The Trader in the stock market should choose the trading style as your requirement and suitability. Risk appetite is the ability of traders to bear the risk. The various types of trading styles are Scalping Trading, Spread Trading, Intraday Trading, Arbitrage Trading, etc.
The best way to choose the trading style in the stock market is as per the risk appetite and expertise. So Let’s understand What are the different types of trading styles and Which Trading style is right for you?
Why do you need different types of Trading Styles?
Let’s suppose, You visit a doctor, whenever you get ill and He/She prescribes you medicines and some of your friends are ill and visit the doctor. So, Will, the doctor prescribe him the same medicines? No, the doctor will not. This is because the different medicines are prescribed as per the different diseases.
The same happens with the people trading in the stock market. There are various styles of trading. The trading style that suits one trader is not necessary to suit the other. So, there are different types of trading styles for different traders. The Traders trade as per their requirements using suitable trading styles.
Every trader has a risk appetite. It means the ability of a trader to bear the risk. So in case of losing all their money, they hard earn money. This is known as a risk appetite.
You have to choose a trading style as per your risk from multiple types of trading styles. You have to check how much risk you can bear and accordingly choose a trading style for you.
What are the different types of Trading Styles?
Some Traders buy and sell shares at short notice, whereas some traders hold the shares for a long time to sell them as and when required. Every trader has his/her strategy.
The various types of trading are as follows:
#1 Scalping Trading
Traders purchase the shares and sell them in some seconds or minutes. This gives the benefits of small moments to the traders. It means that sometimes at small moments the share price for highly-priced and traders get the benefit of that moment. Traders are also able to do multiple trades before the market closes.
The current price of a share is 100 rupees and The Trader bought 500 shares as you will sell all the shares at the new price of a share is 102. The Trader will get a profit of 1,000 rupees. This is known as Scalping Trading.
#2 Intraday Trading
Intraday Trading is also known as Day Trading. This is a very famous Trading Style and you might have heard about this If you follow the Stock Market. Intraday Trading means you purchase shares and sell them within hours of purchasing the shares and The selling of shares is done before the market closes.
In Simple words, Intraday Trading is a trading style in which the Trader holds his position for a few minutes to a few hours and exits his position before the market closes, that is called Intraday Trading.
The opening price of a share is 100. You purchased the share intraday. You may have either profit or loss at the closing price of the market.
Many times it happened that you would have purchased shares at the 100 and its closing prices 90 this will be a loss for you.
It may also happen that before the market closes the closing price of the shares is 110 which will give you a profit.
So, On Intraday, you have to be very careful. The actions in intraday are Swift, and that decides that you will be booking profit or loss.
#3 Swing Trading
A Trader many times shares are purchased for sold after holding for some days or weeks this is known as Swing Trading.
Swing Trading makes a good profit from the market by doing short-term trading, In which he looks for stocks, which can give him good returns in the short term.
If the share is priced at 100 rupees. The share gave its breakout on the current date. If in the coming 1 or 2 weeks taking the benefits of movements share is sold to earn a profit, then it is Swing Trading.
#4 Positional Trading
Positional trading is the trading in which the trader holds his position for a few weeks to a few months but this position should not be held for more than 1 year. This is known as positional trading.
In Positional Trading, You can earn profit by taking advantage of a long Movement in the Stock Price.
The current price of a share is 100 rupees. You did the fundamental and technical analysis of the company. You also analyzed that the share would have a price of 140 in the next 3 to 4 months.
You will buy the shares as 100. After 3 to 4 months, you will sell the shares as you find the share price at 140.
#5 BTST Trading – Buy Today, Sell Tomorrow
BTST Trading means the share you purchased today will be sold tomorrow. This is what we do when we think that there is going to be a good move in this stock tomorrow or there is going to be a gap-up opening in this stock tomorrow, with the expectation that BTST trading is done.
