Which Stock Trading Technique Is Best For You?
There are numerous options when it comes to choosing a stock trading strategy and choosing which one to go with can be a complicated decision. If you really want to make it big in stock trading it will be important for you to become educated and understand the different strategies available to you. Then, you can go with the strategy or strategies that you think will work best for you. Here is a brief look at some of the most common short-term strategies that you can consider using.
The first strategy, considered by many to be the most important, is diversification. No matter what type of trading you choose, it is always good to diversify when it comes to stock trading. Keeping some funds safe and going for higher risk on others helps to round out your portfolio. The most important thing to remember when it comes to diversification is that you should always be reviewing what you have, and making tweaks along the way in order to help boost your profits.
It is a long term investment, owned with the intention of holding the stocks till there is an appreciable change in the fortunes of the company. The long term protects the stocks from the volatility of the market. The stocks can be held for a period of a few months to several years.
One of the riskiest forms of stock trading, day trading involves buying and selling of financial instruments within the period of a single day transaction window. Multiple positions are changed throughout the day such that all the positions are closed before the markets are shut down. Earlier, the stronghold of large financial institutions and professional investors, day trading is becoming popular with the advent of online trading. The intention of this type of stock trading is to make maximum money by using immediate information about the company and the market.
Scalping is a form of stock trading that aims to make quick money from small commissions on hundreds of different trades. It takes advantage of the ask/bid spread and the volume of the trade conducted by a scalper. Since the commission is small, the profit is generally maximized by handling large number of accounts.
It usually lasts for a day or more but less than the duration of the long term trading. Swing traders do the trading at the peak or bottom of a price swing of a particular stock caused by market volatility.
It is another risky form of stock trading. It takes advantage of the extreme volatility and swings of the market. It involves making use of the information from other sources about the mood of the market. Making money in this form of trading is more about getting in and getting out at an opportune moment.
Penny Stock Trading
In penny stock trading, you purchase what you hope will be an up and coming stock. These stocks are priced very low, usually under $10.00 a share. While many of these stocks go nowhere, if you learn how to pick the right one, you could see huge profits.
Shorting stocks is the trading strategy when you benefit from a stock declining in price. The idea is that you sell a stock into the market that you have borrowed, collecting cash from the sale. Then, once the price of the stock has decreased you buy it back for a lower price than what you sold it for, and return the borrowed stock from where you borrowed it making a profit on the difference between what you sold it for, and what you bought it back for later.
Insider Following Trading Systems
This strategy involves researching what others are purchasing to find trends. You look at what major players like large shareholders are purchasing and follow their lead. This strategy can be used with other stock trading strategies to help increase your chances of success. Public companies list their biggest shareholders, and when you see these major shareholders buying and selling, they often have more valuable and pertinent information that hasn’t yet been distilled to the major news sources.
News trading is a form of the momentum trading strategy that works if you are a day trader and can move quickly when it comes to trading strategies. You need to keep abreast of what is being reported in the news that might affect stock prices. Real time news releases often give insight to where a stock will go and if you act fast enough, it could pay off.