Under trading, profit is created from rising as well as falling markets. However, it is important to approach trading as a business. Only a well-planned strategy and knowledge of markets will ensure success. You cannot have a laid back attitude and still profit from trading. Trading requires high level of caution and knowledge of the markets. It is vital to have clear short term and long term goals and you should know the amount of capital available with you. You must know different aspects of trading before proceeding. It should be clear to you beforehand as to what and how will you trade.
The trading plan should be such that you can hand it over to another trader for implementation readily. You cannot just follow someone else’s plan by applying it in your case. A plan is good only when it is according to your requirements and goals. The plan should have been researched by you, tested on data, live market and undergone periodical evaluation. Trading goes beyond just reading articles and books. There goes a lot of effort, time and commitment, market knowledge before it materializes for you.
The plan should suit your conditions in order to be beneficial to you. Before you place a trade in a live market, lot of research and analysis is strongly advised. There is no escape from studying the market, knowing about trade, gathering information regarding trade, knowing market conditions, and analysing market behaviour if you are serious about your goal of making profits through dynamics of trading. Research and study of market behaviour pattern forms the integral part. They are the keys for anyone looking to participate in financial markets with success.
Trading styles vary according to holding period and include, Position Trading, Swing Trading, Day Trading and Scalp Trading. The time period for Position Trading is long term which ranges from months to years, short term for Swing Trading and Day Trading which runs from days to weeks, and very short term for Scalp Trading which ranges between seconds to minutes of the same day.
Position trading is the longest duration trading and ranges from months to years. Under this, traders combine technical and fundamental analysis for making trading decisions. It is very much like investment as only long term objectives and trends are considered under the style, with the variation that investment involves profiting from rising market exclusively, whereas in this trading style, both long term and short term strategies are applied by traders.
Under Swing Trading, short term market moves are targeted, which may range from days to weeks. Technical analysis and price action are the two standpoints which determine the trade entry and exit points for Swing traders. Trade is exited when a predetermined profit is reached, when the trade is stopped or when the set time is over. Swing trade does not require constant monitoring as it continues for days and weeks. This is a popular trading style for traders who are unable to monitor all trading sessions.
Under day trading, positions are held for the day. Traders enter and exit on the same day (positions are not carried overnight). Generally, trades are closed when a profit target is reached or by stop loss. Technical analysis is used by day traders to use intraday price moves. Profit making in day trading involves small but frequent gains because large variations in a span of minutes and hours are not common. Day trading is a full time activity as constant monitoring of positions is required.
Scalp trading is the most active day trading in which buying and selling is done throughout the trading session. Scalp traders rely on very small and frequent gains for building profits. Positions are generally held for seconds to minutes. Traders place hundreds of trades during each session as the gain on single trade is very small. This type of trading requires high level of accuracy and alertness to markets.