Discover your investment style: A guide to trading types and how to choose

Looking to identify what type of trader you are or want to be? If you’re just starting out in the financial markets and don’t know where to begin, you need to understand the types of trading that exist and determine which best fits your reality. This article will guide you through the four main approaches used by active investors.

Four operational approaches: the types of trading you need to know

In the markets, there are four fundamental operational models that define how investors generate profits: Scalping, Day trading, Swing trading, and Position trading. Each responds to different time horizons, objectives, and trader profiles. Let’s take a detailed look at what characterizes each one.

Scalping: lightning-fast operations

Time horizon: Seconds or minutes

This is the most dynamic of the types of trading. Scalpers open and close positions within seconds or minutes, without worrying about the overall market trend. Their strategy focuses on capturing small differences between buy and sell prices.

How does it work? A trader performs multiple consecutive trades, accumulating modest gains that multiply with the number of transactions. Each individual trade yields little return, but frequent repetition aims to generate significant profitability. When combined with high leverage, returns can be attractive, though risks are also elevated.

In cryptocurrencies, this approach is particularly viable. Take ETH as an example: in just three minutes, its price can fluctuate 0.66%, offering opportunities to capture micro-margins. This technique works best with assets that offer high liquidity and sustained volatility.

Who should apply this strategy? Only experienced and professional traders. It requires uninterrupted attention, extreme concentration, and the ability to make decisions in milliseconds. If you have a full-time job or are a beginner, this model is not for you.

Day trading: buy and sell within the same day

Time horizon: Less than 24 hours (without holding overnight positions)

Unlike scalping, day trading allows for operations that can extend a few hours within a single day. Traders buy and sell instruments on the same day, closing all positions before the market closes.

Operational characteristics: This strategy leverages daily volatility without exposing oneself to the risk of overnight gaps or surprise openings. It is frequently used in forex, cryptocurrencies, and CFDs, especially when these markets show significant price fluctuations.

Asset liquidity is crucial here: with sufficient transaction volume, traders can enter and exit easily when the price rises. This flexibility makes day trading attractive in dynamic markets.

Ideal trader profile: Investors with several hours available daily, deep technical analysis knowledge, and discipline to apply stop-loss orders. If you work full-time with inflexible hours, this model is also not recommended. It’s advisable to set protective orders to limit potential losses.

Swing trading: the middle ground between speed and patience

Time horizon: Days to weeks

This is the most balanced approach and often recommended for beginners. Swing traders keep positions open for several days or weeks, seeking to capture intermediate market movements.

What’s the appeal? It doesn’t require being glued to the screen. Swing traders analyze chart patterns—such as when an index rises over days and then retraces in a repetitive cycle—to identify entry and exit points.

The operation is versatile because it tolerates different lifestyles. Someone with a full-time job can perfectly execute swing trading in the morning before work or at night. Operational costs are significantly lower compared to scalping or day trading, and the number of trades is manageable.

Important warning: Price predictions are not always accurate. Even if you identify a pattern, the market can break your expectations.

Position trading: the long-term game

Time horizon: Months to years

Position traders are strategic investors, not short-term speculators. They open positions anticipating long-term market movements and hold them through complete market cycles.

A real example: Imagine that in January 2014, a trader analyzes Amazon’s stock history and predicts sustained growth. Buys at $18.21. Six years later, in January 2021, sells at $159.03. The return is extraordinary (+140.82%), although this required patience and confidence in the analysis.

Fundamental difference: These traders ignore short-term fluctuations. They don’t worry if the price drops for a few months—they know the overall trend is upward. They apply thorough fundamental analysis combined with technical analysis to select assets with real potential.

Is it for you? You don’t need to constantly monitor markets, making it ideal for busy people. But it requires extraordinary patience and the ability to make rational decisions under pressure, avoiding panic during price corrections.

Comparison of trading types: choose based on your characteristics

How to choose your strategy: three decisive factors

Factor 1: Your available time

If you are a professional trader with full dedication, all types of trading are viable. But if your main activity is another job, avoid scalping and day trading. These demand constant market monitoring for hours. Swing trading and position trading better suit busy schedules.

Factor 2: The behavior of the asset you want to trade

Not all assets respond well to the same strategy. Consider these cases:

Volatile currency pairs: A pair like NZD/USD fluctuates constantly and significantly. Its movements are erratic in the short term but predictable in medium-term trends. Swing trading fits perfectly here.

Assets with a clear trend: Amazon’s stocks showed a relatively stable upward trajectory over years (2014-2021). They didn’t fluctuate drastically day-to-day. For these assets, position trading maximizes gains without daily stress.

Factor 3: Your mastery of technical and fundamental analysis

What is your strength? Can you read charts instantly or do you prefer researching financial reports? Traders skilled in technical analysis have an advantage in scalping and day trading. Those who understand companies, economics, and long-term trends thrive in position trading.

Risk warnings: especially for scalpers and day traders

These two methods are particularly risky for beginners for several reasons:

High costs: Each trade incurs commissions and spreads. Multiplied by hundreds of daily transactions, these frictions erode profits.

Extreme volatility: Assets with rapid movements can turn against you without warning.

Requires expertise: Intuition alone isn’t enough—you need advanced professional knowledge.

Universal recommendation: Always use stop-loss orders to limit losses. This mechanism is your safety net.

Conclusion: find your role in the market

Each of the types of trading has merit when applied correctly. The key is honesty with yourself: How much time do you have? What is your risk tolerance? What kind of analysis do you enjoy? Answer these questions, and the ideal strategy will emerge naturally. Remember, success is not measured by speed but by consistency—choosing the right approach for your profile and sticking to it is what separates winning traders from others.