Choosing a Trading Style
What Is a Trading Style?
A Trading Style is a predefined set of rules and parameters for how you will trade any market or instrument. Whether you trade stocks, options, Forex, or derivatives, you need to choose the appropriate trading style for your goals, experience, and capital base.
A Trading Style is NOT a strategy. Your trading style will define what strategies you should be using based on current Market Conditions.
Most traders simply hear or read about a certain trading style, such as “day trading”, and immediately assume that’s the trading style they should learn and use. A Trading Style should be carefully researched, and your decision should be based on many factors:
The single most common mistake traders make is to rush to trade after a weekend seminar, especially if they have never traded in the financial markets. Novice traders often jump into trading a complex, high-risk market, such as Forex, Futures, or Commodities, when they have only spent a few hours listening to someone speak about the trading platform or have read a few articles on the internet. What happens is the trader may have a couple of lucky trades, then begins to lose money. Next, the trader blames the markets, market makers, and anyone nearby.
Yes, most people can make extra money from one of more of the financial markets, but you must start by understanding the basics of ALL trading platforms, and that is: How are you going to trade, or what is your trading style?
Another example is Options Trading. Most options traders are swing trading their positions when the basic premise of options is a position-style hold, but even beyond that mistake, most options traders do not realize that they can exercise the option contract to make even higher profits in some instances. By not understanding what trading styles they should be using, the options trader severely limits their profit potential and Return on Investment (ROI) and increases their risk of losses.
Still other traders learn a weekend seminar strategy, and on Monday morning, they start trying to trade with that strategy, only to lose money and confidence. All strategies work, but each strategy, whether it is for stock trading, options, Forex, bonds, etc., was written and developed for specific Market Conditions. If you use a strategy in the wrong Market Conditions, it will fail to perform as you expect it to, and you will be disappointed in the results.
Trading Styles help traders stay on track and give them a set of rules and parameters to clarify what trades they should enter and what trades they should avoid. Trading Styles help develop that elusive “discipline” that every trader reads and hears about, but never seems to achieve. Trading Styles simplify trading, streamline the selection process, build confidence, and increase profits, while providing a method for consistent success no matter what trading instrument you choose to trade.