Types of Trades in Stock Market
- Momentum Trading
- Day Trading
- Positional Trading
- Swing Trading
Scalping (or micro-trading) is all about taking very small profits, repeatedly. Typically, trades last from seconds to minutes. Scalping is a trading strategy that attempts to make Profits on small price changes.
Traders who implement this strategy will place anywhere from 10 to a few hundred trades in a single day in a belief that small moves in stock prices are easier to catch than large ones.
Scalping is an expert skill and, although many people find the idea attractive.
- Many trading signals during the day on very short time frames.
- No overnight risk – Profits and losses can be easily summarized by the end of the trading day.
- Fundamentals don’t play an important role on very short time frames – Scalpers can focus purely on technical analysis.
- All trades need to be actively managed and traded during the most liquid market hours.
- Unexpected news can spark a significant market reaction and reverse a profitable scalping trade.
- Large number of trades increases transaction costs when compared to longer-term trading styles.
Day trading is all about buying and selling on the same day, without holding positions overnight. Compared to scalping, this style calls for holding positions for minutes to hours versus seconds to minutes. A day trader closes out all trades before the market closes. Most day traders use leverage to magnify the returns generated from small price movements.
Day trading is often glamorized as an easy way to get rich quickly. However, this is rarely the case. Day traders typically suffer severe financial losses in their first months of trading and many never graduate to profit-making status. Day traders are handicapped by the bid-ask spread, trading commissions and other expenses. These costs require day traders to earn significant trading profits just to break even.
Both scalping and day trading require strong discipline; the time and ability to learn how to trade a tested and profitable strategy rapidly; and enough capital to withstand sudden and, possibly, larger-than-expected losses.
Both scalping and day trading are what is known as intraday trading. If you buy and sell shares in a single day, then you are considered to have traded intraday. An intraday trader opens (buys) and closes (sells) their trades (also called positions) within the trading day, leaving no trades open overnight.
- Use a variety of Trading strategies.
- More Trading Opportunities.
- Performance Measure.
- Technical Setups.
- Higher Trading Costs.
- Risk of Overleveraging Your Trades.
Trader identifies a stock that is “breaking out” and jumps on to capture as much of the momentum on the way up or down as possible. They focus on stocks that are moving significantly in one direction on high volume. The typical time frame for momentum trading is several hours to several days, depending on how quickly the stock moves and when it changes direction.
Swing trading is the art of capturing the short-term trend. It is a style of trading that attempts to capture gains in a stock within one to seven days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders are not interested in the fundamentals or the intrinsic value of stocks, but rather in their price trends and patterns.
In my opinion, swing trading and position trading are the only two types of trading in which a person with a full-time job can still consistently trade well part-time. Since the holding period is several days, intraday moves will not affect the swing trader as much as they would a day trader. A typical holding period for a swing trade is three to seven days.
- Good option for people who can’t trade during market hours but still want to remain active traders.
- Identify opportunities.
- Lower losses.
- Swing trades can change dramatically overnight, so if the market changes while you are sleeping, you could be up for a surprise the next morning- Unpredictable Changes.
- Requires a trader to be knowledgeable in technical analysis.
Position traders stay in trades for weeks to months. The position trader endeavors to anticipate whether the current trend will continue for a much longer-term than a momentum or swing trade. Position trading gives traders who cannot trade frequently a lot of freedom: profit potential is not diminished and position traders can make considerable gains.
Long-term traders are not concerned with short-term fluctuations, because they believe that their long-term investment horizons will smooth these out. Position trading is the polar opposite of day trading, because the goal is to profit from the move in the primary trend, rather than the short-term fluctuations that occur from day to day.
- Less stress
- Immune to market fluctuations in short time
- No early exit of trades
- Trend Capitalization
- Limited Maintenance
- Maximum Capital Requirements
- Account Liquidity
- Lack Of Compounding
When choosing a trading type to suit your needs, here are some questions to ask:
- Am I short-term- or long-term-orientated?
- How much time do I have during the day to trade?
- Do I work full-time?
- Am I patient, or do I need to see results quickly?
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