Last Updated on 11 September, 2023 by Samuelsson
Stock trading is becoming very popular in recent times, especially with the advent of online brokers, and it seems a lot of people now want to trade stocks for a living. But despite the way online brokers advertise stock trading, is it really that easy to trade stocks?
Trading stocks is not very easy, but some trading styles are easier than others. The hardest part is to find a working strategy, but even after that, because of the psychological pressures involved in trading, properly executing that strategy may not be an easy task.
Obviously, you would like to know the various trading styles and how difficult each one of them can be. Keep reading to find out!
The Different Styles of Trading and Their Level of Difficulties
As a trader, there are different styles you can use to trade stocks, such as swing trading, day trading, position trading, and algorithmic trading. Some of these styles are more difficult than others. Let’s take a look at each of them.
Swing trading
This is the best option for a beginner because it requires little time if the trader has a profitable strategy. Swing trading is a form of trading where a trader seeks to profit from short-term price trends. So, a trade may last for a few days but may also extend to a few weeks. Traders who use this style aim to ride the various price swings, hence the name.
Most swing traders make use of technical analysis in their trading, and they usually analyze their charts on the daily or 4-hourly timeframes but may come down to 1-hour timeframe. Sometimes, they may use the weekly timeframe to check the long-term trend.
With this form of trading, you don’t need to analyze the market that often, unlike day traders who are always glued to their trading screen. Your trade setups don’t occur that frequently, so you trade less often and spend less on commission charges. Therefore, if you are a beginner, swing trading is most likely your best bet.
However, because the trades last for several days, which may include weekends, they are exposed to overnight price gaps.
Day trading
Day trading is close to impossible nowadays, and very few can master it. Those who practice this style of trading try to profit from the daily changes in stock prices. They open their trades in the morning and close them before the close bell.
To be able to pick the daily price gyrations, these traders analyze their charts on lower timeframes, like the 5-minute and 15-minute timeframes. Sometimes they use the 1-hour and 30-minute timeframes to find the most likely trend direction for the day and monitor their trades on the lower timeframes.
So, they are frequently monitoring the charts for early signs of change in the price direction, which is a very tough task that only a few can master. Furthermore, because the profit potential of each trade is small, they often make use of leverage to boost their profits. But as may already know, leverage can be very dangerous for a new trader. Additionally, there is the issue of increased commission charges as a result of frequent trading.
Position trading
Position trading is not that difficult if you have a good strategy, but you must have a sizeable trading account so that you can trade a reasonable volume of shares in each trade. And here is why.
When using this style of trading, your aim is to benefit from the long-term trend rather than short-term trends targeted by swing traders, so you trade less frequently — it can even be one trade in a year. Unlike swing traders, who make multiple trades in the same period and compound their profits, to be able to make a reasonable profit from your one trade, your trading volume should be much larger. Again, your stop loss is larger, so your trading account has to be big to accommodate that.
As a position trader, you have to identify the long-term trend and ride it till the end. You must have a long-term outlook and be very patient, as a trade can last for several months and, in some cases, years. While you can use fundamental analysis for this style, some traders use technical analysis. Here, technical analysis is usually done on a weekly chart, but you can also step down to the daily timeframe to pick better entry levels.
Because it requires less analysis and trading, position trading can save you time and commission charges. However, your capital is tied down for a long time. In addition, there is a risk of overnight price gaps.
Algorithmic trading
In this style, a computer trades your strategy for you. Although it is quite difficult to code a good trading robot that can perfectly execute your strategy, algorithmic trading is the best form of trading out there.
With algorithmic trading, all you do is to set the key parameters — like your trading volume and others — and choose the timeframe you want, and the computer program takes care of the trading for you. While algorithmic trading can offer you the freedom to do something else, you have to regularly analyze the trading results to be sure that your strategy is still profitable.
Obviously, algorithmic trading is better than manual trading because you can set the trade robot to any form of trading you want — from day trading to position trading. In addition, you can trade more markets at the same time. Another important benefit of algorithmic trading is that it removes a considerable part of the negative effects of emotions from trading.
Here you can read more about algorithmic trading
Comparing the different styles
| Basis for comparison | Swing trading | Day trading | Position trading | Algorithmic trading |
| Meaning | It is the style of trading that aims to ride short-term price trends | It is a style of trading where a trader closes all open positions before the end of the trading day | In this style, a trader tries to ride the long-term trend | Here, a computer runs your strategy and takes the trades based on the strategy written in the trading script |
| Average duration of a trade | From a few days to a few weeks | Less than a day | From months to years | It can vary, depending on the trading script |
| Trading frequency | A few trades per week | A few trades per day | A few trades per year | It depends on the trading script |
| Chart timeframes used | Mostly daily | Hourly and lower timeframes | Weekly timeframe, but the daily timeframe may be used to pick a better trade entry | It can be any timeframe; you choose your preferred timeframe |
| Level of difficulty | It is the easiest and best option for a beginner | It is very difficult; only a few traders master it | As with swing trading, as long as you have a strategy, it’s not that hard. | It is the best form of trading because a computer trades for you, but to write a script that works could be difficult. |
The Emotional Pressures Associated With Trading
Stock trading is an emotion-filled activity, especially for traders who are new to the market. But the experienced traders know that emotions have no place in building a great trading career — they try to feel the same way whether a trade ends up a winner or a loser.
It is not uncommon to see most new traders battling with a lot of emotional issues, such as fear, greed, lack of confidence, undue expectations, lack of discipline, and impatience, when trading. These negative emotions often cause them to make bad trading decisions that lead to huge losses.
An experienced trader knows that what should matter to a trader is the knowledge that his strategy has an edge in the market and that he is executing the strategy properly. Trading is a game of odds — there will always be winners and losers.
Conclusion
Trading stocks is difficult, but some trading styles are easier than others. The hardest part is to find a working strategy. However, you need to be disciplined enough to properly execute the strategy.
Here are some other recommended reads:
How to build a trading strategy
The Best Swing trading Strategies
Complete Guide to Algorithmic trading