Different Types of Trading in the Stock Market
There are various types of stock trading options available in the stock market. A trader who is trading into stocks uses these options as the trading strategy. In this post, we will discuss these trading types.
The following are the popular types of stock trading:-
Day Trading or Intraday Trading
In this type of trading, a trader buys and sells the stock on the same day. If the trader does not sell the stock then it is sold automatically before the closing of the market. This type of trading has a high risk associated. The beginners avoid this trading strategy. It requires quick decisions and fast action. Traders involved in this trading are called day traders or active traders.
The day trading has the following strategies:-
- Arbitrage: This strategy focuses on the slight difference in the price of the traded stock. When a trader finds a slight difference in the price, he/she buys or sells the stock in order to optimize the risk.
- Scalping: In this strategy, a trader does multiple tradings in a day, up to hundreds. This is done very quickly within seconds or within few minutes in order to achieve even a small profit from order. The process is repeated for multiple times. This types of strategy associate a smaller risk.
- Momentum Trading: This types of day trading follows the trending momentum of the stock. The trader catches the momentum of the stock and makes the profit by riding the stream.
- Pattern Trading: In this type of trading, the traders focus on the chart pattern of the stock. As the price of a stock goes up or down, it forms a pattern on the chart. There are various types of charts and each has a specific study. An experienced chartist earns much profit by reading the charts.
- Other Day Tradings: There are some more strategies which are followed in day trading like Market Making, Rebate Trading etc.
Swing trading is a strategy for trading which includes the slow pace and increased potential gain. In this type of trading, a trader trades into a stock when it is trending after a correction or consolidation. A buyer may hold the stock for one to a few days and sells, mostly within the same week, after gaining a reasonable profit.
The bought stocks held for more than a day to few weeks is called the short-term trading. Swing trading is the best example of short-term trading.
When a trader makes a position on a stock for a few weeks to a few months is known as medium-term trading. Swing trading with a higher period is termed as medium-term trading.
In this type of trading, a stock is held by the trader for many months to many years. The decision on this position is made by fundamental analysis of this stock. All the world’s well know investors and traders follow this strategy of trading. Warren Buffett and Rakesh Jhunjhunwal are well known long-term traders and investors.
Disclaimer: This post is an educational blog and it does not give and investment or trading suggestions to its readers.