Stock traders have various types of stock market trading strategies to choose from depending on; financial goals, time an investor is willing to hold a particular stock, the personality of that particular individual among others.
Let us break down how these types of trading strategies come by before we actually go in-depth to understand each one. Trading is divided into two broad categories; Short-term and long-term trading. A stock investor can either invest in a stock based on research he/she has done, fundamental analysis or he/she can make a decision to analyze the charts and make his/her investment, technical analysis.
Either way, a stock investor needs a form of trading strategy that fits his/her financial goals, and personality among other things to comfortably make a wise stock investment. In this article, we will explore the form of the types of stock market trading an investor can choose from to start or advance his/her trading. Let us get started with the following types of trading:
- Intraday trading
- Swing trading
- Positional trading
Intraday trading was done by the market makers before the emergence of electronic trading which opened ways for novice traders. It is considered a low-risk type of stock market trading since it takes advantage of the low margins as it is a short-term type of trading. Intraday or day trading involves buying and selling of shares within the same day.
Stock investors who are impatient and anxious to hold on to trades for a long time may find day trading a thing to go by. On the other hand, it requires small capital to get started since an investor can make payments in the form of small margins.
Don’t get excited just yet. Day trading also comes with its disadvantages and just to mention, it might not work in favor of that particular inverter who visualizes large gains within a short period. To be a day trader, you must vow to commit yourself and focus on your day’s trades. A trader is also more likely to pay more fees depending on the number of orders.
Delivery trading is considered the most popular, safest form of stock trading and the most expensive one since it relies on no margins. An investor is required with the full amount of money required to take on positions. The investor must be patient enough to hold on to shares bought for a long period of time.
Delivery trading isn’t constrained by time. An investor looks at the daily and the monthly charts to determine the direction of the underlying stock movement while doing technical analysis. Positions taken are held for weeks, months, and even years depending on the stock investor and the market conditions.
Delivery trading comes with rights to the investor, for example, voting rights and guarantees for the company’s dividends. An investor can enjoy great profits from his/her long-term shares holding if the company does well. One’s shares are guaranteed to reduce in value as the company’s value in the market reduces and the investor has no control over it as there is no shorting when it comes to position trading.
Delivery trading does not allow any margins. That means a stock investor must have a lot of money to buy stocks in any particular company. This might limit an investor to take advantage of other stocks which are doing well due to the limitation of access to cash unlike other types of stock investments.
Swing traders have rules based on fundamental and technical analysis that helps them take advantage of the changes or swings in the market to profit. Stock traders using swing trading to profit from the market hold trades for days to benefit from the momentum in stock prices.
What is the difference between swing trading and other types of trading? The difference comes in the time a stock is held by a trader. While swing trading, a stock trader is prevalent to hold trades for a maximum of a few weeks.
Since swing trading is a short-term type of trade, a stock trader is liable to know the stock movements, be good at technical analysis and know fundamental analysis to determine price trends in the market. This way, the stock trader can maximize his/her returns.
Stock traders who use positional trading buy and hold stocks for a long time. Unlike other types of stock market trading, positional trading makes use of a significant rise in the prices of the underlying stock.
Positional trading has higher returns and does not require a stock trader to constantly monitor his/her trades thus giving you time as an investor to engage in other activities while passively making money in the stock markets.
Don’t think position trading is effort free when we say that it doesn’t require constant monitoring. This type of stock market trading requires a stock trader to conduct heavy study and research on the underlying company’s stocks since it involves long-term possession of that particular stock.
Scaling is a short-term stock trading strategy employed by stock traders who want to enter and exit the market within a few minutes to hours. Unlike other stock traders, these stock traders prefer quit markets that are not prone to sudden movements.
Stock traders using the scalping technique have a special skill that enables them to identify and take advantage of the narrower or the wider than normal buy and sell spreads caused by temporary imbalances in the demand and supply.
With the already clear risk that accompanies scalping, scalpers aim to capitalize on the frequent and measured transaction moves the market makes. They focus on the frequency of the moves rather than the large moves and volume that accompanies a particular stock.
The discussed types of stock market trading do not work in isolation and whatsoever guarantee profitability to any individual trader. You have to conduct research, take stock trading as a business and invest in other tools and software that will work with the type of stock trading strategy that suits your financial goals, personality, and other factors you’ve laid out as a stock trader to be profitable in your business.