DIFFERENT STYLES OF TRADING
Swing and Trend Trading
Swing trading is a trading style which is based on the medium to long term moves in the market, typically held for a minimum of a couple of days and up to a few weeks.
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With this type of trading we focus on catching the big swings in the markets as opposed to chasing 20-30 pips here and there. When swing trading we typically want anything from 80-200 pips, doing our initial analysis on the bigger time frames starting at the monthly and working our way down to find the best set-ups and entries.
The old saying is “trend is your friend”, so if the overall momentum is looking bullish (meaning heading up) then we would look to take long(meaning buy/up) positions and buy into the market.
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Before we take any trades we need work out a number of things including: what we are willing to risk, where our stop loss will be, how to apply our money management system and be sure all confluences are pointing in the same direction.
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One of the benefits of swing trading is that you don’t have to be behind the computer for countless hours. With this style of trading you let the trade breathe, (meaning letting it move), possibly even against you a little before going in the direction you initially thought it was heading.
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This can be a highly profitable way to trade. Swing traders tend to wait for the perfect moment, and the right edges to form (edges being patterns or confluences) which paint a perfect picture for you to make an educated prediction in the market.
Swing trading: An example of a change in trend
Below is an example of what we mean by a uptrend, otherwise known as a bull trend; this is when the market is making higher highs and higher lows. In an uptrend we would be looking for long (buy) opportunities as there is a higher probability of bulls staying in control.
Above is an example of a down trend, otherwise known as a bear trend; this is when the market is making lower highs and lower lows. Once this is established we would look for sell positions because there’s a higher probability of bears staying in control.
Here is an example of how you would identify the change in direction of a trend from bullish to bearish on a simple line graph.
You can see a series of higher highs and higher lows and then a break of the last higher low, which indicates a change in direction. We would now be looking for short trades.
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Here is an example of how you would identify the change in direction of a trend from bearish to bullish on a simple line graph.
You can see a series of lower highs and lower lows and then a break of the last lower high, which indicates a change in direction. We would now be looking for long trades.
Sideways Trend
A sideways trend is exactly how it sounds, the market is stuck consolidating where price will bounce off particular support and resistance levels. This is the market deciding which way it’s going to go next but not having the volume or momentum, or buyers and sellers to do so. These can be great to keep an eye out for as they are usually heading for a dramatic move/swing. If you’re certain of these key levels of support and resistance like the levels on the graph here, this can make for very high probability trade. In this case you would sell the rejection of the resistance and buy the rejection of the support.
An example of a sideways trend
Counter Trend Trading
Counter trading is a little more risky than trading with the trend, because market manipulation can sometimes show false tops and false bottoms, which means you could get tricked into seeing an opportunity which isn't actually there.
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This is known as ‘bottom fishing’ where you’re in a downtrend and you’re trying to buy the lows, not realising that the low which you think has found support, could easily roll lower, leaving you in the negative.
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However when traded properly, with a close eye on structure (where price has touched or closed) and having mastered your strategies you can make it profitable. We know that the market retraces and “breathes” so the opportunity to buy or sell counter trend is there, but you just have to be careful as this isn’t generally as consistently profitable as trading with the trend.
Day trading/intraday and scalping
Day trading is a very common style of trading which allows the trader to earn money fast without having to hold on to trades for a long period of time. These traders trade on timeframes from 1 hour - downwards and will place anything from 8-15 plus trades a day. These traders fit into the “impatient” category, they want money now and don’t want to wait for it, consequently their accounts are usually very highly leveraged (which we will talk more about later on).
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Intraday and day trading can take up a lot more time and energy, a typical day might consist of spending anywhere between 8-20 hours in front of a screen a day. If you continue to trade like this it can lead to being “burnt out” and tired, however a lot of professionals are able to do this. They select a few high probability entries and monitor them throughout the day. When you spend that much time in front of your screen it becomes even more important to take time out away from the charts, to improve your decision making and refresh your state of mind.
Scalping is a very fast paced style of trading. Typically chasing anything from 10 pips to 20 pips. Due to its volatility you have to take profit as much as you can because on these small timeframes (1-5mins), a winning trade can easily turn into a losing trade in a matter of minutes.
When scalping it’s really important to look for structure on your charts. Structure is where price has been respected previously.(see chapter on Support and Resistance levels). This will be your indication as to where you will potentially take the trade. You don’t need to do as much analysis with scalping as you’re trading in the moment and making decisions quickly, but for that very reason it’s also very risky.
This is an example of a 1minute chart. Can you see how hard it is to try and figure out what the next move in the market may be or even what trend we are currently in (bear or bull)?
This is another example of a 1minute chart. The volatility of the markets on these timeframes is so dramatic, even the best of traders are likely to have more losing streaks trading these timeframes. Our advice is to stick to the higher timeframes.
