The Trading Style Guide: Scalping vs Day Trading vs Swing Trading (2024)

Are you comfortable holding trades for longer?

Or maybe you are easy with short-term trading.

Either way, long-term and short-term trading is a style every trader must develop to succeed in the market.

There are three types of trading styles: scalping, day trading, and swing trading. Each one has distinct characteristics that separate them.

In this guide, we'll differentiate these trading styles and their pros and cons. So, if you are struggling with trading, maybe it's time to change your trading style.

Scalping

Scalping is an action-packed trading style that takes short positions from a few seconds to a few minutes. Instead of holding positions for too long, traders enter and exit the trades quickly.

Market volatility increases suddenly whenever a conflict breaks out, sending shockwaves among the multiple economies. Central banks often change their policies because currency value depreciates due to ongoing conflict.

Fun fact:

Traders who do scalping are called scalpers.

The idea behind this trading style is that smaller price moves are more frequent, making them easier to capture. When a scalper enters and exits quickly, the small gains add up and make up the same profit from day trading or swing trading.

You need to develop a comprehensive trading strategy outlining entry, exit, and stop-loss. If you don't have a proper strategy, you lose more, as the small losses can add up, too.

Speaking of strategies, here's a 1-minute EMA scalping strategy. You can also choose other indicators like the RSI, MACD, or Stochastics for the scalping strategy.

1-minute EMA scalping strategy

For this strategy, you need to select two EMAs of different periods: 50 and 100.

For a long position, the 50-EMA must cross above the 100 one. Wait for the price to continue upward and enter the trade. Your take-profit will be 10-12 pips, and stop-loss will be at the recent low.

On the other hand, to enter short positions, the 50-EMA must cross below the 100-EMA, and the stop-loss should be at the recent high.

As you can see on the chart above, when the 50-EMA goes above the 100, it presents a long entry point. You can set the stop-loss at the recent low and exit the trade when the price goes below 50-EMA.

It's important to note that as scalping requires quick actions, you need to find a broker who can quickly execute trades. When you open an ECN or ECN Pro account on Dominion Markets, you get quick execution.

Pros of scalping

• Scalping can allow you to make quick profits.
• The profit targets are highly reachable due to small price movements.
• You are not exposed to overnight trading risks and swap fees.

Cons of scalping

• It is considered riskier than day and swing trading.
• Scalping requires a lot of time commitment.
• It can be challenging to find potential opportunities.

Day Trading

As the name implies, day trading involves taking trades within a day. Usually, a day trader would take one or two trades daily. However, they can also take multiple trades like scalping.

Fun fact:

Do you know that day trading is the most popular form of trading?

The idea is to enter and exit positions on the same day. That's why it is also called intra-day trading. Like scalping, day trading requires significant concentration, quick action, and a comprehensive enter/exit strategy.

You can apply multiple strategies like news trading, breakout trading, and trend trading. Here, we'll present the trend trading strategy.

Trend trading strategy

Trend trading involves finding a trend and then taking positions accordingly. You can use indicators like the moving averages or a trend line tool to find the trend.

In the chart above, we identified a downtrend using the trend line tool. Notice when the trend changes, we exit the trade.

Pro Tip:

You can hold the Shift key to make a perfect 45-degree trend angle.

A key point to remember is day trading involves high liquidity because you need to execute multiple trades within a day.

That's why you have to open an account with a broker offering competitive spreads and low latency. Dominion Market provides institutional liquidity, meaning your trades will always get matched.

Pros of day trading

• Like scalping, day trading seems lucrative.
• You close all positions by the end of the trading day, limiting overnight risks and swap fees.
• It is less exposed to a wider bid/ask spread.

Cons of day trading

• Day trading requires significant trade monitoring.
• There's a high chance of getting stopped out due to news events.
• You come across false trading signals.

Swing trading

All that monitoring in day trading and scalping can spin your head, or maybe you are too busy to give full-time to trading. So, you need a swing trading strategy.

Swing trading involves holding positions for several days or weeks. You find an opportunity and let your trades run for a long time. The goal of swing trading is to capture a big move. You find an opportunity and try to gain a significant price move.

You can apply multiple strategies, such as fundamental or technical strategies.

Support and resistance levels strategy

One of the best strategies is to find support and resistance levels. These levels are considered price magnets, and the course changes when the price touches them.

When the price touches the resistance level, it indicates an upcoming downtrend. Conversely, when the price touches the support level, an uptrend starts. However, never blindly put limit orders around the key levels. Always wait for a price rejection, assess the market situation, and take positions.

As you can see in the chart below, when the price touched the resistance level, it started trending downwards. Wait for the price to continue in the trend's direction, and then enter. Place a stop-loss at the recent high and take-profit at a recent low.

Pros of swing trading

• Swing trading requires less trade monitoring.
• You don't hunt small price moves; you gain a larger one.
• You aren't concerned with day-to-day price fluctuations.

Cons of swing trading

• You are exposed to overnight risks and fees.
• Market reversals can cause significant losses.
• Swing trading requires a combination of technical and fundamental analysis.

Options Trading: What are Option Spread Types?

If you are fascinated by the financial markets and want to step beyond the realm of traditional investments, options trading might be the way to go. Understanding what are option spread types is central to unlocking the full potential of this strategy.

An option spread is a strategic approach involving the simultaneous buying and selling of multiple options with at least one differing characteristic, typically linked to the same underlying asset. This method offers traders the flexibility to capitalize on various market conditions while effectively managing risk.

Several types of option spreads exist, including:

• Vertical Spread: This entails purchasing and selling two options of the same type (either calls or puts) with identical expiration dates but different strike prices.
• Horizontal Spread: Also known as a calendar spread, this involves buying and selling two options of the same type with the same strike price but different expiration dates.
• Diagonal Spread: Combining elements of both vertical and horizontal spreads, this strategy involves buying and selling two options of the same type, but with varying strike prices and expiration dates.
• Butterfly Spread: A complex strategy that uses three different strike prices. It can be constructed using either call or put options and aims for high profit if the underlying asset remains near the middle strike price.
• Iron Condor Spread: This involves four different contracts and is designed to yield profit within a specific price range.

Options trading can be a potent addition to your financial toolkit, offering increased flexibility and opportunities to hedge investments. If you're already acquainted with day trading, scalping, or swing trading, exploring the various types of option spreads could be your next step in financial education. Remember, each investment strategy has its own risks and rewards, so it's crucial to comprehend them fully before diving in.

Final thoughts

Choosing a trading style depends on your overall personality. If you can give full-time to trading, you can opt for day trading or scalping. On the other hand, if getting glued to the screen isn't your thing, you can select swing trading.

Finally, selecting a broker like Dominion Markets helps you choose whatever trading style you want, as you get lightning-fast trade execution, high liquidity, and low trading fees.