Are you choosing the right trading style?

Does your trading style suit you?

One of the reasons why some traders don't perform well is because the trading style they have chosen does not match their personality. The trading style can refer to both the the investing time frame of trading types of strategies used. Determining the right time investing frame comes first because it will help steer the type of strategies to apply.


What are the types of trading styles?

Buy-and-hold investing 

Time frame: Several years to decades (Long term)


- Balanced portfolio of a basket of stocks (up to 10 or more)

- Mainly based on fundamental analysis

- Focused on potential earnings growth of a company

- Market Timing is critical


- Minimum commission fees

- Potentially large gains

- Less stressful with less frequent monitoring


- Potentially large draw downs if entry timing is wrong, no stop-loss

- Potentially no harvest due to wrong stock selection after long periods

- Less frequent monitoring behavior risks agility to react to major market shifts

- Long investment period, hence reducing liquidity


Position Trading

Time frame: 3 months to several years (Intermediate to long term)


- Trend trading

- A smaller handful of stocks selection (Not more than 10)

- Usually based on technical analysis to follow trends with some fundamental analysis to determine growth stocks


- Moderate commission fees

- Designed to achieve large gains from riding a steady trend


- Risk of not performing in a choppy or indecisive market

- Potential draw downs while catching new trends

- Requires frequent monitoring on trend breaks

- Moderate periods of investment period, medium term liquidity loss


Swing Trading 

Time frame: Several days to weeks or sometimes months (Intermediate term)


- Trend trading

- Focused selection of stocks (Not more than 5)

- Mainly based on technical analysis strategies and can be combined with fundamental analysis to provide an edge

- Trades short term trends


- Designed to achieve multiple moderate gains in a shorter time frame

- Suitable for capturing short term up and down trends

- Larger opportunities of trading

- Good liquidity management


- Moderately high commission fees

- Active management and monitoring of stocks movements

- Requires good knowledge of risk management


Day Trading 

Time frame: Several minutes to hours, no positions overnight (Short term)


- Fast paced trading

- Captures small intraday price movements

- Takes advantage of markets momentum

- Mainly technical based trading

Big position trades


- No risk on overnight exposure

- Short trading time frame usually several hours a day


- High commission fees

- Requires very solid trading rules and discipline to make quick decision

- Requires investments in good trading platform for fast trades

- Very active management and monitoring

- Potential loss opportunity in overnight market movements


Food for thought

There is no best trading style for everyone. Everyone will need to match his or her personality to the preferred trading style so that trading is comfortable, does not lead to unnecessary stress, and fits nicely into the daily routines. When you are comfortable, you think better and you trade better.

Highlighting some common pitfalls of new traders. Many new traders will venture into day trading especially after making a few good trades thinking that they can make more gains in a shorter time frame. However, they will quickly find out that they cannot be profitable if they apply the same trading strategies used for intermediate trading. It requires a totally different sets of skills. Day trading is also a full-time trading style which is not suitable for most with a full time job due to its need for constant monitoring. If you think it is for you, make sure you do extensive research and training before venturing into this space.


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