading, a trader selects several stocks based on fundamental analysis and strategically determines entry and exit levels based on technical analysis.
By Asset Class Trading:
Equity Trading:
Equity trading is the buying and selling of shares or shares of a company, also known as equity, in financial markets. Most equity trading refers to the buying and selling of shares of a public company through a stock exchange or as an over-the-counter product.
Derivatives Trading:
As the name suggests, a derivative is a contract that derives its value from the underlying asset. The underlying asset can be stocks, currencies, indices, etc. Derivatives trading involves buying and selling of derivatives in the stock market.
Derivatives essentially allow traders to bet on future price movements of the underlying asset and are much less volatile than the underlying asset.
An interesting feature of derivatives trading is that it allows traders to take much larger speculative bets and is therefore much riskier than equity trading. The two most common types of derivative trading include futures and options trading.
Currency Trading:
Currency trading or forex trading refers to the process of buying and selling currency pairs. Currencies are usually traded in pairs for example: EUR/USD is the most liquid currency pair which gives the value of the Euro relative to the US Dollar over a period of time.
Other commonly traded currency pairs include USD/JPY, USD/GBP, USD/CHF, USD/CAD, AUD/USD, NZD/USD and USD/INR. The great benefit of currency trading is that the forex market is open around the clock. The liquidity and appropriate bid ask spreads may vary at different times.
Commodity Trading:
Similar to equities and currencies, commodities are widely traded assets. Commodities traded are usually sorted into four broad categories: metals, energy, agriculture and livestock and meat.
Metallic commodities include gold, silver, platinum, and copper.
Energy commodities include crude oil, heating oil, natural gas, and gasoline.
Agricultural commodities include corn, soybeans, wheat, rice, cocoa, coffee, cotton, and sugar.
Livestock and meat commodities include lean pork, pork belly, live cattle and feeder cattle.
Final Note
This blog covers different types of trading based on four fundamental factors: trading strategy, trading timeframe, trading analysis, and the type of asset class being traded.
A trader's trading process is highly correlated with his mindset which in turn depends on various factors.
In contrast to a trading system that may be able to carry out various types of trades simultaneously, a trader will definitely find it difficult to profit from a successfully tested trade as long as it deviates from the core of the trader's personality.
On the other hand, a trader will definitely be able to beat the trading system when making trades that are in harmony with the trader's personality which gives the trader a natural advantage.
Trading is in some ways more artistic than scientific and the art behind trading can be mastered by understanding and trying different types of trading.