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Profit From Choosing The Right Stock Trading Strategy

May 22, 2008
Developing a stock trading strategy that is compatible with your needs, expectations, and personality is the single-most important component of stock trading. First, determine your threshold for risk. Are you comfortable with making short-term investments and paying close attention to the ups and downs of the stock 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.

Quicker, smaller profits can result from a higher percentage of winning trades, thus reducing risk. Reality check: This type of trading requires vigilance. You must pay attention to the market during the day. This strategy can prove costly when making frequent trades because of transacion costs.

Swing Trading - A person who is hoping to make larger trades and string them out over a days or weeks, is called a swing trader. The slower cycle of trades allows for a smaller chance of error, less commission, and the ability to have a greater impact on multi-day profits of swing trading. A swing trader often uses technical analysis to help choose swing trade options that target a greater level of return than the average day trader. However, with greater profit chances comes a higher risk for your trade.

Many traders prefer to trade over a longer timeframe. If you are a person who is considering this type of trade, you should know that your risk per trade will be higher. This risk occurs due to the retreats that are subject to happen in all stock and future trading in the market. Be ready to have overnight exposure as you will be subject to major changes or events.

Long-Term Swing Trading - If you take this approach, you are basically following the same strategy as the swing trader described above, except that you hold the stocks longer. Trades are usually made over a period of months. You can use this approach to trading when focusing on stock indexes and mutual funds, or through technical and fundamental analysis of individual stocks.

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.

Buy and Hold Trading - The investor that uses this strategy is often one who buys it and holds onto it for years. This type of trader may use a great deal of fundamental analysis before picking this type of trade and understand market sentiment analysis. The profits can be great with this strategy. It usually has few costs for trading when compared with shorter-term methods.

Buy and Hold Trading also known as Buy and Forget trading. These stocks may be bought and held for years. Using the right approach, this can be a lucrative option.
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