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Trading in the global world of financial markets is divided into types on the basis of the period for which a position (trading) is held. So, it is divided into 6 generally accepted types (styles):
High frequency trading. Exchanges last milliseconds.
Scalping. Positions are held for several seconds or several minutes.
Transactions of the day. This type of trading is also called intraday types trading. As the name clearly suggests, all trades are made during a trading session. Positions are not held for longer than the duration of a trading session. An intraday trader goes home without having any open positions.
Swing trading. A position is occupied for more than one day. Usually it lasts from several days to several months. There is no clear deadline here.
Medium term trading. This method is intended for traders who catch long swings. Medium-term traders hold their positions for many weeks and months.
Long term investment. This type of trading, called “buy and hold,” best matches the stock market. A shining example is one of the richest people on the planet: Warren Buffett.
Let’s analyze each of the types (styles) of trading in detail and list the advantages and disadvantages. But before we do that, let’s make a little statement.
Since the boundaries between trading types are blurred and one style smoothly transitions into another, the advantages and disadvantages of one type are related, to some extent, to neighboring types. Please take this into consideration and don’t be too critical of our list of pros and cons.
HIGH FREQUENCY TRADING
What is high frequency trading (HFT)? This is a type of trading when positions are opened and closed extremely quickly.
HF Trading is the business of robots since an average time to hold a position is around 100 milliseconds (0.1 seconds). We have written about this type of trading in the following articles:
Influence of HFT on trading (official study of the Central Bank of the Russian Federation);
Spoofing on the exchange;
Influence of algorithmic trading on futures.
That is why, if you want to work in this style of trading, you should develop a robot and try to locate it as close as possible to the stock exchange.
Having created an ideal robot, you get a universal mechanism for earning money. In addition to stable cash flow, you have a lot of free time. This is a fairy tale story, but remember that a fairy tale in real life is an extremely rare thing.
complexity of robot programming;
An HFT robot needs special conditions – extremely fast and transparent access to the exchange and a stable energy supply. Millisecond delays could become fatal;
Frequent transactions result in big commissions. This is why not all markets are good for HFT. You should select only tools with minimal expenses. And, preferably, the conditions under which market makers trade;
It often happens that an HFT robot loses its effectiveness after a while since the market situation and the rules of the game have changed.
This type of trading is already suitable for human beings. Scalping trades last several seconds and, sometimes, several minutes.
Scalpers (traders who do scalping) adhere to the “grain by grain and the hen fills its belly” principle.
Scalpers are very unlikely to be happy with spending days selling auto parts or typing in a small office. Entrenched scalpers prefer to fight softly with the market and other professionals on a day-to-day basis.
Their strategy lies in a large number of small trades. As a result, a day should be closed with a positive result. Scalpers pick up small impulses caused by different factors. If you like the thrill of an extreme situation, then scalping is right for you. The adrenaline rush from fast trading is an important factor in your decision to make a living scalping.
Typically, a scalper’s workspace (a real-life example is in the image below) is inhabited by Smart Tape Modules , different variations of the Smart DOM , and Clustered Charts with 1 second delays 3-5 minutes.
