Scalping, day trading, swing trading, position trading

You can compare the four trading styles by holding period, number of trades and the share of each trade that goes to costs, and explain what research found about day traders.

Seconds or months

Two traders look at the same market. One holds a position for ten seconds and makes fifty trades a day. The other holds for ten months and makes a handful of trades a year.

Both call themselves traders, but they do very different jobs. The holding period decides which charts they read, how much their trades cost, how much time they need and what kind of mistakes hurt them. This chapter starts with the four main styles.

Four holding periods

Scalping: positions last seconds to minutes, often dozens of trades a day, aiming for very small moves.
Day trading: positions are opened and closed within the same session, so nothing is held overnight.
Swing trading: positions last days to weeks, trying to catch one swing within a larger move.
Position trading: positions last weeks to months or longer, following larger trends, often with fundamental reasons.

The styles trade off different risks. Short styles avoid overnight gaps and the financing costs of holding leveraged positions overnight, but need constant attention and pay costs on many more trades. Longer styles need less screen time, but must accept overnight and weekend gaps and wider stops, which means smaller position sizes for the same risk.

Costs eat short trades

Assume a trade costs one pip in spread and commission, whatever the style. Compare that with a typical target:

The scalper aiming for 5 pips hands 20% of every winning trade to costs, and pays the same pip on every loser. The position trader barely notices it. A scalper therefore needs a much higher hit rate, or much lower costs, just to break even.

Research on real accounts points the same way. Studying all individuals who began day trading Brazilian equity futures between 2013 and 2015, Chague, De-Losso and Giovannetti found that 97% of those who persisted for more than 300 days lost money, and only 1.1% earned more than the Brazilian minimum wage. In Taiwan, Barber, Lee, Liu and Odean estimated that less than 1% of day traders were able to outperform consistently.

Common mistakes

Choosing a style by excitement. Fast styles feel productive but cost the most.
Ignoring costs per trade. Measure them against the size of a typical target, not in isolation.
Holding a day trade overnight to avoid a loss. That changes the style and its risks without a plan.
Assuming more trades mean more profit. More trades mean more costs and more decisions to get wrong.

The takeaway

Trading styles differ in how long positions are held. The shorter the trade, the larger the share costs take, and the fewer traders succeed.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the style for which costs take the largest share of the target.

Tap the chart.

One pip of cost against a 5-pip target is 20%. The same cost against a 600-pip target is 0.2%.
2What did a study of all Brazilian futures day traders from 2013 to 2015 find?

Chague, De-Losso and Giovannetti found that only 1.1% earned more than the Brazilian minimum wage.
3Which style usually needs the most screen time during the day?

Scalpers make many trades lasting seconds to minutes, so they must watch the market continuously.
4Why can a swing trader's position lose money overnight in a way a day trader's cannot?

Holding overnight brings gap risk and, with leveraged products, financing costs. Closing every day avoids both, at the price of more trades.

of 4 correct.

Sources

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