There are several types of stock trading strategies that a trader can participate in. Each type offers unique benefits, and understanding the different types of stocks is important to being a successful investor. Here we discuss some of the most popular types of stock trading strategies, what they mean, and why shareholders use these forms of trading.
Scalping is one of the most popular Types of trade made by day traders. This form of stock trading involves holding a position for seconds or minutes before trading. This is the fastest way to trade stocks and is aimed at small intraday price movements. The goal of scalping is to make smaller profits by making multiple quick trades in one day. Over the course of the day, profits add up based on the number of trades made.
Traders who use the scalping method rely on their high trading volume and liquidity when trading, such as: B. USD / JPY, GBP / USD and EUR / USD, often only on important currency pairs. Many scalpers make dozens or even hundreds of trades every day with the aim of taking advantage of this Bid-ask spread.
Example: A trader buys and sells large quantities of a company’s stock to take advantage of small price movements. The stock sells for $ 5 and the trader buys $ 10,000 worth of shares and sells them in small quantities during upward moves.
Picture above Flickr by Simon Cunningham
Momentum trading Work with stocks that move in one direction in bulk. This strategy is based on a trader’s attempt to take advantage of this momentum in the exchange to get the profit they want. Traders buy stocks or stocks as they go up and then sell them when stocks top. The goal of momentum trading is to take advantage of the volatility of the market to find buying opportunities on short-term uptrends and then sell the stocks when they lose momentum.
Example: A trade buys shares at $ 30 and that stock grows to $ 60 based on an overly positive analyst report. The trader then sells the stock for $ 60 for a 100% profit before the stock price corrects itself.
In swing trading, profits are made with one share in the short and medium term over several days or weeks. This type of trading is based on expected price action and requires technical analysis to find trading opportunities and fundamental analysis to examine patterns and trends in stock prices. Swing trading exposes traders to overnight and weekend risks that can lead to price gaps and lost profits.
Most traders do not hold their position for more than a few months. Swing trades can also take place during a single trading session, although this is rare and usually only takes place under very volatile conditions. Swing traders aim to make a profit with an expected price movement.
Example: A trader buys a stock after the price has fallen. Using the technical and fundamental analysis, the trader deduces that the price will go up in 15 days. The trader holds on to the stock and then sells it when the expected price surge occurs.
Choosing the trading strategy that works best for you can increase your chances of winning from your stock trading endeavors.
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