How long do you typically hold your trades?
One of the greatest keys to success as an investor and trader is find what method and approach fits you personally. And one central aspect of trading that must be decided is your time horizon.
Oftentimes, new and developing traders will struggle because they are attempting to trade a time horizon that simply does not fit their personality. In this article, we are going to briefly outline the three major time horizons.
Scalpers
A scalper is a trader who has no open positions when he begins the trading day and he has no open positions when finishes the trading day. All of his positions are opened and closed within the trading day.
Now, there are degrees of scalping. Some traders will hold trades for just a few seconds, while others will hold them for several minutes or even a few hours.
The major advantage of scalping is that a trader is not as subject to major risk events such as sudden geopolitical shifts and other concerns. However, this style of trading requires significant levels of concentration and focus. It can be very stressful.
Furthermore, since a scalper is generally making many transactions in a day, the commissions he pays are hefty and can cut into profitability.
Swing Trader
A swing trader is a trader who holds positions for as little as 12-24 hours, but he can hold them for up to several days or even weeks.
A swing trader attempts to identify key market turning points and ride intermittent trends; thus, he is catching the swings in the market. This type of trading is much less time consuming than scalping.
A major advantage is that a person does not have to be in front of his computer throughout the day. Instead, he can go on about his business and let his position work for him.
The disadvantage is that his stops are much wider, which means he needs bigger moves in his favor to earn comparable returns to a scalper. Also, his positions will be subject to event risk in the forex market or stock market.
Position Trader
A position trader is a trader who identifies potential trends and holds trades for several months or even years. A position trader will have way less commission cost than scalpers and swing traders.
Furthermore, he will have to sit through sizeable moves against his position as he rides through the daily noise and whipsaws of the market.
A major advantage to position trading is that a person rarely has to be in front of his computer. He simply needs to monitor open positions and make corresponding changes from time to time.
It is imperative that a trader find the time horizon which matches his personality instead of trying to force himself to fit into a specific mold.
Photo by Hub☺
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