The most profitable type of trading that actually works

Pretty much like every trader at the beginning of their journey to becoming a successful trader, I've at some point wondered the style or type of trading that is most profitable to making a living with this career. And after spending so much time on the search to find which one is most profitable, here's what I've come to realize;

There’s certainly no such thing as the most profitable style or type of trading. It all depends on the type that we decide to be most comfortable with us as we play the long game, considering a number of factors i.e Our trading objectives, our personality traits and the available time we have to trade the market

Let’s look into the different styles or types of trading available to us in this industry, in order for us to simply come up with a decision of which one is personally preferable to us in respect to our personality traits and the time available for us to trade the market from a comfortable zone having the bigger picture in mind

What are the different types or styles of trading?

We are going to look into these four common styles i.e scalping, day trading, swing trading and long-term/position trading

• SCALPING; The time sensitive trading style. This technically means we can be in a trade for a matter of minutes or a few seconds. We obviously have to be quick at making decisions and highly discipline to approach trading with this style. As the name implies, they’re hoping there’ll be quite a lot of opportunities to scalp out small tiny chunks of profits from the market, going in and out of multiple positions in a trading day i.e taking as many trades in a day, hoping to make more winnings than losses
• DAY TRADING; As a day trader we typically spend several hours a day sitting in front of the computer, looking forward to opportunities to enter and exit a trade within that trading day. Rarely does a trade cross over to the next day. However, there can possibly be a few overnight trades but generally all positions in the market are closed before market closes for that trading day
• SWING TRADING; This is a style of trading were we have an open position in the market for a couple of days to a couple of weeks. It’s a long-term trading, generally done on the higher time frame charts compared to day trading. However, we can be a short-term swing trader, a medium-term swing trader and a long-term swing trader depending on how long we plan to be in an open position from a couple of days to several weeks or perhaps over a month
• POSITION TRADING; Is pretty much like an investor. As position traders, we tend to hold on to a position for months and even years however the case may be depending on our plan of approach to the market

In conclusion which type of trading is best?

All the styles of approach are great. It simply comes down to picking a technique that makes sense and is most suitable to you and your lifestyle after considering a number of factors like our trading objectives, our personality traits and the available time we have to trade the market

Let’s look more into these styles in relation to some of the general Objectives and psychology of traders that are trading these commonly known trading styles

Objectives to these styles

• SCALPING: Mostly, the general objective to this style of trading is to take part in the excitement and fun of making quick little wins, by trading more frequently throughout a trading day. However, Scalping can be very profitable for traders that have a very strict emotional control and decide to use it as an approach to the market. Keep in mind that this approach can get very very intense
• DAY TRADING: In most cases, the objective to this style of trading is to either be a full-time trader to make a career from it or as a second source of income by earning a tiny profit on each trade and then compounding those gains over time. This style of trading can also be very profitable and less emotional for traders that decides to use it as an approach when compared to the Scalping approach
• SWING TRADING: The general objective to this style of trading is long-term. Can be to grow a retirement account, pension account or a savings account. Like the other approaches, this approach is also very profitable for traders that decides to use it as an approach to the market
• POSITION TRADING: This approach is more of an investment and the general objective is to capture trends which can continue for relatively long periods of time, and that can be months or even years. This approach is however still very much profitable for traders that decides that this is their approach to the market

Self-awareness is key so let's look more into some common Personality Traits of Trading in relation to these commonly known trading styles

Common Personality Traits of Trading

i. Handling emotions; It’s easy to get emotionally hijacked in a trading environment that is filled with various emotions(fear, greed, euphoria, anger e.t.c). So keeping our emotions in check is very important. However, with any of the various style of approach we decide to trade the market with, the level of emotional effect on us can be pretty different

You certainly wouldn’t want to approach the market with a Scalping approach if you always find it difficult to control your emotions because this approach is very time sensitive. Nevertheless, we can look to the other styles of trading because they have less emotional stress attached in comparison to Scalping that requires a strict emotional control and discipline

