The Four Fundamental Trading Styles

At OrderFlowDashPro, we've did some "deep thought" into how the mechanics and processes of trading actually work. What may surprise many novice traders is that trading is often a quite specialized process. The swing trader learns to master a different set of skills then the day trader. Successful traders who move from one specialized process to another often underestimate the time and effort that will be required to learn the new specialized processes. New traders also tend not to see the wide-spectrum of opportunities and trading styles that are possible.

In this post, we outline the 4 fundamental trading styles:

1. Systematic. Systematic strategies are defined by a clear set of rules defining the entry and management of the trade. However, the trader affords themselves some discretion in taking and managing the trades. The systematic trader benefits from an intimate understanding of the principles and logic underlying their system, as well as a generalized market read (the ability to predict direction). 

2. Internalizing Processing. Process based trading is defined by following a specialized process focused on market generated data. This process is often a formalized routine which involves watching similar market generated data like order flow and correlated markets. AlphaReveal gives traders enhanced tactical awareness and is designed to improve real-time process based trading. Process based traders tend not too focus on setups but rather understanding the current dynamics of the markets in a holistic fashion.

3. Speculative. Speculative trading is different from both systematic and process based trading in that it involves formulating speculations about what may happen in the future. Unlike process based traders, speculative traders typically scan a wide field for opportunities and consider a wide range of data. An example of a speculative trade involving bitcoins would be that Mt. Gox has bitcoins priced lower then the other exchanges. Based on the law of one price, we should deduce that Mt. Gox bitcoins should be worth the same as on other exchanges. Clearly, the market is anticipating that Mt. Gox is likely to be bankrupt and indeed it may be. Even so, what is presented is an arbitrage opportunity which is also a bet on whether or not Mt. Gox survives. Other speculative trades could follow from this. Note, we do not recommend any trades here but provide it as example of thinking speculatively.

4. Automated. Automated trading happens without human intervention. Automated strategies may be blackbox (rules unknown) or white box (rules known) or some mixture. Many traders view automated trading as the pinnacle of trading success. However, successful process based traders enjoy the process and thus want to engage in that process. And, that is our primary view too, and thus our aim is to enable and equip the serious process based trader with tools that enable their success.


Monday, February 17, 2014 9:49:00 PM


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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure:

Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.