Choose your trading strategy: A comparative guide to the 4 main styles

Getting started in the trading world can be overwhelming if you don’t know which approach best suits your profile and availability. Trading styles vary significantly in duration, operation intensity, and level of analysis required. In this article, we will explore the four main modalities and help you identify which one fits your situation best.

▶ The Four Pillars of Trading: An Overview

There are four fundamental trading styles used by active investors: scalping, day trading, swing trading, and position trading. Each represents a different philosophy on how to operate in the markets, with distinct implications for your time, capital, and risk tolerance.

Quick Comparison of Trading Types

① Scalping: Operations at Extreme Speed

Who practices it? Experienced traders seeking to exploit microfluctuations in price in instruments with very high volatility and liquidity.

Scalping is the most aggressive style in terms of operational frequency. Positions are held just seconds or minutes, during which the trader tries to capture small differences between buy and sell prices.

Operational Mechanics: A trader practicing scalping will repeat dozens or hundreds of trades in a single day. For example, if a 3-minute candle of the ETH pair shows a variation of 0.66%, the scalper would aim to capture that full movement or a portion of it, closing the position in seconds.

Profit per trade vs. volume: Each transaction yields very modest gains (often measured in tenths of a percent). To achieve significant profits, the scalper must multiply the number of trades. When combined with high leverage, returns can be spectacular, but so do the loss risks proportionally.

Trader requirements:

• Full availability during market hours
• Maximum concentration without interruptions
• Access to fast execution platforms
• Deep knowledge of short-term technical patterns
• Sufficient capital to withstand high commissions

Financial instruments: Forex, cryptocurrencies, and commodities with high liquidity are preferred for scalping.

② Day Trading: The Intraday Rhythm

Day trading or intraday trading is characterized by buying and selling financial instruments within the same calendar day, without holding positions overnight.

Difference from scalping: Unlike scalping, day trader operations can last hours. Although still short-term, it allows for longer waiting periods and slightly more elaborate analysis.

Advantages of this modality: Investors benefit from intraday volatility without being exposed to gap risks (gaps) that occur at session starts. When the price moves 50 or 100 points during the day, the day trader captures those significant movements. Liquidity plays a crucial role: higher liquidity makes it easier to close positions once the profit target is reached.

Applications: Works well in forex, cryptocurrencies, CFDs (CFDs), and stock indices. Volatility is your ally: markets with large intraday oscillations offer more opportunities.

Day trader profile:

• Must be available during all market hours
• Requires experience in reading intraday charts
• Needs discipline to avoid holding positions after close
• It is recommended to set automatic stop-loss orders to limit losses

Main disadvantage: Like scalping, it demands your constant attention. If you have a conventional job, adapting your schedule to market hours is practically impossible.

③ Swing Trading: The Balance Between Flexibility and Profitability

Swing trading is the middle ground between short-term and long-term strategies. Positions are held for several days or even weeks.

Operational philosophy: A swing trader does not seek to capture every small movement nor hold positions indefinitely. Their goal is to identify secondary trends or “swings” in the market: periods where the price rises for 3-5 days, then falls, and rises again in a repeated pattern.

Competitive advantage of swing trading: This modality does not require being glued to the screen during full market hours. You can review your positions once or twice a day, making it compatible with full-time work or multiple responsibilities.

Operational costs: Commissions and spreads are significantly lower than scalping or day trading, as fewer transactions are made. A swing trader might do 5-10 trades per month versus 50-100 for a day trader.

Type of analysis: Combines technical analysis (identification of patterns on daily or 4-hour charts) with some fundamental analysis (understanding what factors drive those swings). You don’t need to be an expert in quantitative finance.

Ideal instruments: Works excellently with currencies, indices, stocks with moderate volatility, and cryptocurrencies.

Why is it ideal for beginners?

• Does not require full-time dedication
• Operational costs are manageable
• Sufficient time between trades to analyze and reflect
• Psychological pressure is lower than in faster techniques

Considerations: Predictions are not always correct. Sometimes, a pattern that seemed to be a swing ends up being the start of a longer movement. That’s why using stop-loss is critical.

④ Position Trading: Patience as a Tool

Position trading is the approach with the longest time horizon. Positions can be held from weeks to years, depending on the trend and the asset’s potential.

Mindset of the position trader: This investor does not pay attention to weekly or monthly fluctuations. Their view is fixed on multi-year trends. They analyze thoroughly before opening a position and then practice extreme patience.

Practical example: Consider Amazon shares. A trader who in January 2014 saw that the company showed solid fundamental growth potential could have bought at $18.21. Held that position for 6 years, until January 2021, when they sold at $159.03. The accumulated gain: +140.82%, equivalent to exceptional annualized returns.

However, this result is not guaranteed. Markets are influenced by uncontrollable factors: regulatory changes, economic recessions, technological disruptions. A position trader must accept that not all predictions will be correct.

Analytical tools: Requires mastery of fundamental analysis (financial statement evaluation, growth models, competition) combined with technical analysis (identification of favorable entry points in long-term trends).

Position trader profile:

• Minimal time availability (a few minutes per week for monitoring)
• Considerable patience
• Ability to maintain conviction during market corrections
• Sufficient capital to withstand temporary volatility
• Rational decision-making, not emotional

Advantage: If you prefer trading as a supplementary activity rather than your main occupation, this is your strategy. It requires fewer trades and less mental strain.

▶ How to Choose Your Trading Strategy: Decision Matrix

There is no “best” strategy in absolute terms. The best strategy is the one that adapts to your specific situation. Consider these three key factors:

1. Your Daily Availability of Time

• Full-time trading professional (full dedication): You can choose any modality based on your temperament and preferred markets.

• Full-time job with 1-2 hours daily: Swing trading is your best option. Avoid scalping and day trading at all costs.

• Limited availability (less than 1 hour daily): Position trading is your only viable alternative.

2. The Type of Financial Instrument You Want to Trade

Instruments with very high short-term volatility (exotic currency pairs, certain emerging cryptocurrencies):

• Ideal for: Swing trading or day trading
• Example: NZD/USD shows significant intraday fluctuations due to agricultural demand factors, perfect for capturing 2-3 day swings

Assets with a clear long-term trend (growth tech stocks, bullish market indices):

• Ideal for: Position trading
• Example: Amazon shares showed a sustained upward trend over 7 years, allowing exponential gains without frequent trading

Lateral markets with mechanical volatility:

• Ideal for: Scalping or day trading
• Less suitable for swing or position trading

3. Your Skills in Fundamental and Technical Analysis

• Master technical analysis (chart reading, pattern recognition): Scalping, day trading, and swing trading are viable.

• Master fundamental analysis (company evaluation, sectors, macroeconomics): Position trading is your natural strength.

• Want to combine both: Swing trading or position trading allow you to use both tools without time pressure.

▶ Critical Risk Warning

Scalping and day trading are high-risk modalities especially for beginners. Reasons:

1. Frequent operations: More trades = more commissions consumed and more chances to make mistakes.

2. Cumulative commissions: In 100 scalping trades, commissions can represent 5-10% of your initial capital.

3. Requires expertise: You need advanced understanding of microstructure, trading psychology, and technical execution.

4. Leverage risk: Many scalpers use 10:1 or higher leverage. A single poorly sized position can wipe out your account.

Safety recommendations:

• Always use stop-loss orders
• Never risk more than 1-2% of your capital on a single trade
• Practice on demo accounts before trading with real money
• Consider starting with swing trading before venturing into faster techniques

Trading types offer options for every investor profile. Your task is to be honest with yourself about your available time, experience, and risk tolerance, and select the strategy you can truly maintain consistently.