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How To Choose The Right Online Investing Strategy

By: Matt Ehrlin

Picking the right strategy for online trading is one of the points of differentiation between successful traders and people who burn out abruptly. Picking the right online investing strategy for yourself is a matter of knowing yourself. Socrates maxim of "Know Thyself" applies more than you might think to trading.

How much do you want to work? How much do you want to be tied to your computer screen running numbers? How easily distracted are you? These questions, more than anything else, will determine how successful you are at managing any kind of strategy. We're going to cover most of the basic strategies here and highlight the personality traits that are needed to make them thrive.

The first basic strategy is day trading. This is a strategy built around making short term buy and sell orders and often uses leverage to increase the amount of money made. Day traders focus on a specific segment of the market and then look to maximize their daily profits. Individual company performance is less important than volatility and making the best deal for the day.

The personality type that thrives at day trading is an aggressive obsessive. The money that can be made regularly day trading is incredible, and if you're good at it, job offers often follow and can be quite lucrative. The downside is that the workload for day trading is 12 hours a day, five days a week, with next to no breaks. Day traders can burn out quickly, and need to have a short memory for failures. If you can't get over a bad decision rapidly and move on then this is NOT the strategy for you.

The second basic strategy is to make long term positional trades. This is the best strategy to have if you are attempting to preserve overall capital while making measured gains. It has the benefit of lower work loads, but more up front research is required. The classic example of the positional trader is Warren Buffett of Berkshire Hathaway. He advocates a buy and hold strategy and then reinvesting the dividends received into more shares of consistently profitable companies.

This strategy is more focused on what a company does, what they make, and what their long term revenue stream is rather than the share price going up or down. The required temperament for this strategy is patience. You are in it for the long haul.

Stop loss and margin trading are something of a hybrid compared to the other online investing strategy. You care about the volatility of the market, but with each stock you buy, you have a dedicated selling point in mind. You are less concerned about the ride up to the maximum share price so much as you are working the split of getting off the share before it comes down.

In some ways, it embodies traits of both of the other two investing strategies as you have to be patient while occasionally experiencing the adrenaline rush of a day trader. That being said, it is a good middle strategy for someone looking to build assets quickly and then transition to a long term positional portfolio.

Article Source: http://www.articlemanual.com

Matt blogs at initialpublic.com/finance/ and invites you to find the most profitable online investing strategy there.



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