Suppose today we buy the share of State Bank at ₹ 500 per share and tomorrow its quarterly result is going to come, then we think that its results are going to be good. With this expectation, we have bought it, so tomorrow if State Bank’s stock has a gap-up opening and State Bank’s share reaches ₹ 500 to 510, then we will make a good profit.
#6 Momentum Trading
Momentum trading means that the price of a stock was moving in a range and suddenly the share price breaks out of that range. So it is called a breakout and it is expected that this momentum will remain like this upwards. So this type of situation is called momentum trading.
In simple words, The method of capturing the movement of any stock and making a profit is called Momentum Trading.
The share Breakout can be of the following types:
- Price Breakout
- Volume Breakout
- Chart Breakout
- Pattern Breakout
If the share has been trading at a price between 100 to 102 for the last 3 days. The next day the trading price of the share rise to103.
At this point, It is assumed that the share has given its breakout as the share is out of that price range.
Generally, the direction of share Breakout means share will move further in the same direction. So that Traders have to take benefit of that direction only.
#7 Pullback Trading
Pullback trading means reversal. Suppose a stock is falling continuously, then it stops at the support below and from there it now starts showing upside momentum. So the point from which he reversed is called a pullback and the trader who trades this pullback is called a Pullback Trader.
Suppose the stock of State Bank is falling continuously and it takes support at the price of 450 and reverses upwards from the same. If you enter at the price of 450, you will make a very good profit because from there it has an upward pullback.
#8 Spread Trading
Sometimes there is a huge difference between the best buy price and the best selling price of two contracts of the same stock.
Traders take the benefits of the huge difference to trade shares in the market is known as doing Spread Trading. Spread Trading is specially done in a futures contract.
The current monthly price of shares in the future contracts is 100 rupees. It’s next month’s price 102. If you have purchased 10,000 shares in the current month then on selling 10,000 shares next month with less spirit at the end of the month you can very easily earn a profit of 20,000.
#9 Arbitrage Trading
There are several shares. The shares are listed on many stock exchanges you may find the price difference in the shares price listed at various stock exchanges. Traders take benefit of this difference and start trading. This is known as Arbitrage Trading.
#10 News/Event-based Trading
When the movement in the share price is caused due to News or an event in the stock market, Traders take to benefit from this for trading is known as news/event-based trading.
- The quarterly results announcement of a share is awaited.
- The share prices will rise in case of favorable results.
- The share price will decline in case of unfavorable results.
- Traders will trade on the basis of news they receive.
- This is known as news/event-based trading.
#11 Algo Trading
Nowadays, It is one of the popular forms of trading. You may have heard from brokers that they do algo trading and some brokers deal only in algo trading. In Algo Trading, The computer is linked with a program the computer will trade as per your instruction.
The Algo Trading software itself decides labels to buy or sell. It will decide as per your feed the instructions. You just need to instruct the starting.
How to choose the right trading style?
If you are a beginner in the stock market and you do not know which trading style to choose then you should properly understand all different types of trading styles.
You can also try all the types of trading styles but for a long time, you will have to use only one trading style.
This will help you learn about that trading style and you will also be improved with time you will become an expert in that trading style. This will help you in earning more profits and have less loss.
Generally, A normal trader or a very active trader in the stock market used different – different strategies that use a single types of trading style in which they experience.
You should also pick the trading style that you feel suitable as per your risk appetite and you have to gain expertise in that. This is considered is the best way in the stock market.
Which Trading style is right for you?
You have to understand how to use the right reading style. The right trading style for you depends on various things.
Ask the following questions yourself:
- Are you a risk-taker or a non-risk-taker personality?
- What is your wish that is either to take a high risk for a high return or take a low risk and be happy with a low return?
- How much knowledge do you have about the market?
- How much time you can give for trading?
Analyze the level of risk you can bear while stock trading. Choose the trading style that makes your risk appetite and requirements and Gather knowledge about the market before starting stock trading.
I hope you all understand the different types of Trading Styles. So If has any questions regarding different types of trading articles. You can comment below this post.
I wish you all the best in your Trading Career….