Types of Stock Trading

Types of Stock Trading

There are three ways you can invest for short terms. You can trade in stocks as position traders, swing traders and day traders.

You can trade in stocks for as fast as a few seconds. You can finish off your trade by the end of the day, or, you can invest for months, years and all through your life. There is no need to ‘wind up’ your business.

Stock trading provides a wide range of opportunities to stock investors to make money. The beauty of stock trading lies in its huge flexibility. You can invest in stock trading as a hobby, a part time business or as a full time source of income.

The time span and the amount of money you invest rely on your personal needs, predilections and financial goals.

You can invest as little an amount as you spend on your lunch in a restaurant, or, you can invest hundreds and thousands of dollars.

1. Position Trading

In position trading, you keep waiting for the fundamental changes to come about that affect the value of your stock. A combination of fundamental and technical analysis can go a long way to help you to evaluate the trading opportunity.

Even if you do not use an analysis tool, you may collect a lot of fundamental information from financial magazines and newspapers about the value of your stock.

Position trading is especially useful for those who want to supplement their income without devoting lots of time in front of the computers. When you feel free, you can study the stock market any time you.

Of all the three trade types, position trading is the longest term trading style. As a position trader, you do not have to sit glued to your monitor like a day trader and keep waiting anxiously what will happen the next moment.

Position trading can be described as a trading style or strategy where you hold an investment position for an extended period of time which may range from days, weeks or months at a time.

2. Swing Trading

Swing traders try to ride the swings in the market. They usually buy fewer stocks and aim at making big profits. Since they buy fewer stocks, they obviously pay less brokerage.

The secret of success in swing trading lies in looking for the changes in the market that are driven more by the sentiments than by some fundamental reasons.

Swing traders normally spend two hours daily in their research. They usually rely on the intraday and daily charts to understand the stock movements.

The basic strategy in swing trading is to buy a strongly trending stock after it has completed its period of consolidation and correction. The strongly trended stocks make fast moves after their correction period is over. The alert swing traders hold the stock for a period of 2 to 7 days and sell it off making a profit of 5 to 25%.

Generally speaking swing trading involves trades that are normally held for a couple of days to a few weeks. Swing traders hold the stocks for shorter periods than the position traders. Swing traders try to earn profits by trading the stock “on the basis of its intra-month or intra-week oscillations between optimism and pessimism.”

They repeat this process over and over again. Swing traders basically try to capture the quick stock moves. When it is in correction mode and sell it as soon as it reaches certain profit level after the correction, you buy a stock.

3. Day Trading

Stock trading offers a variety of opportunities to stock investors to make money. The beauty of stock trading lies in its immense flexibility. You can invest in stock trading as a hobby, a part time business or as a full time source of income.

Day trading is often considered risky. It can become profitable for the serious investors who have learned the tricks of day trading through study and experience.

Day traders buy and sell their stocks from the time the market opens in the morning and sell them away before it closes. They can hold their stock for the next day or even longer if its price is falling.

In position trading, you keep waiting for the fundamental changes to come about that affect the value of your stock. The basic strategy in swing trading is to buy a strongly trending stock after it has completed its period of consolidation and correction.