The Basics of Stock Trading

The most important aspect of stock trading is developing a stock trading strategy that suits your needs, expectations, and personality type. You need to look at your comfort level for risk, are you looking to make short-term investments and stay on top of the market?

Even your age affects the strategy you should use to trade stocks. Let’s look at some of the most common stock trading strategies in use today …

Change day

The day trader is someone who buys and sells intraday (during the day) and tends to trade frequently throughout the day. The advantages of this method of stock trading are that you have no overnight holding exposures; You can take advantage of both the longs and the shorts during the rapid changes in any direction that can occur during the day. You can focus on a higher percentage of winning trades by making faster (though lower) profits and reducing your risk.

Like all things in life, this method of stock trading also has its downsides. This stock trading strategy requires a lot of work, time, and effort on your part. You need to pay constant, if not constant, attention to the market during trading hours. Your transaction costs can be high with this trading strategy as you are trading stocks frequently.

Swing trading

The swing trader is someone who is looking for more important movements in the market and their operations can last a day, a few days or a couple of weeks. With the slower trading cycle, there are fewer commissions, less chance of error, and the ability to capture the most significant gains from multiple days of swing trading.

Technical analysis is generally used to help identify swing trading opportunities and they point to a higher percentage of return than in intraday trading. Along with higher profit targets comes higher risk per trade as well.

If you are looking to trade for a longer period of time, you should expect a higher average risk per trade just to account for pullbacks common to all equities and futures market trades. You also have risks overnight and are exposed to major events or events.

Long-term swing trading

This investor is very much like the Swing Trader above, but this investor typically focuses on holding his shares for several weeks or months and longer.

This type of trading strategy focuses on index trading, mutual fund timing, or technical and fundamental analysis of purchased stocks. By focusing on the long term, you can filter out some of the “noise” common in virtually all business markets. Since you are looking for a longer trend, a small move against the trend is not as worrisome (although consistent moves against the trend should not be ignored).

The profit target of this method of stock trading can be quite large with 20, 30, or even 50 percent or more that is not out of the norm. Again, with a longer period of time, you have a higher risk, especially with stocks that tend to be more volatile. With this trading strategy, you will also miss any short-term changes that the market could make.

Buy and maintain operations

This type of investor could also be called a buy-and-forget investor, who typically buys a stock and holds it for years. If you choose well using a lot of fundamental analysis and market sentiment analysis, the gains can be quite large with very little trading costs for this stock trading strategy.

Unfortunately, most investors who use this method of stock trading don’t have a long-term business goal in mind other than to accumulate stocks and simply keep them.

This is why it is better for the buy-and-hold investor to start thinking more like the long-term swing trader. You go from not having a true strategy to a specific strategy in which you always know when you enter a trade what your objectives are and how you will get out in case the market goes against you.