The 4 main types of trading
The four main trading styles are scalping, day trading, swing trading and investing.
They differ in how long you hold positions, how often you trade and how much of your time they require.
| Trading style | Holding period | Time commitment | Trading frequency | Analysis used |
|---|---|---|---|---|
| Scalping | A few seconds to a few minutes | Very high | Very high | Mainly technical |
| Day trading | A few minutes to a few hours | High | High | Mainly technical |
| Swing trading | A few days to a few weeks | Moderate | Moderate | Technical and fundamental |
| Investing | Several weeks to several years | Low | Low | Mainly fundamental |
Scalping
Scalping involves opening and closing many positions over very short periods.
A position lasts from a few seconds to a few minutes.
A scalper aims to profit from small price changes and may make several trades in the same session.
Suppose the Nasdaq index is trading at 20,720 points.
A scalper might buy at 20,720 and close the position a few minutes later at 20,729.
You can scalp across different financial markets and financial instruments, including indices, Forex and cryptocurrencies.
Good liquidity makes repeated entries and exits easier. Depending on the market, it can also vary across trading sessions.
Technical analysis is widely used for this style of trading, because decisions mainly depend on short-term price movements.
Advantages
- A session can offer plenty of opportunities
- Positions are only open for a short time
- Closing positions before the session ends limits exposure to overnight moves
Disadvantages
- You need to stay at your screens and make one decision after another
- The number of trades can be high
- Fees and spreads have a bigger impact on each trade
- Frequent decisions increase the risk of overtrading and mistakes
Who is scalping suited to?
Scalping suits traders who enjoy making frequent decisions and can stay focused for several hours.
I don't think it's a good fit for a beginner.
When trades come one after another, there's little time to analyse a mistake before you have to make the next decision.
Day trading
Day trading means opening and closing positions within the same day.
A position can last a few minutes or several hours, but it's closed before the session ends.
For example, a trader might buy an index quoted at €1,500 in the morning and sell it at €1,525 that afternoon.
Day trading often uses technical analysis, but the holding period gives you more time than scalping to choose your entry and follow the trade.
Advantages
- Positions are closed within the day
- A session can offer several opportunities
- You can review your decisions at the end of each day
Disadvantages
- You need to be able to follow the market for several hours
- Decisions are still frequent
- Heavy trading activity increases transaction costs
- The number of opportunities can encourage overtrading
Who is day trading suited to?
Day trading mainly suits people who have several hours available during the day and enjoy an active pace.
It's still demanding for a beginner, because you have to analyse the market, execute orders and manage risk within a limited time.
Someone working full-time during market hours will also find this style harder to practise.
Swing trading
Swing trading means holding a position for several days or weeks.
The trader aims to capture longer price moves than in scalping or day trading.
Suppose a cryptocurrency is trading at $200.
After analysing it, a trader thinks it could reach $240.
They buy at $200 and hold the position until their target or stop is reached, or their trade idea is invalidated.
This time horizon lets you combine technical analysis with fundamental analysis.
For example, an earnings release or an economic figure can influence a position held for several days.
Advantages
- Monitoring takes less time than scalping or day trading
- You make fewer trades
- Fewer orders mean fees have less impact
- Swing trading can fit around a job
Disadvantages
- Positions remain open overnight and sometimes over the weekend
- Announcements can move prices sharply while a position is open
- You need to accept waiting several days for a trade idea to play out or be invalidated
Who is swing trading suited to?
Swing trading suits people who prefer to take their time analysing a situation and don't need to trade every day.
You also need to be comfortable leaving a position open for several days without reacting to every move.
For a beginner, this time horizon leaves more room to prepare decisions and analyse mistakes than scalping or day trading.
Investing
In trading terminology, the closest approach to what I'm calling investing here is position trading.
A position trader holds positions for several weeks or months.
With investing, a position may be held for several years.
Moves over a few minutes or hours then have little bearing on the decision.
An investor might buy a stock after studying the company's results, debt, profitability and outlook.
They hold the position for as long as the reasons behind the purchase remain valid.
A drop of a few percent during one session doesn't, by itself, invalidate the investment.
Fundamental analysis plays an important role over these time horizons.
Technical analysis can also help identify an entry or exit area.
Advantages
- Day-to-day monitoring takes little time
- You make few trades
- Transaction costs have less impact
- Decisions are less frequent
Disadvantages
- Your capital can be tied up for a long time
- A position can go through prolonged periods of decline
- It may take several months to assess a decision
- An analytical mistake can be costly if you don't reassess it when the facts change
Who is investing suited to?
Investing suits patient people who prefer to make fewer decisions and invest for the long term.
It also fits more easily around a job, because you don't need to follow the markets all day.
For a beginner, the time between decisions makes analysis easier.
The bigger challenge is resisting the urge to react to every short-term move.
Which trading style should you choose?
Your choice mainly comes down to five things.
- Your available time. If you can follow the markets for several hours a day, you can consider active styles. With a few hours a week, swing trading or investing is easier to fit in
- Your personality. Some people like making frequent decisions and acting quickly. Others prefer to analyse a situation before doing anything. An impatient person may struggle to hold a position for several weeks, while someone more measured may find the pace of scalping uncomfortable
- Your tolerance for stress. Short time horizons mean more decisions in less time. Longer ones give you more time to think, but require you to accept leaving a position open for days or months
- Your holding period. Ask yourself how long you're comfortable keeping a position open before you even think about which style suits you
- Your experience. Fast-paced styles require analysis, order execution and risk management to come more naturally
You can use my quiz to find out which trading style suits you best.
Can you use more than one trading style?
You can absolutely use different trading styles depending on the situation.
For example, I use scalping, day trading and investing depending on the market, my objective and the type of opportunity.
With experience, you'll also learn to choose the right approach for each goal.
