There are many different types of traders. Lets look at what it means to be a day trader and compare that role to that of most other traders so the different styles are seen.
Day Traders
Day traders basically buy and sell stocks throughout the day in the hope that the price of the stocks will fluctuate. Most traders want the prices of a stock to rise so they can make a profit, but some have arrangements to profit when a stock value falls - buying short, it’s called.
Anyway, a day trader will hold stock anywhere from a few seconds to a few hours. At the end of the day, however, they will always have sold the stock before the close. The day trader specifically controls their activity to avoid being at risk outside of office hours. If they held on to stock overnight, for example, they would be at risk of losing out on their gains. The objective of day trading is to get in and out of any particular stock for a profit as fast as you can.
There are two main types of day traders: scalpers and momentum traders.
Scalpers: This group trades like their playing hot potatoes. Their activities are limited to the rapid and repeated buying and selling of a large volume of stocks during a very short period of time, anywhere from a few seconds or a few minutes at a time. The objective is to earn a small per share profit on each transaction at a minimum risk.
Momentum Traders: These types of day traders identify and trade stocks that are in a moving pattern during the day. Their objective is to buy stock at the bottom and sell it at the top.
Swing Traders
Swing trading is quite similar to day trading except that swing traders will normally have a longer working day; swing traders generally hold their stocks longer. Swing traders are similar to day traders, in that they also attempt to predict how the stock price will act over the short term. Unlike day traders, however, they will hold stocks for more than one day, if necessary, to give the stock price some time to move.
Although swing traders have the opportunity to earn higher returns than day trading, primarily due to the extended hours they work on trading, swing traders also assume greater risks. Where day traders liquidate their stock at the end of the day, swing traders take on overnight risk.
Although the term, ‘overnight risk’ doesn’t sound too scary, many of the overnight risks assumed by swing traders are quite substantial. For example, developing news events and earnings warnings that are not announced until trading closes could affect the price of the stock. Swing trading is not for the faint hearted.
Position Trading
Similar to swing trading, position trading involves working within a longer time frame. Position Traders have been known to hold onto their stocks for weeks or months at a time, trying to analyze trends to get a larger movement on the price. Positions traders absorb the risk that trends may not be fully played out for several weeks or months.
