There are a number of stock market trading styles that different kind of traders use. There is no best kind of style, but each is suited to a trader's needs and situation. The following are a few of the styles that are common in the market. There are generally four primary stock market trading styles. These are swing trading, trend trading, momentum trading and scalping.
Choosing which style you wish to use depends on your situation. An investor's time frame is the main aspect to look at when deciding which style is best for them. The correct pairing of trading style and pairing will ensure you are profitable in your efforts in the stock market. This ranges from the aggressive day traders to the conservative long-term-investors.
Scalping are trades that are done (bought and sold) during a very short period of time. This can mean that a buy and sell in just a matter of minutes. Each trade makes very small margins but a trader generally would make many transactions in a day. Scalpers, usually aim for high volume stocks which are liquid. They try to buy on daily lows and sell immediately when the stock goes up. It is also a good method for investors who do not have a lot of capital and reuse their capital n every trade.
Momentum trading is when a trader sees a stock price picking up and joins it. The investor will take a short or long position in the stock anticipating that the momentum of the stock will continue. This is generally how bubbles grow, due to many traders jumping onto an accelerating stock. Investing period for momentum trading is around a day.
The general time frame for swing trading is one to four days. This is most common among mom and dad investors. Stocks are often chosen on the basis of technical analysis. Swing traders generally have the advantage of not having too much competition form major traders. Technical analysis I used to looked for indicators of short term price movements. Swing traders rarely do any fundamental analysis as they are looking for short term fluctuations. The majority of their decisions are based on price trends and patterns.
The time frame for trend traders is around a month. This looks at a securities’ long-term momentum direction. As investors are holding the stock for longer there is a greater deal of risk involved. It is wise for trend traders to do fundamental and technical analysis on the stock. The main indicators that trend traders look for are higher highs. This indicates that a stock is trending upward.
It is very important for a trader to choose the correct style of trading depending on their time frame. Each requires a totally different kind of analysis and each style of trader will have a different set of securities in their portfolio. There are risks associated with all styles with Trend Trading being the riskiest and Scalping being the safest.
Arkaitz Arteaga - Market Stock
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