There’s more than one way to successfully trade financial markets. The question is, what trading style will work best for you? You’ll position yourself for success if you first determine the trading style that fits your goals, risk tolerance, and resources – both your time and your money. Here’s a high-level overview.

Long-term trading

Compared to a buy-and-hold investor, a long-term trader actively monitors and manages their portfolio. If you go with this trading approach, you’ll decide  which stocks to buy and how long to hold a position. As a long-term trader, you’ll  utilize target- and stop-loss levels for each investment to mitigate your risk. Long-term traders mainly rely on financial data to make their decisions.

To be a successful long-term trader, you need to be willing to read balance sheets, review earnings announcements, and follow company news, which could affect the stock price. You should be able to make a clear decision for moving into and out of positions. If the reasons for your investment changes, for example, management decides to move in a new strategic direction or earnings falling short, you’ll need to take action.

Advantages

• Most U.S. brokers offer commission-free trading for stocks, which drastically reduces the handling costs and management fees.
• The gross performance is nearly equal to the net profit when trading stocks.
• You have more flexiblity when choosing entry and exit levels.
• Long-term trading can be done without an account minimum. You can start small.

Disadvantages

• The financial analysis process is complex and can be a challenge to understand.
• There is more time involved in trade management.
• You need to follow your trading plan when a target-price level or stop-loss level gets hit.

Swing Trading

Swing trading is a terrific style for buying and selling specific stocks, futures, and options with a holding period of a couple of days. Swing traders make their decisions based on shorter-term catalysts like earnings results and technical analysis.

Swing trading requires that you spend much more time to analyze stocks and other investment products. Financial data, overall market conditions, and potential catalysts play an important role. You may need to invest in stock analysis software and other tools to help you manage your portfolio.

Advantages

• Swing traders are more flexible being invested or not.
• This approach doesn‘t trigger the pattern day trader rule and can be done with less than a $25,000 minimum account balance.

Disadvantages

• Surprisingly bad earnings results and other catalysts can lead to unexpected heavy losses.
• You’ll need to spend time to analyzing a company or market condition before placing an order.
• Positive and negative swing trading results may lead to emotion-based decisions.

Day Trading

Day traders hold their positions from a couple of seconds up to a few hours during a trading day., You’ll need to maintain a minimum balance of $25,000 in their account if you want to execute more than 3 day trades within 5 days in a margin account, due to the SEC's pattern day trader rule. Mainly direct-access brokers are used to executing trades since fast order executions are essential for good fills.

While many retail brokerages offer commission-free trading, specialized direct access brokers typically charge $0.005 per share with a minimum of $1.00 per order. You’ll need to pay for  additional subscriptions for tools, news-services, and real-time tick data as part of your trading trading plan. Day trading also requires the most time commitment of all trading styles. The education process is intensive. You should paper trade — simulated trading without using real money— for a minimum of 6 months. This will help you climb a steep learning curve with low risk.

Day traders have to know their trade platforms inside-out. You should consider using hotkeys to ensure fast order routing and excellent trade executions.

Losses are part of trading. You should expect to have at least 30% losing trades per day. Your emotional control will be a big part of how successful you are as a day trader. 

Advantages

• Day traders avoid overnight risk
• Fundamental research is not required
• High returns are possible

Disadvantages

• A minimum of $25,000 is needed to day trade with U.S. brokerages.
• Tools, services, and market data cost additional money.
• Your success heavily relies on emotional control.
• High-end infrastructure and fast internet access are needed.
• An extensive time commitment is needed.

Your trading options aren’t set in stone and can evolve as you become more comfortable actively participating in financial markets. You may also have different trading styles for different portfolios. For example, a swing trader may take a long-term trading approach for their retirement account or investing for a child’s education. It’s all up to you.