The Major Styles of Equity Trading

One of the most confusing aspects of the trading profession is there is no single definition of "trader". Traders come in many different shapes and sizes, colors and varieties.

Traders generally focus on a specific class of security, mostly common stocks, but they may also trade equity options, commodity futures, financial futures, futures options, bonds, foreign markets, and so forth.

The security of choice also dictates the specific market(s) on which they trade: NYSE or Nasdaq, Chicago Board Options Exchange, The Chicago Board of Trade and so on.
When trading common stocks, professionals will generally undertake one of several styles and stick only to that style. This is an important point since traders are always at the risk of being distracted by the din of ubiquitous market commentary and conflicting trading styles. Traders are constantly soul searching and questioning their own chosen approach. Some amount of experimentation is advisable, particularly at the beginning of your trading career, but deviating from a disciplined, focused approach can be disastrous later when you are establishing your style.
Some of your first decisions will determine where your niche is and what type of a trader you want to be. There are at least five distinct styles of common-stock trading, each completely unrelated to the others. The style that you choose will likely reflect your intellectual strengths, your understanding of various aspects of the markets' operations and your temperament.

Here are the major styles of equity trading:

• Scalping : The scalper is an individual who makes dozens or hundreds of trades per day, trying to "scalp" a small profit from each trade by exploiting the bid-ask spread.
• Momentum Trading : Momentum traders look to find stocks that are moving significantly in one direction on high volume and try to jump on board to ride the momentum train to a desired profit.
• Technical Trading : Technical traders are obsessed with charts and graphs, watching lines on stock or index graphs for signs of convergence or divergence that might indicate buy or sell signals.
• Fundamental Trading: Fundamentalists trade companies based on fundamental analysis, which examines things like corporate events such as actual or anticipated earnings reports, stock splits, reorganizations or acquisitions.
• Swing Trading : Swing traders are really fundamental traders who hold their positions longer than a single day. Most fundamentalists are actually swing traders since changes in corporate fundamentals generally require several days or even weeks to produce a price movement sufficient enough for the trader to claim a reasonable profit.

Novice traders might experiment with each of these techniques, but they should ultimately settle on a single niche, matching their investing knowledge and experience with a style to which they feel they can devote further research, education and practice. Entire textbooks are devoted to each style, although many titles such as "Day Trade Online" or "How to Get Started in Electronic Day Trading" are unclear about what type of trading they espouse.

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