Info about Day Trading
Common stock trading strategies
Stock markets are one of the best ways to make lots of money and beat the inflation. Of course they are not a failsafe means of minting money, there is a lot of risk involved. But with good strategies you can make a decent amount of money in the market.
When it comes to strategies, many people try out different strategies. In most cases the successful strategies can be classified broadly into 2 categories: trading and investing. Both are highly effective and in a sense work at two extreme ends of the spectrum.
• Trading
This is a short term style for stock trading. So the trader purchases the stocks in larger quantities and waits for the stock price to increase marginally. As soon as the stock price increases the shares are sold to net in a profit. The advantage of this kind of trading is that you can make profit from the scrip in short term. The flip side though is that you need heavy investments to make decent profits, this is because most stocks do not move by much in short period of time.
The extreme case of trading is the day trading. In this case, the trader purchases stocks in the first half of the day and typically sells them off in the latter half. So the range of stock price is limited to just one day.
• Investing
This is a long term stock trading strategy. In this case, the investor puts money into the share for a longer duration of 3 months to over a year. In this case the thinking is that the company has solid fundamentals and in a longer period would give better returns.
Both these strategies are highly effective and many people have made money adopting either approach. Interestingly, small news that send the stock prices up and down by a few cents or dollars hardly matter to an investor, but they are the opportunities for the trader to make money. The company fundamentals mean nothing to a trader, but an investor is investing in the scrip based on this information.
One thing that you must know when you are trading stocks is that you must never switch strategies on a share in the middle. This can be very dangerous and quite damaging for your finances too. In most cases switching strategies would mean lower profits or even doom.
However as a savvy stock trader you can use both strategies on different stocks in your portfolio. What this does is that it balances your portfolio well and you can make short term gains and long term profits at the same time. But always be very clear about which strategy are you planning to use with which shares. Never switch them even if it seems appealing. Stock markets are unpredictable, so if you have made predictable profits you must exit from there.
In conclusion, you can either be a trader or an investor with a stock in the market. What stock trading approach you pick is entirely up to you. Both are equally effective and risky. As an investor you have a longer time frame which generally brings down the risks to a great extent unlike trading where risks are pretty high.