Becoming a skilled trader

Trading is an active style of participating in financial markets, but on this site you will find information about more traditional buy-and-hold investing as well. Today, many people aren’t sticking to just trading or just long-term investing. Instead, they spread risk by trading with some of their money and investing another portion of their money. The investments are often a mixed portfolio that contains everything from fairly short-term investments to really long-term ones.

Trading and investing can be a full time job, but it can also be a lucrative hobby. Saving for the future and earning money to fulfill your dreams doesn’t have to be boring chore. Many people lose out on the fun by only focusing on how much they have to give up today to be able to save for the future. Instead, you should see saving, trading and investing as a hobby in itself, not a boring chore that must be done.

It is easy to throw ones hands in the air and proclaim that money matters are too complicated, stuff some money into a mutual fund and then forget about it. But if you instead start learning more about personal finance, you will probably encounter aspects of it that you find fascinating and that can help you tailor a trading- and investment strategy for your self, both short-term and long-term.

Continuous income or future realization?

If your aim is to let your money continuously make more money for you, you can for instance invest in company’s that pay dividends to their owners or in real estate that can be rented out. Day trading or other forms of short-term trading is also a possible choice, provided that you have enough time and energy to devote to it.

If you on the other hand are okay with not making any profit until some fairly distant point in the future when you sell the asset or it expires (depending on the type of asset), you can for instance invest in bonds, put money into investment funds, or buy precious metals. You can also buy real estate and stocks that you hold on to primarily for the chance of value appreciation rather than to get a continuous stream of rent income or dividends.

 Different Types of Trading

Trading isn’t one-size-fits-all. Some people are glued to their screens during intense trading sessions, firing off trades every hour, but never go to bed with any positions open. Others step back, take their time, and hold positions for days, weeks, or even months. The truth is, in finance, trading can mean very different things depending on how you approach the market, how you want to allocate your time and energy, and how much risk you’re willing to handle.

Understanding the different types of trading is key to finding your style—and your edge. Each approach has its own rhythm, tools, and mindset. There’s no “best” type, just the one that fits how you think, how you manage risk, and what you’re trying to get out of the market.

Below, we will take a look at a few basic trading types and how they work.

Day Trading

Day trading is fast, intense, and hands-on. You’re in and out of trades within the same day, sometimes within minutes. The goal? Profit from small price movements, over and over. Hollywood likes to show day traders making and losing fortunes from huge price movements, but such events are rare, and most day trading techniques are based on profiting from small price movements trading big positions and/or doing many trades.

Day traders are found in many different markets, and can for instance specialize in stock trading, forex , commodities, or cryptocurrency. They tend to go where the liquidity is large enough to suit common day trading strategies.

Instead of trying to analyze underlying factors and predict longer-term trends, day traders need to be able to predict what will happen within a single trading day, and to this end, they often rely heavily on technical analysis. Charts, price action, news catalysts, and tight timing are important for day traders.

It is called day trading because all positions are opened and closed within the same trading day. No positions are left open over night, which means no surprise news events ruining your open positions while the market is closed. Also, you do not have to worry about overnight fees eating into your profits.

Day trading can be very intense and is not for the faint of heart. One wrong move, and losses can stack up fast. But for people who thrive in high-pressure environments, love the action, and have time to be fully present during the trading session, day trading can be a powerful (and profitable) strategy.

For some traders, day trading is actually less draining and stressful than other types of trading and investing. You can chose when to trade and be extremely focused during the trading session, but you will close all your positions before you leave the screen and call it a day, so there is no need to worry about open positions outside your trading hours. Yes, you may still need to carry out analysis and plot future actions, but you will not be doing it with a bunch of open positions adding stress to your life. For some traders, keeping positions open disturbs the rest of their life too much, e.g. because they feel compelled to constantly check prices and notifications on their phone even outside their active trading hours. If this sounds like you, day trading might actually be a less stressful choice.

Learn More About Day Trading by Visiting DayTrading.com.

Scalping

Scalping is a subset of day trading; it is a special technique where you getting in and out of trades in seconds or minutes, profiting from tiny price movements. Scalping makes it possible to profit even when the market is pretty stagnant, since you will be reaping profits from tiny fluctuations rather than price trends.

