The Different Types of Stock Trading

The stock market serves as a reliable indicator the actual value of the companies that issue stocks. Stock values are based on verifiable financial data such as growth, assets, and sales figures. The stock market is considered to be a good choice for long term investments since this reliability that well-run companies should continue to grow and provide dividends for their stockholders.

Short-term investors are also given opportunities in the stock market. Market skittishness, even without a financial basis, can cause the rapid fluctuation of prices. Investor psychology, on the other hand, can also cause the prices of the stocks to either fall or rise.

The suspicions of investors about a company’s value increase can be ignited by news reports, economic conditions, and rumors. When the price of a stock either rise or fall, some investors will quickly jump on the bandwagon to cause an even faster price acceleration. Eventually though, the market will correct itself. Savvy short-term investors who watch the market closely see these kinds of situations as great opportunities for profitable trading.

Short-term trading is divided into 3 categories:

• Position Trading
• Swing Trading
• Day Trading

Position Trading

The longest term trading style among the three is position trading. Compared with the other styles, the stocks in position trading can be held for a relatively longer period of time. Position traders are expected to hold on to their stocks for anywhere from 5 days to 6 months because they watch out for the fundamental changes in the value of the stocks. Position trading doesn’t require a great deal of time since the time needed to study the stock market can be as little as 30 minutes a day and it can be done after regular work hours. A quick examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who invest in the stock market for the purpose of supplementing their income.

Swing Trading

Swing traders, when compared with position traders, hold their stocks for a shorter period of time that generally lasts only for about one to five days. In looking for stock market changes, the swing trader is more driven by the emotion rather than the fundamental value. This type of trading requires more time in researching stocks and conceptualizing strategies because the swing traders need to identify the trends in order to pick out the best trading opportunities. They tend to rely on daily and intra-day charts to plot the movements of the stocks. This type of trading usually generates a greater payback.

Day Traders

Day trading is considered to be the riskiest way to play the stock market. This may be true for slightly uneducated traders but not for well experienced ones. Day trading involves the buying and selling of stocks in very short periods of time. It generally takes less than a day but it can be as short as a few minutes. Day traders need to stay rational and analytical to survive this type of trading. They create plots of when to get in and out of a position by relying mostly on the information that can influence the movement of the stock prices. Day trading has to be a full-time profession since it requires paying a close attention to the different market conditions.