Select The Best Stock Trading Strategy For You
Developing a stock trading strategy that is compatible with your needs, expectations, and personality is the single-most important component of stock trading. First, determine your threshold for risk. Are you comfortable with making short-term investments and paying close attention to the ups and downs of the stock market?
Even factors such as age can have an impact on the decisions you make in stock trading. A few stock trading strategies used today are:
Day Trading - An intraday trader is a person who buys and sells during the day. They make most of their purchases throughout the day. This strategy allows you avoid overnight hold exposures. This gives you the advantage of both longs and shorts during the quick swings that may move up or down throughout the day.
Quicker, smaller profits can result from a higher percentage of winning trades, thus reducing risk. Reality check: This type of trading requires vigilance. You must pay attention to the market during the day. This strategy can prove costly when making frequent trades because of transacion costs.
Swing Trading - A person who is hoping to make larger trades and string them out over a days or weeks, is called a swing trader. The slower cycle of trades allows for a smaller chance of error, less commission, and the ability to have a greater impact on multi-day profits of swing trading. A swing trader often uses technical analysis to help choose swing trade options that target a greater level of return than the average day trader. However, with greater profit chances comes a higher risk for your trade.
Swing traders frequently use technical analysis to determine when they should buy and sell a stock. The key points are identified based on the percentage of profit that the swing trader wishes to hit. It is important to keep in mind that typically the higher the percentage, the higher the risk. Because you are making fewer trades, you do have to go for a higher profit on each trade, so this additional risk has to be taken into account. In addition, you have to consider the risks associate to be exposed to market fluctuations for a longer period of time.
Long-Term Swing Trading - If you take this approach, you are basically following the same strategy as the swing trader described above, except that you hold the stocks longer. Trades are usually made over a period of months. You can use this approach to trading when focusing on stock indexes and mutual funds, or through technical and fundamental analysis of individual stocks.
When they concentrate on longer-term, noise that is common in the market can be filtered out of the markets. If you are deciding to look at longer trend, you can consider a slight move against it to be relatively insignificant. Be aware that you should keep track of consistent moves against the trend. This kind of stock trading can provide profits that are greater than other types of trades! Remember that the longer timeframe will yield a greater risk, especially with stocks that may not remain stable. When you use this strategy for trade, you could miss the profits from the shorter-term market swings.
Of course, the longer timeframe equates to a higher risk, certainly with stocks that are more volatile. This type of trading also misses out on profiting from the short-term swings of the market.
Buy and Hold Trading also known as Buy and Forget trading. These stocks may be bought and held for years. Using the right approach, this can be a lucrative option.
Article Source: http://www.search-raven.com
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by: CarlG.Robertts
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