The most important aspect of stock trading is developing a stock trading strategy that matches your needs, expectations and personality type. You have to look at your level of comfort for risk, do you want 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 used today …
The day trader is someone who buys and sells during the day (during the day) and tends to trade frequently throughout the day. The advantages of this stock trading method are that you have no overhold exposures; you can take advantage of both long and short pants during fast swings in both directions that can occur during the day. You can focus on a higher percentage of winning transactions, making profits faster (though lower) and reducing risk.
Like all things in life, this method of trading shares is not without its disadvantages. 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 because you trade stocks frequently.
The swing trader is someone who is looking for bigger movements in the market, and their transactions can take a day, a few days or a few weeks. With the slower trading cycle, there are fewer commissions, fewer chances of error and the ability to capture more significant multi-day profits from swing trading.
Technical analysis is usually used to help identify swing trading opportunities and targets a higher percentage of profitability than in daily trading. Along with higher profit targets comes a higher risk per transaction.
If you want to trade for a longer period of time, you should expect a higher average risk per transaction just to take into account the usual withdrawals in all stock market and forward transactions. You also take risks overnight and are exposed to any major developments or events.
Long-term Swing Trade
This investor is very similar to the Swing Trader above, but this investor usually focuses on keeping their shares for a few weeks to a few months and over.
This type of trading strategy focuses on trading indices, mutual fund timing or focusing on the technical and fundamental analysis of the shares acquired. By focusing on the long term, you can filter out some of the common “noise” in virtually all trading markets. Since you are looking for a longer trend, a small move against the trend is not as worrying (although consistent moves against the trend should not be ignored).
The profit target of this method of trading shares can be quite high, 20, 30 or even 50 percent or higher not being out of the norm. Again, with a longer time frame, you have a higher risk, especially with stocks that tend to be more volatile. With this trading strategy, you also lose the short-term changes that the market could make.
Buy and keep trading
This type of investor could also be called a buying and forgetting investor, usually buying a share and holding it for years. If you choose correctly using a lot of fundamental analysis and market sentiment analysis, the gains can be quite high, with very little trading costs for this stock trading strategy.
Unfortunately, most investors who use this method of trading stocks do not really have a long-term trading goal other than to accumulate shares and just hold them.
This is why it is better for the buying and holding investor to start thinking more about the long-term swing trader. Don’t go from any real strategy to a specific strategy in which you always know when you enter into a transaction what your goals are and how you will exit if the market goes against you.