What are the types of trading, which is the most profitable technique?

Short Answer

Trading can be done employing many techniques. Some of them are Intraday trading, swing trading, scalping, and positional trading. Intraday and scalping comprise two forms of trading where the positions are squared off on a particular day. Whereas in positional and swing trading, the positions are held on for weeks or months.

Detailed Answer

What are the types of trading

Trading is different from investing in many ways. While investing in a stock, you analyze the financials and other future prospects. Whereas while trading, financials, and other internal factors are not that significant. Traders go long (buy) or short (sell) a particular stock based on the short-term trend and market volatility.

Although the risk is extremely high in trading, the rewards are quick and high too.

Trading can be categorized in 4 ways, Let's discover the various methods of trading and try to analyze which can be the best for you.

  • Intraday Trading
  • Scalping
  • Swing Trading
  • Positional Trading

1. Intraday Trading

Let’s start with the shortest form of trading which is Intraday trading. As the name implies, Intraday trading involves closing all positions within the same day. In this form of trading, you never carry forward your positions to the next day. Instead, you utilize the market hours to buy or sell multiple stocks and exit them within the same trading session. You will require a lot of skill and knowledge of various technical parameters to be able to generate consistent profits while trading intraday. Leverage is also involved in day trading thus the risk involved in this is higher when compared to some of the other techniques.

2. Scalping

Scalping is another form of intraday trading but the characteristics are marginally different. Scalping is the most concise form of trading, where traders can get in and out of a trade within seconds or minutes. It is principally employed to profit from arbitrage opportunities and other supply & demand anomalies. A scalper takes multiple small trades in a day, depending on the opportunities available to capitalize on all small and big price movements.

3. Swing Trading

Swing trading is another form of trend trading. Swing traders typically carry their trades for more than one trading session and sometimes for weeks. Swing trading requires the application of both technical and fundamental indicators. Be it in an uptrend, downtrend, or sideways market, swing trading can be implemented in any of the situations. The risk involved in this technique is comparatively lower than intraday and scalping as the short-term fluctuations do not create much of a difference. Swing traders look at the broader picture and manage their positions accordingly so that they can benefit from their view on the underlying.

4. Positional Trading

Positional trading is the safest form of trading as it is insulated from short-term market volatility. Positional trading possesses some of the traits of stock investing as it involves buying and holding the position for a significant amount of time. A typical positional trade can last for weeks, months, or even longer, based on the underlying trend. This technique can be applied to stocks based on their underlying sector or on a picking economic trend. Positional trading involves the least amount of risk if executed after proper research and analysis. The extended holding period can encourage you to ignore the intraday volatility and maintain your conviction on your view.

Which is the most profitable trading technique?

Trading involves numerous technical and fundamental parameters hence there is not a single most profitable technique. However, you can minimize the risks involved by employing different techniques and also hedging your trades. Here is the risk involved in different forms of trading.

  • Intraday Trading: Risk (Very High)
  • Scalping: Risk (Very High)
  • Swing Trading: Risk (Medium)
  • Positional Trading: Risk (Low)

If you are a beginner, you can start with swing or positional trading where the risk is comparatively lower. Once you gain expertise and build your skill set, you can progress towards intraday trading followed by scalping.

Tagged With: stock tradingintraday tradingswing tradingpositional tradingscalping
Categories: Stock Trading
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Discussion (2)

Swing Trading is definately worth trying if you're a begineer! As it involves medium risk profile, if you trade with limited capital, not sure of profits but you will definately earn experience of markets in real-time!

I prefer intraday trading. You just focus on one day and keep an eye on the prices of only 1 day. In this the chances of making profits is also very high. Initially you can find it challenging but with practice you will become skilled in it.

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To buy and sell stocks in the Indian stock market, you will need a demat and trading account. A stockbroker is necessary to trade stocks because the broker will provide the trading account through which you will place your trades.

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Intraday is feasible if you have enough capital and are aware of the stock's performance, while F&O helps in the prediction of the price whether it would rise or fall to book profits.

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Trading in India is completely safe as all the online brokers are registered by SEBI, which is the regulating body that regulates all the trading activities in the country. Apart from this, there are certain external risks involved in trading like Market Risks, Volatility risks, and over-leveraging, etc. These types of risks can be minimised to some extent by hedging but cannot be eliminated completely.

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Brokerage charges are not uniform and various stockbrokers in India charge difference percentage from your trading volume as their brokerage charge.

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