Where investments are typically held for a period of years or even decades, traders buy and sell stocks, commodities, currency pairs and various other investment vehicles with the intention of generating returns that outperform a buy-and-hold strategy.
Trading profits are viewed as income since profits are “taken off the table” on a regular basis (as opposed to investing, where positions are generally left alone for the long haul).
Trading profits are achieved through buying low and selling high – and selling high and buying (to cover) low, in the case of short selling – and all trades are entered and exited within a relatively short period of time.
This time period can vary from a few seconds to months or even years, depending on the trader’s style. The following chart lists the four primary trading styles – position, swing, day and scalp – with the corresponding time frames and holding periods for each.
|Type of Trades||Time Frame||Holding Period|
|Position Trading||Long Term||Months to years|
|Swing Trading||Short Term||Days to weeks|
|Day Trading||Short term||Day only – no overnight positions|
|Scalp Trading||Very short term||Seconds to minutes – no overnight positions|