Sunday , 25 June 2017

Types of Trade and Strategies

Share Market Trading can be classified into either of these categories -

1) Day Trading
2) Swing Trading
3) Position Trading

However, the common factor among all types of traders is that Stock market traders keep up with the news. The businesses and industries react to government actions, changes in oil prices, economic forecasts and world events. The successful stock market trader stays informed about the circumstances outside a company that could cause price fluctuations for the stock.

Day trading conditions the most intense approach to stock market trading. To be on top of the fluctuations in stock prices, day traders spend hours together in monitoring the market. Day traders could make dozens of trades any day, sometimes in a matter of minutes hoping to grab the wave of price change. They avoid the risks of long term buy and hold. Day trading could be exciting, the fast pace attracting risk takers. Yet this strategy for stock market trading is only effective for day traders, who apply analysis rather then emotion to trading decision. Savvy day traders could turn profits quick. Emotional traders usually lose fast and leave disenchanted.

Swing trading uses a slightly longer time horizon than day trading, watching a stock for weeks or months before trading. This type of stock market trading relies on careful monitoring of fundamental and technical analysis. Swing traders often specialize in a certain business or industry so that they become experts in the movement within those stocks. They also have more time to study the company financial reports and industry forecasts. Since swing trading does not require hours of daily monitoring, it is a good strategy for the trader who wants to make money from stock market trading without turning it into a full time job. Even the study of reports could be done during the daily commute or lunch hour so that the swing trader stays well informed.

Position trading works well for investors who want to be involved in the stock market trading, but run short of time. Stocks are being held for months awaiting any changes in the trend. Position traders keep up with the fundamental and technical analysis as well as news events but apply a long term strategy to their stock market trading

What is day trading?

Day Trading is the act of buying and selling securities intra-day with the expectation of making fast profits within minutes to hours. Popularized during the bull market of the late 1990s, day trading is the practice of buying and selling stocks over a very short period of time, typically one day. Once the domain of floor traders and investment banks, the availability of inexpensive computers and fast Internet access has brought day trading to the masses.

Day traders come in all shapes and forms, using mechanical to systematic day trading systems, and can place anywhere from one to thousands of trades per day.

Day trading strategies typically follow one of two approaches: beating the spread or attempting to catch short term trends. The spread is the difference between what is being offered for a stock (the bid) and the price being asked for the stock (the ask).Spread trading attempts to buy at the bid and sell at the ask, over and over again. Spread traders may make hundreds or even thousands of such trades a day. With the advent of spreads as low as one penny, spread trading has become much less profitable than it once was.

Counter-trend traders will look for signs that a stock is topping or bottoming out before they place a trade in the opposite direction. For example, reversal traders use tools such as the TICK, TICKI, Put Call Ratio, volume, etc. to anticipate a change in trend.

The term “day trading” is a widely misused and misunderstood term. Real day trading means not holding on to your stock positions beyond the current trading day; in other words, not holding any position overnight. This is really the safest way to do day trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks.

Unfortunately, many people who claim to be “day trading,” hold stocks overnight because of fear or greed, thus setting themselves up for the catastrophic elimination of their capital. When day trading currencies, the term “day trading” changes slightly. Sincecurrencies can be traded 24-hours-a-day, there is no such thing as “overnight” trading. Thus, you can have open positions for longer than a day with active stop losses that can be activated at any time.

Day trading is an investment tactic that does online daily stock trading with a relatively short investment. Those who do day trading usually buy and sell securities during the same market day and, as a general rule, do not hold stocks overnight. Many day traders make dozens of trades every market day hoping to capture profits that arise from small intraday price fluctuations..

You basically watch the stock market all day long, buy and sell multiple times throughout the day, trying to buy it low and selling it high and then rebuying it when it drops back down, etc. Very dangerous, and hard to do. Studies have shown day traders do worse in the long run than buying stocks and holding onto them for longer terms. Plus you have to pay commission or fees every time you buy and sell, and taxes on your capital gains are higher for stocks held for less than a year.

Averaging Buying a share at different times, in different quantities. And at different prices, so that an advantageous average price is obtained. For example, someone has bought 100 shares at Rs 80 in a rising market; when the price falls to Rs 60 he may buy another 200. By averaging he has obtained a price of Rs. 66.33 for a share. If he buys still further shares when the price is lower, by averaging he may obtain an even lower price. Averaging is often done to offset the high price once paid in a rising market. Also, averaging is a means of not paying too high a price when buying a lot of shares (there is no violent change in price, since the buying is in small lots), or not getting too low a price when selling a large chunk of shares (the price doesn’t drop suddenly).

Buy and Hold Strategy Accumulating shares of a company over the years for long-term growth benefits and favourable capital gains tax on profits. This requires far less for the investor’s time, than BUY AND SELL STRATEGY, which is frequent trading in shares.

The buy and hold strategy refers to an investment move requiring investors to hold on to their stock for a long period of time rather than getting involved in daily trading. One of the strongest arguments for the buy and hold strategy is the efficient market hypothesis (EMH): If every security is fairly valued at all times, then there is really no point to trade. Some take the buy and hold strategy to an extreme, advocating that you should never sell a security unless you need the money [1]. One of the main benefits of a buy and hold strategy is the easiness of the process.

Market timing is an investing strategy in which the investor tries to identify the best times to be in the market and when to get out.

People who use the buy and hold strategy usually buy stocks or shares from companies they respect and love, companies that have a proven track of success and are here to stay. History has proven that a buy and hold strategy outperforms most attempts to time the market in absolute returns. Investors are usually “passive” in their buy and hold strategy. By its nature, trading requires action while the buy and hold strategy requires sitting on a position for long periods with the expectation that the share price will appreciate in value. Since trading is active while buy and hold is passive, the buy and hold strategy is really best for investors. Turn to mutual funds if you prefer the buy and hold strategy. In other words, using a conservative easy to implement swing trading strategy that used only closing prices for both buying and selling, you would have made OVER 7 TIMES more money than using the buy and hold strategy for the same stock. There are many many factors to decide on when choosing a good investment property for a buy and hold strategy.

You should never buy an investment property under the buy and hold strategy based on emotion or gut feel.

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