Types of Trading

Trading is a string of repeatable choices: what to trade, why it’s worth the risk, how long you plan to hold, how big you go, and where you’re out if price misbehaves. Labels help keep those choices tidy so you don’t mix methods that clash. This guide maps the main styles by holding period, decision process, exposure profile, and instrument. The aim is clarity you can apply without turning your screen into a Christmas tree of indicators.

Timeframe Sets The Rhythm

Scalping

Scalping hunts tiny moves and closes within seconds or a few minutes. It lives on low costs, fast order entry, steady depth, and a cool head when quotes flicker. Think high trade count, small average win, even smaller average loss, and strong control of slippage. The most common mistakes are trading through news bursts and letting one bad fill turn into a “just a bit more” spiral.

Day Trading

Positions are opened and closed inside the session to avoid overnight gaps. Liquidity windows, session VWAP, opening drive behavior, and clean intraday levels carry more weight than grand macro takes. Because there’s no overnight cushion, max daily loss and a cap on trades matter more than finding the perfect entry.

Swing Trading

Holds last days to weeks. You’re catching a leg between areas of support and resistance or riding a fresh trend that survives a few sessions. Daily charts, earnings calendars, and clear exit plans matter more than tick-to-tick noise. Gap risk exists now, so size with room for slippage rather than pretending every stop fills clean.

Position Trading

Weeks to months, sometimes longer. A thesis leads, charts time the entry. Size is smaller relative to equity because drawdowns stretch across events and weekends. You need rules for scaling, rules for thesis breakage, and a plan for handling funding costs. The danger is slow drift against the idea while you wait for confirmation that never arrives.

How Decisions Get Made

Discretionary

Humans call the shots, guided by charts, tape feel, and context. Strengths are flexibility and fast adaptation; weaknesses are inconsistency and story-first thinking. A written plan is non-negotiable or every day turns into a new experiment.

Systematic

Rules pick entries, exits, and size, executed by code or a very disciplined human. Wins are testability and repeatability. The trap is curve-fitting—models that shine on history and sag on fresh data. Use out-of-sample tests, walk-forward checks, and live paper runs before risking real money.

Hybrid

A model suggests trades and limits; the human filters around events, liquidity, or regime shifts. Keep judgement for places where it truly adds value, not as a license to override rules after a loss.

Exposure Profile: Directional or Market-Neutral

Directional

You’re long when you expect up, short when down. Momentum, breakout, pullback buys, and trend riders live here. Risk control is simple on paper: define where the idea fails, size so that loss is tolerable, trail or target the exit. Pain comes during grindy ranges and fake breaks.

Market-Neutral

You try to cancel broad market moves and profit from relatives. Pairs trades, baskets, and stat-arb spreads. Success hinges on clean beta control, borrow terms, and tight execution. The headaches are correlation changes and the cost of shorting scarce names.

Instruments Shape The Job

Equities

Good across most timeframes. Long-only is straightforward; shorts add borrow fees, recall risk, and settlement quirks. Corporate actions, dividends, and tax lots matter more than you think if you hold through quarter ends.

Futures

Exchange-traded leverage with clear margin and long trading hours. Contract rolls, tick values, and first/last trade dates are part of routine. Popular themes include intraday mean-reversion on indexes, trend following on commodities, and calendar spreads in energy and rates.

Options

Convexity and time decay in one package. Buying premium for events or direction, selling covered calls or cash-secured puts for income, and spreads to shape payoff. Greeks are the language—delta, gamma, theta, vega—and assignment mechanics are where many new traders learn hard lessons.

FX and CFDs

Leverage with overnight financing. Styles mirror other markets, but swaps, fix windows, and macro calendars carry extra weight. Edge often comes from trading only during liquid sessions and skipping thin handover hours when spreads bloat quietly.

Fixed Income and Rates

Treasury futures, swaps, related ETFs. Curve steepeners/flatteners, carry and rolldown, event plays around central bank decisions. Risk is sized in DV01 rather than lots so exposure compares cleanly across maturities.

