The world of stock trading is vast. While trading, in essence, is simply the buying and selling of stocks, there are many ways to trade. How do you decide what type is best for you? Can you trade in multiple fields? Lets explore.
We also want to strongly caution you, trading is best left to stock market veterans and would not be recommended for market beginners. Learn the ropes first by digesting all the information you possibly can. If you are a motivated beginner try your hand at self-directed investment before transitioning into trading. Trading can be an intensive method that does require higher levels of functionality, availability, and emotional control in order to position oneself to progress. With that said, here are some of the best types of trading for newcomers:
Day trading sounds pretty straightforward, but it’s actually quite risky and exciting. So what is day trading? It is the buying and selling of stocks within the same trading session. The investor’s challenge is to make a profit within one day, rather than over long periods. You can day trade on any market, domestic or international.
With day trading, if you buy market orders, your order expires at the end of the trading day. This means that if you are trading by day, you are looking for stock in companies that will be easy to sell and have quick returns. These are often the more volatile stocks, meaning you’re also at greater risk of losing money. You won’t be looking to invest in companies that are going to give you large returns over the course of a few days, weeks, or years.
Day trading can be an easy way to learn how to trade without constantly tracking a large number of shares. If you are looking for low-maintenance trading, day trading might be a good place to start.
Swing trading is similar to day trading in that it’s short-term, only you don’t need to sell in one day. By swing trading, you can look at market trends and attempt to capture gains in stocks within one week. This type of trading relies heavily on trends, and is best suited for people who like to analyze data. Instead of investing time in learning about a stock’s intrinsic value, you are paying more attention to the price fluctuations to find a way to turn a profit.
If you have other commitments, such as a full-time job, that don’t allow you to give trading your full attention, this might be a great way to start.
Position trading is the polar opposite of day trading. These traders keep their stock in companies for weeks or even months. This is a good type of trading to get into if you do not have a lot of time to invest in trading and have a mind for predicting market trends.
Similar to swing trading, this type of trading is ideal for people who are employed full-time or are just starting out in the market. Unlike swing trading however, you are trying to identify long-term market trends that will turn a larger profit, ignoring the short-term fluctuations that day traders and swing traders rely on.
Also commonly referred to as micro-trading, scalping involves going after very small profits on a consistent basis. Just the same as pennies add up to dollars, small profits turn into large profits over an extended period of time. When scalping, the trades, most times, last only a few seconds or minutes. The goal is to make a small profit on even the smallest of price changes. As you can imagine, this type of trading is very fast.
Those who partake in scalping have a fundamental belief that making a high number of small moves each day will translate into higher overall profits when compared to other forms of trading.
One item to remember when considering scalping is trading costs. It can be expensive to buy and sell shares so it would be best to go with a broker that charges the least amount per trade to avoid losing a ton of money to fees.
A trader who is good at pinpointing stocks that are “breaking out” will be good at momentum trading. This allows the trader to hop aboard a trade as it’s climbing its way to the top. The trick here, like with any other type of trade, is knowing when to sell. Momentum traders have a special liking for stocks that are moving forward very fast in a single direction. It’s not uncommon for the traders to hold on to specific stocks for several hours to several days.
A fundamental trader will take a close look at a company’s recent corporate events, like any reorganizations or acquisitions. The trader will also look at companies’ anticipated earnings reports to decide which stocks are worth investing in. Stock splits are analyzed as well to get a deeper understanding of which ones should be invested in.
Earnings reports are of the utmost importance for fundamental traders. They will look closely at earnings per share, cash flow, return-on-equity, and more to get a clear picture of a company’s financial health. Balance sheets and cash flow statements are also important in addition to analyst upgrades and downgrades and earnings announcements.
Many people don’t view online trading as a specific type, but in all actuality it really is. With online trading, this means that the internet is being used by the trader as a medium for executing trades. Long-term investors often partake in online trading as well as position traders. Much of the time, a direct access online trading platform is used to execute the trades.
If you are good at picking patterns, then pattern trading will be a good fit for you. Pattern trading, just as the name implies, involves being able to notice patterns as stock prices move up and down. Almost all successful traders are really good at being able to pinpoint patterns. Recurring designs combined with extensive figurative diagrams are at the heart of pattern trading.
This is also another form of trading that is easy to distinguish based on its name. Those who want to make an investment in a certain stock for an extended period of time are known as long-term traders. Most times, they will keep certain stocks for months to years at a time before selling them. A fundamental analysis is performed to determine when it’s best to sell the stock for a profit or to minimize loss.
While each of these types of trading has its own learning curve, they’re all great ways to break into the market and get a feel for what type of trading will work best for you.