For the last ten years, the average stock market return was 9.2%, outperforming savings returns in the United States. Financial Independence is slowly becoming achievable through the rise of online trading.
There are many types of trading strategies to unlock before venturing into trading stocks. This short guide will give you all the ins and outs of finding the right methods of trading stocks.
Investment indicators and strategies will serve you well for years to come. They will become the basis of your trading methods.
There are active approaches and passive approaches to trading stock. Some traders are known as day traders. The term day trading refers to the methods of purchasing and selling stocks.
In these positions, these traders are looking to predict the movement of the stock for the duration of the time they hold the stock. These traders take on a more active position in the market on a wide variety of stocks.
Passive traders tend to buy stocks and hold them for many years. This is in hope that they will increase in value, building up to a greater number. These concepts apply more to ETFs, indexed assets, and mutual funds.
Price Chart Analysis
Movements on a price chart can be broken down into two phases. Range Consolidation and range expansion. These two methods can help you visually chart the price of a stock.
Range consolidation is where the price chart graph seems to move sideways, accumulating orders as it finds balance in the market. The price movement stays for a period of time in the same average range.
Range expansion covers movements on the price chart where prices move away from the consolidation zone. At this point, the price chart will find new areas of balance.
As you begin to follow price charts for your chosen stocks, you need to take these methods into account. A skillful day trader needs to anticipate when a stock stays within the same range for long enough.
Once it reaches a boiling point in the consolidation zone, stocks may begin gaining upward momentum. This is when the stock enters the expansion phase, known as a breakout.
The long/short split investment, also known as Pair Trading is an effective strategy. In this form of trading, you anticipate an increase in the market by taking a long position.
For everything else, you expect a decline and take a short position. With these methods, you try to find stocks that are similar to each other in quality. You can find various methods of trading including algorithmic trading at kjtradingsystems.com.
Day trading falls below the one-hour timeframe, possibly the five or fifteen-minute timeframe. Day traders attempt to capture the intraday volatility. Most stocks, on average, move around two to three percent a day.
So, as a day trader, you are trying to capture this intraday movement of the stocks. Through this method, traders are known to exit their positions by the end of the day, before the closing of the market.
In these circumstances, there are no overnight risks. Day traders have a high chance of profitability during most months with the right investment. Traders can generate full-time income or a career out of trading in this way.
The only downside to this method of trading is the intensive quality of performance. This method requires long hours of screen time.
The opportunity cost is high when implementing this method. The loss of value can equate up to five figures when working full-time.
Swing traders normally operate between a 1-hour and a daily timeframe. The role of a swing trader is to capture one move in the market.
For example, if you are following your chosen stock and the market is in the range you can begin anticipating movements. As a swing trader, you are looking to buy near the lows of this price range. As the market upticks, you exit right before the highs on the price chart peak, toppling from the resistance.
In essence, as a swing trader, you’re trying to anticipate one quick movement for a short duration of time. The best swing traders jump into the market while it is trending, to catch one wave of the trend.
In certain circumstances, this method of trading is less stressful as it decreases your overall screen time. But, the downside is less understanding of the market movements due to the lower volume of trades. You can make money in certain quarters but you won’t be able to ride trends.
Scalp trading aims to accumulate a good amount of small wins. Traders enforcing the scalping strategy stick to buying and selling stocks at predetermined levels.
It is one of the quicker strategies on the list as it requires several trades that individuals can execute within seconds. Scalp traders can minimize losses by immediately dropping positions to prevent losses. But, traders need to be sharp enough to make quick decisions.
Positions trading is known as the longest form of trading. This method is dependent upon trading off of the daily and weekly timeframes. Your goal as a position trader is to ride the trends in the market.
Once the stocks begin to move away from their consolidation zones into a breakout, traders need to note these trends. Your ideal as a position trader is to capture this upward breakout movement. A skillful position trader captures the bulk of the trend.
This requires a little more patience to see the results as you need to wait on the market movements.
Seeking consultation with a financial advisor is wise when researching different trading strategies. A financial advisor can point you in the right direction when it comes to knowledgeable investments.
There are several active trading trends, some require far more investment knowledge than others. There are also far more challenging methods of investing that contain more volatility.
It’s important to research which method of trading best suits your sensibility. Follow our blog for more information on trading strategies and how to become a more efficient trader!
Read More: What You Need to Know About Stock Trading