In the immortal words of Brian, “We are all individuals”, and in no format is this truer than in the world of trading. With so many different assets and formats available for traders, each individual will find a particular style which appeals to them. In this article, we will look at some of the major differences that exist between different styles of trading, and this will hopefully leave you better placed to define your style (and then trade wisely based on that).
Technical vs. Fundamental
There are two schools of thought that exist within the world of trading. The first of these is “technical”, an analytical style that involves taking an in-depth look at the price history of an asset, and uses this to predict future movements in the asset’s value. While it may be assumed that the opposite of this style is a trader who relies on their gut instincts, this is not considered a valid school of thought! Rather, the second type is referred to as “fundamental” analysis, which prefers to look at economic factors before making trading decisions.
One of the biggest differences between these styles is the different type of investment that can be based upon the analysis. In the case of fundamental analysis, the data being looked at normally stretches over a number of years, and as such, it is unreliable for making short-term trades. This is because the trader/investor is taking a long-term position which they hope will be proven correct as the share value corrects itself. In contrast, technical analysis allows a trader to make short-term trades, perhaps designed to last for an hour or less, as the graphs will allow trends to emerge.
Short-Term vs. Long-Term
As hinted to above, the timeframe for a person’s investment can vary enormously. For some traders, and this is particularly prevalent in the binary options world, trades can last from a month to as short a time as a minute.
Short-term trades can only be based on a technical analysis, and traders may enjoy the rush that comes from turning a profit in a very short space of time. Short-term trades (for example day traders) will close their positions at the end of a day, which while allowing a trader to make profits fairly quickly, can also result in missed profits should an asset continue to rise, or losses that could have been averted.
Long-term trading, usually over the course of a year, is for traders/investors who are patiently playing the long-term trading game. Warren Buffett has said that his preferred time to hold a stock is, “forever”, and that you should “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” Profits may be withdrawn less frequently, but can be far larger in size.
Manual vs. Automated
With more and more traders turning to an automated trading system, it’s quickly becoming a very significant part of the trading world. While a correctly programmed automated system can cut out many human errors, and has the capability of trading 24/7, it can remove much of the rush from the trading experience, with the human relegated to a mere bystander. In contrast, the human trader can sometimes get carried away, thus deviating from their pre-determined plan, as well as being restricted to a reasonable number of assets at any one time.
Conclusion
While Brian’s statement in The Life of Brian was followed by the crowd repeating his sentiment in unison (thereby cancelling out the sentiment), it’s important to take the opportunity to find the exact trading style that suits both your personality and intended outcomes from the trading experience – your individuality will create a unique trading experience for you.
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