Types of day trading

Types of day tradingThere are several types of trading styles to utilize when you are trying to make money from short term trades in the market, often referred to as day trading. Listed below are some of the different types of day trading.

People who trade actively during the day trying to capitalize on momentum swings and small changes are referred to as day traders. Often using electronic trading systems, a day trader will hold a stock anywhere from a few seconds to a few hours, but will not typically hold stocks overnight and avoid holding any positions at the end of the day, usually due to the risk. By executing many trades even at a small profit and using the efficiencies of the electronic brokers a day trader can make a handsome profit.

Those who make quick trades, often repetitively with large volumes are referred as scalpers. They only seek to make a small profit on each trade, but minimize risk by not holding the equities long enough to have a large swing that would cost them.

Some people try to trade in sectors and stocks that are moving in a certain direction or pattern. They are trying to catch a stock or equity at the top or bottom of a swing, hence the name swing traders. Swing trading has the potential to generate higher returns than day trading, but that potential carries with it greater risk as swing traders will hold stocks or equities overnight. They can be affected by news events and earnings warnings announced after the closing bell that can cause significant changes in a stock's price.

Position trading is similar to swing trading, but with a longer time horizon. Unlike day traders or swing traders, position traders hold stocks anywhere from a day to several weeks or longer. These traders attempt to locate stocks or equities where trends suggest a possible large movement in price is likely to occur, setting up a situation they can profit from by buying or shorting an equity or stock. They often use technical analysis of charts and economic data to determine trends that suggest a possible trade.