RISKOMETER Based on Your Trading Style ⚠️
In this educational post, we will discuss the relation of risk to your trading style.
1️⃣ High Frequency Trading (HFT)
It is a complex algorithmic approach that is used to operate on second(s) time frames.
Such a style is considered to be the riskiest one.
With a very high frequency of order execution and sophisticated strategies, it requires a very high level of experience and proper software and hardware for successful operations.
It is a manual trading style with operations on minutes time frames.
With the average holding period ranging from minutes to hours, scalping requires a high degree of attention and constant charts monitoring.
Being one of the most profitable trading styles for retail traders, scalping involves an extremely high risk and mental load.
3️⃣ Day trading
The form of speculation in which the traders attempt to make profits within a single trading day.
Occasionally, however, day traders may hold their positions overnight.
Day trading is considered to be slower than scalping, with the trade execution on hourly time frames.
Slower pace drastically reduces risks also limiting the potential gains.
4️⃣ Swing trading
It is a style of trading that is aimed to make profits on swing moves, with an average holding period ranging from days to weeks.
4H time frame is the lowest time frame where swing traders usually operate, and a daily time frame is usually the highest one.
The operations on higher time frame dramatically reduces the noise and degree of manipulations, making that style of trading relatively safe.
5️⃣Investing (Position Trading)
Trading / investing style aiming to make long-term profits.
The average holding time of a position trader may expand to years.
In comparison to other trading styles, investing generally produces the smallest gain. That is, however, compensated by extremely low risks.
Correct understanding of relations between trading styles and potential risks is crucially important for a selection of an appropriate style for you.
Shorter is the holding period and operational time frames, higher is the risk, but higher are the potential gains.
You should pick the style that fits your risk-tolerance and expectation.