This article will explain three basic types of trading and make a clear distinction amongst three of them. There are entire books written on each of these strategies, but the goal here is to summarize and simplify them for easy understanding.
PART I: TREND TRADING
Starting with trend trading, the issue becomes which trend are we talking about? There are three types of trends: long-term, intermediate, and short-term. The answer is simple; it is the one that we select to trade from at our initial entry. Way too often I hear from students who have jumped on a trade for a quick scalp (short-term timeframe) yet as it went against them, they stayed in it for the remainder of the trading session waiting for a reversal back to their original forecast. As the closing bell approached, they did not want to close the losing trade so they left it open overnight, which turned the initial scalp into a swing trade (an intermediate timeframe trade that could last several days). But wait, their story doesn’t stop there. Because there is no stop loss, they have held onto a loser in the hope that it will come back, so they can at least exit flat. Hence the original scalp trade evolved from a short intraday trade into a swing intermediate trade that could last several days and then maybe even into a position trade that is in reality an investment, or long term position. Why? Just… Continue Reading
