Guide to Stock-Trading Strategies
Stock trading is an approach to stock or share investments in which the investor intends to buy a stock, hold it for period of time and sell for profit. This is counter to a more conventional view of stock investing, in which the investor buys a stock with the intention of holding it for a long period of time to earn investment income derived from the company's value.
Other People Are Reading
-
Basics
-
The main point of "stock trading" is to turn a profit on the stock by buying it at a discount and eventually selling at a premium, according to The Stock Bandit's "Stock Trading Strategy" overview. Strategies vary in approach and time frame, but you ultimately have to optimize profits from winning trades and exit losing trades efficiently.
Time Frame
-
Stock traders often use time frame as a focus in developing stock-trading strategies. Investors talk of three basic time frame orientations--short, medium and long term. Short-term investors, sometimes called day traders, buy stocks that appear to be high growth and look to turn a quick profit. Medium- to long-term traders expect to hold a stock for a while and look for hugely discounted stocks with lots of upward mobility.
-
Day Traders
-
Day traders have proliferated in the early 21st century thanks to dramatic growth in online stock-investing brokers, platforms and research tools. "Day trading is the buying and selling of financial instruments (stocks, currency, futures, options, etc) within the space of a single day," according to the Trade Stars definition. For some successful traders, day trading offers full-time self-employment. Day traders must be well disciplined.
The Stock Bandit points out in its general stock-trading overview that you must ride profits and exit losses at the sign of negative momentum. This is especially true for day traders.
Short Selling
-
Short selling is a common strategy highlighted in the Candlestick Trading Forum in its "Stock Trading Strategy" overview. Short selling is a unique approach to stock trading, in which investors actually "short" a stock, or enter a position expecting a stock's price to go down. Short selling works contrary to stock trader intuition in that you sell shares you do not own (that are borrowed through your broker) at the current market price. When the price drops and you want to take gains, you buy back the shares to cover your position. This is a risky strategy as you typically short a stock you believe is "overbought," which goes against its rising trend.
Considerations
-
An important consideration in developing your stock-trading strategies is to decide whether to utilize a more fundamental or technical analysis approach. Fundamental traders tend to rely more on macroeconomics and marketplace news. Technical investors utilize historical charts and key technical indicators to identify potential investment opportunities, as well as profit and exit strategies.
-
References
- Photo Credit Christine Balderas/Photodisc/Getty Images
