Trading in the financial market generally consists of buying and selling stocks, bonds, currencies, and other securities from different issuers. Many will agree that to be successful in this market; one needs a lot of experience, insights, and education. Trading is an exciting profession that also requires some skills as well as dedication and hard work. But one of the most important things to consider, especially if you're new to trading, is to know what type of trader you want to be.
Are you more of a researcher? Do you think that fundamental analysis works best for you? You have read our candlestick patterns cheat sheet and now you're good at identifying them? Perhaps you're more of a short-term trader, and you want to master the art of technical analysis?
Answering these questions once you decide to be a trader will help you determine what type of trading best fits your personality and how you handle risks.
5 Financial Market Trading Styles
To help you identify the different types of trading available in the market, here are the top 5 financial market trading styles to learn about.
- Fundamental Analysis Trading
Fundamental analysis is the study of a company's financial statements and reports to try and determine its value or worth. This method uses very old economic data, such as an earnings report that was published months ago. Unfortunately, this type of trading doesn’t typically rely on real-time information, unlike technical analysis, which focuses on using past price data to determine future price movement.
This trading style is commonly recognized as the best choice for long-term investors who aren’t particular about being in the market every day.
- Technical Analysis Trading
Technical analysis is a method of evaluating short-term and long-term securities using charts, trend lines, and volumes. But technical trading also uses mathematical formulas to help improve accuracy by predicting future movement based on past prices.
Technical analysis requires traders to have a deep understanding of the market, not just for one particular security, but across different variables that affect an asset's price movement. It means you need to be up-to-date on news and events that could affect the financial markets and economic factors such as interest rates and inflation levels.
- Swing Trading
Swing trading is for medium-term positions, which can last about a couple of days to several weeks. This strategy uses technical trading disciplines, but instead of being in tune with current price movements, it interprets historical data to predict the next week or even month's price action. Swing traders typically hold on to their positions longer than scalpers, that's why they must keep up with the latest market trends.
- Day Trading
Day trading is a form of financial market trading that deals with buying and selling stocks within the same day. This type of trading requires traders to monitor the markets within the day, predict the price movements, and close positions before the market closes for the day.
Day trading requires traders to have a constant presence in front of their computers because they need to react quickly to sudden market changes.
Scalping is similar to day trading but with a higher number of risks involved. In this type of trading, traders look for very quick and small profits. Most exchanges don't support it because scalping requires a lot of attention and focus on being done correctly.
Scalping deals with opening and closing trades in just minutes or even seconds, so you need to have a well-tuned computer that can handle data and activity every second. This method relies heavily on technical indicators and chart patterns easily identified and exploited for quick profits and gains. For some scalpers, candlestick patterns are the most useful in this type of trading because they can show the opening and closing prices in a very short time frame.
Traders who use this method are in the market daily and rely more on real-time information than fundamental analysis traders. They’re more of a short-term trader who usually gains or loses money in minutes of trading.
There are many types of trading in the financial markets. Still, some of the most popular choices used by traders today include fundamental analysis, technical analysis, scalping, day trading, and swing trading. These trading styles have their own set of risks and benefits, which is why it's essential to learn about them thoroughly before starting a career in this field.
Whatever your chosen trading style is, many things should be considered, including your goals as a trader, the time you have to devote, and the amount of money you're willing to risk.
You should also consider what type of trading will work well with your personality. Some styles tend to be less suitable for people who would rather sit in one position or monitor the market and wait for the right moment to trade instead of constantly purchasing selling stocks. So, you need to know yourself well before you start trading because it could be the difference between success and failure.