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Profit From Choosing The Right Stock Trading Strategy

By: Carl G. Robertts

Stock trading is a business that should not be entered into lightly. Important aspects of trading that should be considered are: personality type, expectations, and finding strategies that work for you. It is important to assess the level of risk that you are willing to take with purchases. Will you be making a short- term investment, or looking to stay on top of the market?

Age may affect the type of strategy that you should choose for stock trading. We will discuss many of the strategies that are used in today's market.

Day Trading - A day trader is someone who buys and sells during the day (intraday) and may have a high volume of trading throughout the day. Advantages? No overnight hold exposures, capitalizing on both longs and shorts throughout the day.

As with all other forms of trading, there are always disadvantages. Day trading is a lot of work; you have to remain vigilant throughout the stock trading day. In addition, since brokers charge a commission on each trade, your gains have to outpace the cost of frequent trading.

Swing Trading - A swing trader takes more calculated risks, making larger trades and holding them throughout the day, up to several days or weeks. This yields fewer commissions because of a slower cycle of trading, but there is a smaller margin of error because of the decreased frequency of trades. It can be more profitable with several days' worth of profits as opposed to profits accumulated within a single day.

Swing traders frequently use technical analysis to determine when they should buy and sell a stock. The key points are identified based on the percentage of profit that the swing trader wishes to hit. It is important to keep in mind that typically the higher the percentage, the higher the risk. Because you are making fewer trades, you do have to go for a higher profit on each trade, so this additional risk has to be taken into account. In addition, you have to consider the risks associate to be exposed to market fluctuations for a longer period of time.

Stock and futures market trading is ebb and flow by nature. If you are trying to capitalize on trading over a longer period of time, you must be prepared to fall into a higher category of risk as the sizes of market swings are larger.

When they concentrate on longer-term, noise that is common in the market can be filtered out of the markets. If you are deciding to look at longer trend, you can consider a slight move against it to be relatively insignificant. Be aware that you should keep track of consistent moves against the trend. This kind of stock trading can provide profits that are greater than other types of trades! Remember that the longer timeframe will yield a greater risk, especially with stocks that may not remain stable. When you use this strategy for trade, you could miss the profits from the shorter-term market swings.

Of course, the longer timeframe equates to a higher risk, certainly with stocks that are more volatile. This type of trading also misses out on profiting from the short-term swings of the market.

Many investors who hold stocks for a long period of time are not actively carrying out a long-term trading strategy, but just picking up stocks and holding on to them for no particularly good reason. It may generally be better, even if you plan on holding on to a stock for a long time, to approach trading as a long-term swing trader. That way, if the stock does become less attractive over time, you are positioned to minimize your losses and maximize your gains. Go into the market with clear goals, and you will be better prepared.

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

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