Since each price movement is so tiny, scalpers typically carry out a very large number of trades during the trading day. They can also work with very large positions, where each pip represents a substantial amount of money. Scalpers often take dozens of trades in a session, looking for small price inefficiencies or volume spikes to exploit.

Scalping requires high focus, lightning-fast execution, and usually direct access to the market, with low spreads and low latency. There’s no time for hesitation. And if you’re not disciplined, it’s easy to blow your account.

Scalping is best for traders with fast reflexes, super-fast market access, and a strong stomach for rapid decision-making. It’s not beginner-friendly—but when mastered, it can be incredibly effective.

Swing Trading

Swing trading is a slower, more strategic version of short-term trading. Instead of holding for minutes or hours like the day traders do, you’re holding trades for a few days, sometimes a few weeks, or even a few months. The goal is to catch short- to mid-term “swings” in price—riding trends or breakouts.

Swing trading is still active trading, but it is usually less time-sensitive than day trading. It will not be about finding the right minute to execute a trade. Swing traders often use certain elements from technical analysis, including support and resistance levels, to time their entries and exits. Some will combine technical analysis this with some fundamental analysis.

If you’re patient enough to wait for setups to play out, swing trading might be a good choice for you.

Learn More About Swing Trading by Visiting SwingTrading.com.

Position Trading

The time horizon for position traders is generally a bit longer than for swing traders, but still not long enough to be considered buy-and-hold investing.

You’re still considered an active trader, but you’re holding trades for months, or sometimes even years. As you can see, there can be some overlap between swing trading and position trading in one end of the spectrum and between position trading and buy-and-hold in the other end – the boundaries are not sharp.

Position traders will often focus on capturing big trends and major developments—not the daily or weekly noise. Position traders often use a mix of technical and fundamental analysis. They’re not chasing every move—they’re waiting for the right opportunity and will then ride it as far as it goes.

This style is ideal for people who want to stay engaged in the market but don’t have time to watch every tick. It requires patience, discipline, and a strong sense of trend direction.

Algorithmic Trading

Algorithmic trading—also known as algo trading —is when trades are executed by a computer program based on a pre-set strategy. The algorithm can react faster than any human and can process huge amounts of data 24/7.

This type of trading is usually carried out by institutions or advanced retail traders with coding skills, but in recent years, certain software solutions have been developed that makes it fairly easy to get started with algo trading even if you have no coding back ground. Algo trading is sometimes described as “buy a trading robot and let it do all the work”, but the reality is more complicated. For starters, you need to understand at least the basics to be able to properly evaluate the available software solutions and utilize the software you pick in a smart way. You need to backtest, optimize, and continuously monitor performance.

It’s not for everyone, but if your are willing to learn (rather than just look for a no-effort, no-risk money machine), algorithmic trading opens up a completely different way to trade. You will set the parameters for the trading in advance, which means you can then step back – and this greatly reduces the risk of making foolish, emotional decisions in the heat of the moment when big money is on the line.

News-Based or Event Trading

Some traders focus almost entirely on news events—earnings reports, economic data releases, central bank announcements, or even unexpected world events. These moments often cause big, fast market moves—and news traders look to capitalize on them. It’s all about timing, reaction speed, and understanding how markets normally (statistically speaking) will respond to certain types of news. But the market can be unpredictable, and sometimes the market reacts in the exact opposite way you’d expect. This style isn’t about guessing headlines. It’s about planning ahead, managing risk, and moving quickly when the opportunity hits.

What’s Out There Beyond Just Stocks?

Financial instruments are assets that can be traded or exchanged, e.g. stocks (company shares), bonds, certificates of deposit (CDs), shares in mutual funds, and shares in exchange-traded funds (ETFs). A lot of trading involves so called derivatives, which is financial instrument whose value is derived from the price of another instrument or financial product. A well-known example is the stock option; a type of derivative based on the market price of a company share. Derivatives even make it possible to speculate on things that you can´t really buy and sell outright, such as a stock index.

Below, we will take a look at some of the most common instruments, what makes each one unique, and what kind of trader they tend to attract.

Stocks

Stocks are the classic starting point. You’re buying ownership in a company—whether it’s Apple, Ford, or some tiny biotech startup you’ve never heard of before. Stock prices can move based on a variety of factors, including company earnings and projections, news, economic trends, and general market sentiment.

