Trade Tips

Stock Trading Strategies Explained

Stock trading strategies are a particular "game plan" that outlines how you are going to participate in the stock market. The most common strategies are: day, swing, and position trading.

Conventional wisdom warns: "Do not invest more than you can afford to lose." A good strategy can protect you from losing even that amount you CAN affords to lose by protecting you from knee-jerk reactions.

Most new traders are affected by the dual demons of stock trading: Fear and Greed. Fear causes you to sell stocks at the wrong time, and greed causes you to buy stocks at the wrong time, or hold on to them for too long. Let's take a short look at the three most common strategies and see what they are all about.

What is Day Trading?

Day traders buy and sell stocks the same day. The hope to take advantage of sometimes tiny up or down ticks in a stocks price as the trading day unfolds. Their goal, at the end of the day, is to own nothing and to have made a profit.

Day trading is very risky and not for the amateur or faint of heart. One bad move can easily rack up thousands of dollars in losses. Some people are addicted to day trading which, in many way, is like any other gambling disease.

There are hundreds of books on the subject of day trading, as well as training classes and software programs all designed to give the day trader an edge in a rapidly changing market.

What is Swing Trading?

Swing Trading is named after the strategies of taking advantage of brief price swings in strongly trending stocks and riding the momentum in the trends' direction. That is, buying if the trend is up or selling short if the trend is down. This if often called "riding the direction of the trend".

If you know what you are looking for, swing trading is much safer than day trading. You still get the potential gains of day trading without the minute-by-minute pressure. Swing traders hold their stocks for days or, sometimes weeks, as they watch the trend play out. Swing trading, also known as momentum investing, because you only take ownership in stocks that are making major moves. Swing trading can help you quickly build equity by rolling your money over rapidly and there is never a shortage of new opportunity.

What is Position Trading?

On the other hand, position trading (also known as investing) involves taking a position in a stock with an objective of holding onto that position for a time frame that may vary between a few days and a few months in return for a larger than normal gain. Position traders or investors generally trade the long term or secular trends and are not concerned with the day to day market volatility.

The fastest and most risk free way to make money in the markets is to identify a change of trend in the market as early as possible, take your position, ride the trend and close your position shortly after the trend reverses. In their most basic form, market trends are either "up", "down", or "sideways". Usually position traders will buy into an up trend, sell into a down trend, and stay out of the market when it isn't doing either (moving sideways).

Each of these strategies require the trader to be cautious, aware, and respectful of the market's awesome power to drain your equity account in a minute! Don't take the plunge until you have the knowledge to get you through the tough times.

Reproduced from

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