Crypto

Trades all week with fragmented venues and funding that shifts fast. Momentum can run, mean-reversion can snap. Venue risk and custody are not footnotes; if you can’t explain where assets sit and what halts look like, size smaller.

Strategy Families You’ll Hear Often

Trend Following

Buy higher highs, sell lower lows, ride the move until it breaks. Works when markets travel, bleeds in chop. Requires wide stops relative to noise, patience with many small losers, and a re-entry plan after shakeouts.

Mean Reversion

Fade stretched moves back toward an average. Works in ranges, gets punished on real breaks. Needs filters to avoid standing in front of news or thin books and uses tight, unapologetic exits.

Momentum and Breakout

Trade strength that begets strength. Strict invalidation levels and fast decision-making keep losses light when a break fails. Scaling out into strength with a protective stop that respects structure—not just “breakeven because feelings”—helps.

Event-Driven

Position around earnings, macro prints, product launches, or rulings. You’re trading the gap, the drift, or the reaction pattern. Slippage and implied-vol crush can dominate outcomes; know what the market already priced.

Carry and Term Structure

Earn the difference between yields or forwards and spot. In FX that’s positive swap; in commodities it’s curve shape; in rates it’s rolldown. Works quietly for months, then punishes late exits during flights to safety.

Market Making and Liquidity Provision

Post bids and offers, harvest the spread, hedge inventory quickly. Thin edge per trade, huge repetition, strict limits. It’s a business, not a hobby.

Arbitrage and Basis

Exploit price gaps across venues or related instruments—cash/futures basis, ETF vs basket, cross-venue spreads. Returns shrink as competition rises, so borrow terms and execution decide who keeps anything after fees.

Order Types, Execution, and Costs That Decide Results

Markets reward precision. Limit, stop, and stop-limit orders control entry quality and cut slippage. Time-in-force choices matter around opens, closes, and news. For options, a proper spread ticket that routes the package as one order prevents stranded legs. Cost is not just commission; it’s spread, fees, funding, and the slippage you actually see. Track total cost per trade over a small but honest sample. Numbers beat ads.

Sizing, Risk, and The Math That Keeps You In The Game

Pick a sizing rule and keep it. Fixed fractional (risk a small percent of equity per trade) keeps drawdowns bounded. Volatility-scaled sizing adapts to recent range so stops are not pinged by noise. Portfolio-level caps limit exposure by symbol, sector, and theme so one idea can’t sink the book. Stops sit where the thesis fails, not at round numbers. If a proper stop feels too wide, the fix is smaller size, not magical thinking.

Data, Tools, and Logs

Clean data, realistic slippage in tests, and conservative fee assumptions separate live methods from pretty backtests. Platforms should export trade-by-trade logs with timestamps, venue flags, and reject reasons. If you can’t audit what happened, you can’t improve it. Alerts reduce screen-staring and prevent “I blinked and missed it” entries that usually end badly.

Psychology and Process

Markets punish inconsistency more than being slightly wrong. A short checklist before entries, fixed review windows, and a daily stop help prevent revenge trades. Green days tempt over-sizing; red days tempt doubling down. Both are handled by rules set the night before. Most blowups come from mixing styles—scalper entries with position-trade stops, or mean-reversion entries managed like momentum. Pick a lane for a quarter, measure it, then adjust with evidence.

Matching Style To You

Start with schedule and temperament. Limited screen time? Swing or position trades. Hate weekend risk? Day trades. Enjoy research more than rapid clicks? Options spreads or longer holds fit. Map your capital to the minimum viable size for the instrument, including realistic stops and all fees. Run a four-to-six-week pilot with tiny size, one style only, and record reasons, exits, and slippage. Judge by expectancy and drawdown, not by one hero winner.

Putting It Together Without Noise

A clean setup has a defined timeframe, a simple entry logic, a tested exit plan, sizing that respects volatility, and tools that don’t choke at peak times. Add humor if you must, not to the order ticket. The goal is boring execution and tidy records—so when someone asks “why this trade,” you can answer with a sentence, a chart, and a number, not a saga.