Stocks are utilized by many different types of traders and investors, and for many different purposes. Some investors want to become part owners of a specific company and have a right to vote at each shareholder meeting. In the other hand of the spectrum we find day traders who just wish to profit quickly from small intraday stock price movements.

Stocks are versatile, but exchange traded stocks have market hours to consider (unless you’re using extended hours trading).

Mutual Funds

If you want to gain exposure indirectly, you can buy shares in a mutual fund. The fund will pool investor money together and buy assets. You do not own any of these assets in your name; you only own shares in the fund.

Investing in a mutual fund can give you great diversification from day one, provided that you pick a properly diversified fund. Properly diversified funds can be great for diversification and will come with lower risk compared to single stocks. You won’t get explosive moves (usually), but you also won’t get wiped out by one bad earnings report.

You need to read the fund prospect to find out what the fund invests in. There are a wide range of different funds available, serving different purposes. You can for instance pick a fund that only invests in companies in a specific industry (tech, biotechnology, healthcare, real estate, etc) or a fund that is focused on companies a certain country (e.g. United States) or part of the world (e.g. South East Asia). Some mutual funds are index funds, which are designed to track a specific index, e.g. the S&P 500. Some funds are focused on specific commodities, e.g. by investing in the commodity itself (e.g. gold) or by gaining exposure to the commodity industry (e.g. gold mining companies).

Classic mutual fund shares are normally only bought and sold once a day. Traders who want more flexibility than this can opt for exchange-traded funds (ETFs) instead. This is a type of fund where the fund shares are listed on an exchange and traded throughout the trading day, in a manner very similar to company shares.

Exchange-Traded Funds (ETFs)

As mentioned above, the shares for exchange-traded funds (ETFs) are listed on an exchange and trading takes place throughout the trading day.

Just as for classic mutual funds, ETFs are available for many different niches, and they can therefore be used to gain exposure to a variety of markets. Some track broad indexes like the S&P 500, while others focus on specific sectors, countries, or themes like tech, clean energy, or even cannabis.

ETFs are used for both long-term investments and for trading and hedging. Since they are exchange-traded, they can even be used for day trading.

Many of the most popular ETFs today are index funds. They do not attempt to outperform the market – they are only designed to track a specific index. This allows for a much more passive management style, which in turn keeps costs down.

Bonds

Bonds are loans made to governments, corporations or municipalities. The lender (owner of the bond) gets paid interest, and when the lifetime of the bond is up, the owner of the bond gets their principal back (the money lent).

There is a bond market, and some traders do move in and out of bond positions based on interest rate expectations or economic cycles. Some ETFs track bond indexes and tend to be more liquid for trading than the bonds themselves.

Bonds are generally considered lower risk, and therefore come with lower reward (the interest payment). The exact risk depends on the creditworthiness of the issuer (the entity that borrows money). The UK government has a higher creditworthiness than the Argentinian government, and can therefore get investors interested in UK bonds even with a low interest rate. The same is true for corporations and municipalities – the creditworthiness of the issuer impacts how high of an interest rate they must give to get the loan they need.

In volatile markets, investors tend to seek out bonds – especially governmental bonds from countries with a high credit ranking. If you’re interested in preserving capital or decreasing the risk level of your portfolio with income-producing assets, bonds can serve an important role.

Spot Forex

The global forex market (foreign exchange market) is the largest of all the financial markets by turnover and it is active 24/5. On this market, currencies are traded in pairs, e.g. USD/JPY and GBP/USD. In essence, you use one currency (e.g. USD) to buy and pay for another currency (e.g. JPY). Exchange-rates move based on a variety of factors, including economic news, interest rates, global politics, international trade, commodity prices, and central bank policies.

The basic foundation for all this trading is the spot forex trading. It is the transaction described above, where you exchange X amount of one currency for Y amount of another currency. The price a currency has for this transaction is known as the spot price.

In addition to spot trading, several different derivatives and financial products are utilized by traders who want to gain exposure to currency rates without engaging in spot trading. Well known examples are currency options (forex options), currency Contracts for Difference (forex CFDs), and currency forwards (forex forwards).

If you want to trade around the clock (24/5) and you’re comfortable with handling fast-moving pairs and analyzing macro trends, forex might be a good fit. Forex trading tends to attract technical traders who want a fast-paced, highly active market with loads of liquidity. With that said, these factors will vary depending on which pairs you trade, as some pairs are much more frequently traded than others.

