Over the past few years, trading from home has become more and more accessible and comfortable. 2020 has brought us a slew of chaotic events. One of which was an infectious virus that made us sit at home, gain weight, and left us perpetually bored. However, if you are a trader, quarantining may lighten up the gloomy mood of this year. Technically you can get started with zero knowledge of how to trade.
However, successfully trading in the financial markets is not as easy as it sounds.
Over recent years, the ability to trade in the financial markets from home has become very accessible. However, this is quite a scary thought as this accessibility allows new and inexperienced traders to enter the world of trading without any preparation. The misadventures start as newbies opt for day trading as they believe this is the route to quick riches.
Not a lot of people realize that the auspicious day trading, and overall investment, is not as secure as it seems and takes its own time and effort. In this article, we’ll try to elaborate on the different styles available for retail traders. Moreover, we’ll address all the advantages and disadvantages of each.
What is Day Trading
Day trading is the style of trading that you’ll see most traders promoting on social media. It is said to be an easy way to replace your full-time job. Well, this may be partly true.
So, How does Day Trading Work?
Day trading is a style of retail trading where you aim to enter and exit multiple trades per day. All of it in hopes of profiting from price movement in whatever market you are trading.
As a day trader, you’ll be trading from low time frame price charts, such as 60 minutes- or even 15. These small time frames will allow you to enter and exit trades multiple times per day. Your businesses will have a set stop loss and take profit targets, preferably with a favorable risk and reward ratio.
Are there any Benefits to Day Trading?
Well, yes. Usually, traders think that being in and out of multiple trades per day is how to make the most money. Day trading is advantageous to traders who want to be as active as possible in the markets and love the process and the intricacies of the markets.
The Disadvantages of Day Trading
Now, let’s talk about the disadvantages of day trading. People who start trading think that not having a 9-5 and living a life of financial freedom is the ultimate result of trading. However, trading tends can be far more passive than that. Day trading is a very time-consuming style of trading because it is based on intraday time frames.
The other main disadvantage to day trading, compared to different styles, is the stress and precision of the execution it requires. The main reason is that day trading is short term in nature. Thus, timing is far more critical compared with longer-term trading.
Now, trend trading is a far longer process than day trading. Trends can last for months, if not years at a time. Trend trading entries are usually taken from daily time frames. Trend trading aims to enter a trend close to its beginning ad then using the stop loss. The stop loss allows us to cater for normal-sized pullbacks within the trading market trend.
Benefits of Trend Trading
Many expert traders prefer trend trading. The method is far more passive than day trading. It requires about 10-15 minutes per day during the week. A typical day trader, on the other hand, would likely spend at least 4 hours per day in front of their trading desk while trend trading requires a maximum of 2 hours on the weekend, where one goes into a more in-depth analysis to prepare for the week ahead.
The Question that Arises: Why is Trend Trading Not as Popular as Day Trading?
Well, unfortunately, trend trading generally isn’t as popular amongst newer traders. This happens because day trading is portrayed as a secure way to get rich quick. Meanwhile, trend trading requires more patience in order to gain profit. Traders are put off because they do not believe significant returns can be seen with such a slow style of trading. However, we would advise you to have the mindset of constantly working on your trading and developing your skills. Search for a suitable mentor for you, informative e-books, and sources. Be the one who builds yourself up! We hope this article was informative for you.