Types of Stock Market Trading
For outsiders, the stock market is a reliable indicator of the actual value of the companies which issue stocks. Verifiable financial data such as growth, assets, and sales figures form the basis of the value of stocks.
Moreover, the stock market is considered a good choice for long-term investments. This is based on the assumption that well-run companies continue to grow within the stock market and pay handsome enough dividends for their stockholders.
The same opportunities are also afforded on short-term investors in the stock market. Market jitters, even those without basis, can cause rapid price fluctuations.
General investor psychology, likewise, can trigger the prices of stocks to either fall or rise. Investor suspicions about a company’s value can be set off by news reports, economic conditions and rumors.
When there is a sharp rise or drop of a stock price, some investors quickly jump on the bandwagon and activate an even faster acceleration. (The market will correct itself later, though.)
In the meantime, knowledgeable investors whose keen eyes are watching the market see these kinds of situations as great opportunities for profitable trading.
These opportunities depend, of course, on the types of short-term traders. There are three categories in short-term trading – position trading, swing trading and day trading.
Compared with the other styles, the stocks in position trading can be held at a relatively longer period. Position traders are expected to hold on to their stocks from 5 days to six months at most.
The reason: they are watching out for the fundamental changes in the stocks’ value. However, position trading does not need much time.
Studying the stock market can be as short as 30 minutes a day and it can even be done outside regular working hours. This type of trading is ideal for those investors who want to supplement their income.
Compared with position traders, swing traders hold their stocks for a much shorted period of time, which generally lasts for about one to five days. Swing traders are mostly driven by emotions rather than by fundamental values.
This type of trading needs more time in researching on stocks and thinking of strategies because swing traders need to identify trends so they can pick out the best trading opportunities.
As it is, swing traders tend to rely on daily and mid-day charts to plot stock movements. However, this type of trading usually brings out greater paybacks after sometime.
From a consensus, this is considered to be the riskiest way to play the stock market. To be fair, this could be true only for the slightly uneducated trader but not for an experienced one.
What everyone is afraid of is the fact that day trading generally takes less than a day and can be as short as a few minutes. By this token, day traders have to stay rational and analytical to survive this type of trading.
Day traders have to make out strategies when to get in and out of a position relying mostly on information that can influence stock price movements. All in all, day trading needs to be done full-time because it requires paying close attention to the many different stock market conditions.
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