Using leverage is very common among forex traders.

Cryptocurrency

Cryptocurrency trading has exploded in popularity since Bitcoin was launched in early 2009. Blockchanin based cryptocurrencies like Bitcoin, Ether (Ethereum) and Dogecoin offer 24/7 trading, wild volatility, and plenty of opportunities – but also very high risks and a complex legal situation.

You can trade both crypto-crypto pairs (e.g. BTC/ETH) and crypto-fiat pairs (e.g. BTC/USD).

You can buy and hold, swing trade, or day trade cryptocurrency just like anything else, and long-term investments are also possible. But the space is still young, unregulated or poorly regulated in many places, and driven as much by hype as fundamentals. If you’re comfortable with risk and volatility—and want access to a market that never sleeps—crypto can be exciting, and it has the potential to be very profitable for traders with a proper understanding of the risks.

Options

This is a financial derivative, and options can for instance be based on stocks or commodities.

When you own an option, it give you the right (but not the obligation) to buy (call option) or sell (put option) an asset at a pre-specific price within a set time.

Options are normally leveraged, meaning you can control a large position with relatively little capital—but they’re also high risk and leverage will boost both profits and losses.

Traders use options for a variety of reasons, including directional plays, income strategies, and protection against losses. But the learning curve is sharp. You need to understand how premiums, expiration dates, volatility, and strike prices all interact, and how risk-management work for options.

If you’re experienced and want more flexibility, leverage, or complex strategies, options can be powerful. But if you’re new, start slow.

Futures

Financial futures are contracts to buy or sell an asset at a set price on a specific date in the future. Unlike the option, both parties are obligated to carry out the transaction.

Futures are frequently used for commodities like oil, wheat, and gold—but you can also trade futures on indices, currencies, and even cryptocurrencies. Futures are highly leveraged, meaning small price moves can lead to big gains—or big losses. They’re often used by hedge funds, institutions, and advanced traders. If you want to trade macro themes, commodities, or indexes with serious buying power, futures can be the right the tool. But like options, they’re not beginner-friendly, and the learning curve is steep.

Contracts for Difference (CFDs)

This is a derivative where your broker is also your counterpart in the trade. Contracts for Difference (CFDs) is a convenient and cost-efficient way of gaining exposure, but having your broker as your counterpart does create a conflict of interest.

CFDs are popular with traders who want to speculate on short-term moves using leverage. They can be highly customizable, e.g. when it comes to how much money you risk, how much leverage you use, and the lifespan of the contract, and this is appealing for many traders.

CFDs let you go long or short, making it easy to speculate on rising and falling markets – without actually getting involved in the complexities of real short-selling.

Note: As always, leverage will boost both profits and losses. Do not use leverage without understanding the terms and conditions.

Risk

Trading and investing is always risky. The stock company you own shares in may file for bankruptcy. Real estate can drop in value and a neighborhood can become unattractive to renters. The investment fund you put money into may sink like a stone due to poor investment choices. There is always risk. It does not matter if you are in to high risk binary options trading or something safer such as bond trading. There is always risk.

Of course, filling your mattress with $100 bills isn’t exactly safe either. Not even gold bars in a bank safe or chests filled with precious stones buried in the sand on a tropical island will completely take risk out of the equation. Currency can lose in value due to inflation, the gold price goes up and down, and so on. There is also the risk of having your valuables stolen, destroyed or confiscated.

So, instead of trying in vain to eliminate risk, we need to find a way of managing risk. One common way of doing it is to spread the risk. Invest in different types of assets, make long-term and short-term investments, buy stocks in many different companies belonging to many different industries, spread out geographically, and so on.

You can find more information about risk management in the article “Determine your risk tolerance” on this site.

Risk Management When Trading

If you want to last as a trader—whether you’re swinging stocks, trading crypto, or diving into forex—risk management isn’t optional. It’s the skill that separates the serious traders from the ones who blow up their accounts and walk away bitter after a few bad moves.

Most new traders spend 90% of their time thinking about how to make money. But the ones who actually succeed long-term? They obsess over how not to lose too much of it at once. Because every trade comes with risk. You can’t control the market, but you can absolutely control how exposed you are to it. You need to have routines in place that will ensure that you do not wipe out your entire trading account when the market moves against you.

