Day-trading has become an increasingly popular pursuit for people seeking financial freedom and independence. Trading the markets offers the promise of high rewards, but it also contains a lot of risk. The beauty of day-trading—in theory—is that by working the markets, a person can build their wealth by trading just a couple of hours a day. But to make it as a successful day trader means understanding the markets, how they move, and how you can take advantage of those movements. That's why it's important to appreciate the different types of trading strategies used by day traders and to find the ones that work best for you. To help you do this, Warrior Trading has put together a quick guide to trading styles. Here it is.
What type of trading does Warrior Trading focus on?
Warrior Trading focuses on the trading styles that are commonly used by day traders. Unlike buying a stock to hold in your portfolio as an investment for years, day-trading is all about finding short-term opportunities in the market—often for just five minutes or a few hours. The object of day-trading is to identify a stock that's moving upward, then take advantage of those movements and make a profit by buying low and selling high. Warrior Trading teaches a range of trading styles for day traders, focusing on methods that are scalable—strategies that can be learned and utilized with a small trading account and then adapted as your account grows larger with increasing trading success.
How does Warrior Trading explain momentum trading?
Momentum trading is the most commonly used—and many of Warrior Trading's experts would say effective—ways to day-trade. Like almost every other type of trading strategy (except for short selling, which we won't go into here), momentum trading involves identifying a stock whose price is on an upward trajectory—buying low and selling high. Specifically, momentum trading is buying and selling stocks based on the stock's recent strength of price trends (like the reaction to positive or negative news). In the course of almost every single market trading day, it is possible that a stock will move 20% to 30%. A good momentum trading style will identify price moves with enough force behind them to continue upward movements for a consistent period of time. When they find one of these gems, the momentum trader pounces and rides the wave until just before they think it's going to subside.
How does the platform explain scalp trading?
Momentum trading and scalping are incredibly similar and are often confused because, technically, there's actually only a slight difference—in principle—between them. But as far as Warrior Trading is concerned, in practice—and in execution—there's a considerable disparity. Both require the trader to identify a security that, over a short time frame, is moving up in price. The practical difference is that scalpers want to bank very quick gains from an upward-moving stock, while momentum traders aim to bank the maximum possible gain achievable from the stock in one day. The upshot is that scalp traders are usually more conservative in their price targets. Scalp traders just want a small slice of the upward-moving action and may try to identify multiple quick trades a day (maybe lasting as little as a few seconds or minutes). Momentum traders, in contrast, are looking to capture the biggest gains possible in a daily price move. And that may mean holding the stock for half an hour up to a few hours.
How does it explain swing trading?
While momentum and scalp trading are true day-trading styles because the action and execution take place all in the course of one day (and potentially in just seconds, minutes, or hours), swing trading is a little different, Warrior Trading explains. Swing trading is nonetheless a trading style used regularly by people looking to implement short-term trading strategies, so it's good to know how it works.
A swing trade is when a trader tries to bank profit from a stock move that could happen overnight or a couple of weeks down the road.
Traders performing swing trades look for stocks with the potential to increase in price as a result of some identifiable event, such as a positive earnings release from the company, the announcement of a promising new product, or a geopolitical event that might benefit their business (like the end of a war, the announcement of new government regulations, or the opening of a new market).
For example, if the Food and Drug Administration is about to approve a new type of drug researched by a pharmaceutical company, that company's stock is probably set to rise—maybe dramatically.
To find a successful swing trade candidate, traders need to sniff out the news or identify a trend likely to move stock or sector.
How does Warrior Trading explain position trading?
Position trading is commonly referred to as "buy-and-hold." As such, it isn't really a day-trading strategy, but it's worth understanding what it is and how it works because the basic technique can be used in a day-trading environment. Position trading is identifying a stock to hold over a more extended amount of time (a few days at the minimum, up to even a few months or years). Once the stock has been identified, position traders set their position goals (like reaching a specific price for a sustained period). Once the goal has been reached, position traders close their investments.
While momentum traders and scalpers look for short-term price action, position traders aren't really concerned with short-term price movement or daily gains or losses. They're more like investors—holding for a long period of time and then selling to benefit from long-term, oftentimes significant fluctuations in the stock price. It involves committing money for the long term.
Momentum trading, scalping, swing trading, or position trading—Warrior Trading recommends understanding all the styles at a trader's disposal and formulating a strategy that works for you.
