Stock Trading Strategies
The stock market offers tremendous opportunities for those committed to employing tactics designed for success. Stock trading strategies are numerous and choosing one which best fits your personality, risk tolerance and chosen trading instrument is crucial. Every participant approaches the market differently, depending on their plan of attack and the results they wish to achieve. Some people prefer longer time frames with their plan. This does not necessarily make them fall under the umbrella of long term investors since trading and investing are two completely different methods of utilizing the financial markets. Others prefer shorter time frames in which to trade ranging from days or weeks to mere minutes for holding a position. These people are true traders seeking short term results using the profits as income rather than long term investments.
Since this website is for stock trading strategies, we will not focus on long term investments because investors normally concern themselves only with the fundamentals of individual stocks, focusing on company profit and loss, growth potential and return on investment over the long term. Traders, on the other hand, live and die by technical analysis and could care less about whether an individual stock is fundamental strong. Technical conditions of the market during the trader’s chosen time frame are the only concern of the short term trader. Since he will be in and out of a stock, hopefully with a profit, long before a fundamental event can have an effect on share price.
Traders generally choose their trading style from one of three stock trading strategies. Again, this depends entirely on the personality of the individual person, his risk tolerance and which type of market he is trading. By now almost everyone has heard of day trading. Exploding on the scene in the nineties along with the Internet, day trading rooms popped up all over the world with people flocking to the financial markets to capitalize on the dot.com bubble. It wasn’t difficult during this time to make good money since just about any stock would run exponentially. However, not everyone during this time realized their dreams of early retirement. On the contrary, many opened trading accounts without any knowledge of market dynamics or even a rudimentary awareness of the stock markets and soon lost their entire trading accounts. Day trading was more difficult than expected which many soon realized. Fortunately, many have learned how important stock trading strategies are and implement a plan before placing their first trade.
Day trading, traditionally speaking, means opening a position in a stock, futures contract, currencies pair or even stock options during one market session and closing the position before the market closes the same day. However, this does not mean only one trade can be placed during the day. Many stock day traders make multiple trades throughout the day, hopefully profiting on each trade. To be a true day trader, all of your trades must be closed before the ending of the daily trading session and your account is flat (no positions held and all cash) at the end of the day. Learn more about day trading.
The second kind of trading that falls under our stock trading strategies is what is known as scalp trading. Scalp traders can be called day traders since they do open and close all of their trades within the daily market session but there is a difference. Day traders, for the most part, will hold a position usually longer than one hour. Scalp traders may have initiated and closed several trades within the same hour. These guys are seeking the most profit with the minimal amount of exposure to market forces. They execute trades that can last anywhere from a few minutes to a few seconds depending on market conditions. Micro fast trades, quickly in and out and under the radar is the modus operandi of the scalp trader. Mostly employed by professional traders, this method can be an exceptional stock trading strategy for those new to the markets if reduced exposure is the goal. Learn more about scalp trading.
The last of the stock trading strategies is swing trading. This method is the bridge between investing and trading but is true trading since the focus is on short term profits and technical analysis rather than fundamentals. Swing traders generally buy and hold positions for longer periods ranging from over-night to a few weeks. Swing trading is ideal for people working full time jobs that do not have the time to participate during the daily market sessions. Swing trading methodologies can be used with stocks and futures but is an excellent choice for trading stock options.
Whatever stock trading strategies you choose, the equity markets provide excellent opportunities for employing short term trading methods. However, you should first educate yourself about the market, first learning basic terminology and market dynamics through technical analysis before attempt to trade with your hard earned money. Discipline and commitment are essential to long term success and building wealth.