In the same manner, if you find it difficult to sleep at night because you have a trade position on the market, you should better lean more towards Day trading than Swing trading

Choose a style that best suits your level of emotional tolerance

ii. Handling pressure/Performing well under stress; Generally we need to have accurate entries, accurate exits, we have to know how to manage a position and we have to be alert to any change in market conditions. But regardless the pressure with all these aspects, we still have to be able to perform. Even with losing streaks we still have to be able to perform just like we would on our first trade of the day or if we were experiencing a winning streak

Traders that can EASILY & QUICKLY be able to handle these pressures and performs well under the stress of trading, can simply approach trading with a Scalping approach but this style of trading is not for you if you notice losing your mind too often when under pressure or stress. But we can simply choose a Day trading approach, Swing Trading or even Position trading approach if that should be the case

iii. Decision making; We need to have the ability to take in all the informations we have/see and be able to make decisions in the market i.e taking the entries, pulling the exits, drag the stop-loss or going to trade something else

So if you’re someone that requires enough time to access market information clearly before arriving at a decision, we certainly wouldn’t want to involve ourselves in a time intensive trading approach like Scalping. You’ll want a Day trading approach, or a swing trading approach or even position trading approach if you think that’s your way to go

iv. Accessing Changing Market conditions; With the always changing conditions of the market, we need to have the ability to be able to clearly access those conditions and apply the right decisions

Which means we need to have the ability to be able to say I’m trading with a trend following strategy, and the market is now changing to a range bound market, i can see that due to X,Y,Z so I need to change my position, strategy or simply not trade at all

As scalpers, you should be able do this very quickly prior to the frequency of trade opportunities. You wouldn’t want to trade a trend strategy in a range bound market. However, as day traders, swing traders, or position traders, although we also need to have that ability but we can take more time to do it because trade opportunities doesn’t show up too often like when scalping

Now we’re going to look more into the available time we have to trade the market in relation to our trading approach and timeframes

Trading Style In Relation To Available Time For Trading;

• Scalping: With this trading approach, a trader tends to be looking at the smaller timeframe charts i.e 1M, 5M, 15M and 1H. Literally you need to have enough time on your hand every trading day for you to want to do this from an emotional standpoint. You wouldn’t want to be disorganized in the process of trading because little distraction can result to some unplanned emotional reactions
• Day Trading: With this approach, a trader should be looking to trade from a higher timeframe charts than a scalper will mostly do. However, there can be some overlaps in the timeframes of the different approach i.e 15M, 1H, 4H and 1D. A day trader literally need to have multiple hours a day like 4, 5, 6 to 7 hours a day to simply analyze the charts and looking for trade opportunities that may appear several times of the day
• Swing Trading: Taking this approach means the trader have to literally trade from a more higher timeframe charts i.e 4H, 1D, 1W and 1Mth. Traders that approach trading with this style can happen to be people that already have a full-time day job and have limited hours to day trade however looking forward to building a long-term wealth from trading
• Position Trading: With this style of trading, the trader should be looking at the 1W or 1Mth charts and holding on to the position for months and even years when necessary. However I consider this to be more of an investment approach

Recommended Style for Beginners

As a beginner to trading, it’s recommended to start from a larger timeframe and work your way down as you master your emotions in the trading environment

It’s not advisable to start out our trading journey with a Scalping approach. Start with a day trading or swing trading approach

The higher the timeframes, the less phycological/emotional level of stress attached to trading

Some questions to consider when deciding your style;

Objective;

1. What’re you coming into trading for?

• Are you coming in for fun?
• To supplement your income?
• To eventually give up your day job by trading full-time as a professional trader?

Personality;

1. How much time do you need to arrive at a decision?
2. How desciplined and emotional are you?

Available time to trade

1. How much time do you have?
2. How long do you want to be in a trade?

You can eventually be profitable with any style you decide to approach the market with. If not so, either Gorge Soros approach or Paul Tudor Jones approach, or Richard Dennis approach, Jesse Livermore approach e.t.c might just be the only profitable approach to trade the market

Trading is a BUSINESS - Treat it as such!!