Let’s break down what risk management is, how to use it in your trading, and why it might be the most valuable tool you’ve got—more important than your indicators, your chart setup, or your next big stock pick.

Risk Management Basics

Risk management is how you protect your capital. It’s the process of making sure that even when trades go wrong—and they will—you don’t lose so much that you can’t recover and stay in the game. It’s about keeping losses small, avoiding catastrophic damage, and staying in control no matter what the market throws at you. It’s not about being scared. It’s about being smart.

Good risk management isn’t flashy. It won’t get you likes or retweets. But it will let you trade another day, even after a losing streak. That’s where real success happens—in staying in the game long enough to learn, grow, and improve.

How Much Should You Risk Per Trade?

A common rule used by experienced traders: risk no more than 1–2% of your total account on any single trade. That doesn’t mean putting 1% of your account into the trade—it means the amount you’d lose if the trade hits your stop-loss. (Provided that the market is liquid enough for you to trust the stop-loss orders.)

For example, if you’ve got $5,000 in your account, risking 1% means your maximum loss on any trade is $50. That gives you room to take multiple trades, survive losing streaks, and keep emotions in check. Risking 10–20% per trade? One bad run, and you’re done.

It sounds small, but that’s the point. Small, manageable losses keep your account alive.

Stop-Losses Are Your Safety Net

A stop-loss is the line in the sand. It’s the price where you admit, “this trade didn’t work,” and get out before it turns ugly. Without a stop-loss, you’re relying on hope. And hope is not a strategy.

Whether you place it based on a chart pattern, technical indicator, or a simple percentage rule, what matters is that it exists—and you stick to it. Moving your stop further away after the trade goes south is a fast track to bigger losses and bigger regrets.

The stop-loss is your parachute. Set it before you enter. Respect it after.

Before you start trading, learn about the different types of stop-loss orders, and see which ones that will work best with your trading strategy. Trend-following strategies does for instance have a tendency to use a lot of trailing stop-loss orders.

Position Sizing: The Math Behind Your Risk

Position sizing is how you turn your risk into real numbers. Once you know how much you’re willing to lose on a trade and where your stop-loss is, you can calculate how many shares (or contracts, or coins, or whatever) to buy.

Let’s say you’re willing to risk $100 on a trade, and your stop-loss is $2 below your entry. That means you can safely buy 50 shares ($100 ÷ $2 = 50). If the trade works, great. If it doesn’t, you lose the amount you planned—and nothing more. This is how you stay consistent, protect your account, and scale your trades properly over time.

Control Your Emotions or They’ll Control You

The biggest trading disasters usually don’t come from bad setups—they come from bad reactions. Revenge trading after a loss. Doubling down out of frustration. Overtrading out of boredom. Getting super greedy and keeping positions open just a little bit longer … Emotions in the heat of the moment are dangerous when money’s involved, since they can translate into spontaneous actions.

Risk management helps protect you from yourself. When you follow your rules, take calculated risks, and accept small losses as part of the game, you remove a ton of emotional pressure. That makes it easier to stay sharp, stick to your plan, and keep trading with a clear head.

Have a Max Loss Rule

Every trader hits a wall now and then. Maybe the market’s choppy, maybe your strategy’s off, or maybe you’re just not in the right headspace. Either way, setting a daily and weekly max loss is a smart way to step away before you make things worse.

If you hit your limit—walk. Log off. Review your trades later. Coming back the next day with a reset mindset is always better than digging a deeper hole because you couldn’t stop.

Your job isn’t to win every day. Your job is to stay in the game.

Some days, the most difficult task will be to tell yourself that you are not fit to trade – and take your own advice. This can be especially difficult if you are of the mindset that you “have good work ethic” if you trade six days a week, year round, and “poor work ethic” if you take a break from trading when you are too tired, too sick, too preoccupied, and so on, to bring your A-game. When it comes to trading, a trader making 100 trades is not necessarily more profitable (nor more hardworking) than someone who makes 20 trades. You need to shake off old notions that you might have, and develop strategies that are actually suitable for becoming profitable in the world of trading.

Risk of Ruin Is Real

You can be right 70% of the time and still lose money if your winners are small and your losers are massive. That’s why some traders with lower win rates make more money—they manage their losses better. Trading without risk management is like driving without brakes. You might be fine for a while…but, sooner or later, disaster will strike.

This article was last updated on: April 14, 2025