One of the most interesting things to note about trading is the wide variety of methods and mediums that people use to achieve the same ends. As brokers like AxiTrader can attest, although the majority of traders will be aiming for almost identical goals, no two will achieve them in exactly the same way.
We categorize the way that traders obtain their goals into various styles, with these styles able to be molded to an individual’s time availability, financial goals, and strengths and weaknesses.
This means that when new traders ask which style would be best for them, there is no easy answer. Different models will suit individuals to varying degrees, and it’s a case of identifying which best complements your lifestyle and personality.
To help you work this out, here are some brief explanations to assist you…
Long and Short
Before you can understand anything else, you need to understand the concepts of going ‘long’ and ‘short’. Irrespective of the asset class, these are the only two types of trade that exist, so you have to know the difference between them.
When you participate in a long trade, you buy a financial instrument to open your position (enter), and sell it to close it (exit). The idea is that you will have sold it for more than the price you paid, and thus made a profit.
When you’re involved in a short trade, you short sell to open a position and then buy it back to close the position. This is known as covering, with the intent being to cover at a lower price in order to earn a profit.
The former is the more widely practiced of the two, but both can be profitable if done correctly.
Day Trading and Swing Trading
Long and short are the two types of trading that exist, but there are also two styles that you need to be aware of: ‘day trading’ and ‘swing trading’. Essentially, the difference between these is the position holding time.
With regards to the former, day trading tends to cover a single 24-hour period, or a single session from open to close.
Swing trading, on the other hand, is based on similar principles, but uses a longer holding time period. It tends to be performed either intra-day or daily, and will often have a larger trading range than its day trading counterpart.
Although these concepts may appear complex at first glance, it’s very important to understand the differences between them. Do your research and improve your understanding in order to choose the best style for you, and you’ll soon be reaping the rewards.