Online Trading Techniques
Just a few short decades ago stock trading was pretty much unavailable to the average person. Brokerage commissions were very high and information was not widely available. The Internet opened up a whole new world to average investors. Today, online discount brokers offer low trade fees, it is possible to see stock price action real time from anywhere in the world, and information about the economy and companies reaches home Internet users at the same time the banks and other institutions receive it.
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Day Trading
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Day trading is one of the more popular online trading techniques. As the name suggests, day traders open and close all positions on the same day. Day trading gained popularity during the dot-com era. During that time it wasn't unheard of for stocks to make 100 or 200 percent gains in a single day. After the stock market bubble burst, however, day trading has earned its reputation as being one of the more risky online trading techniques.
Position or Swing Trading
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Position, or swing trading, is another popular online trading technique. It involves holding investment positions for a few days up to a week or two. Stock prices tend to trade in waves. This can be readily seen on a typical stock chart. Position traders attempt to profit by buying when a new wave is beginning to develop, and selling when the wave is ready to reverse.
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Fundamental Analysis
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Some online traders make buy and sell decisions based on a company's earnings reports, its balance sheet, government interest rates, economic indicators and other similar factors. This is referred to as fundamental analysis. A primary idea embraced by fundamental traders is that the market is inefficient. They believe research uncovers opportunities that the market has not yet priced in, and they attempt to exploit those opportunities before the market fairly prices the stock they are trading.
Technical Analysis
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Technical analysis is a very common analysis strategy for online traders. It involves the analysis of various price and volume patterns that develop on stock charts. Technical traders operate under the assumption that large banks and investment firms leave a trail on the charts when they buy or sell stocks. When a large bank is buying, for example, the probabilities are high that the stock price will move higher. Analysts who interpret the charts correctly can profit from these types of moves.
Risk Management
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All traders, despite the technique they use, must have a risk management strategy. It is impossible to always be correct about the future direction of the market or individual stock. It is prudent to have a plan that tells you where to sell when the stock you are trading begins to lose money.
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