Learn different stock market trade strategies to profit from every market condition.
Different types of stock trading strategies exist and choosing between them can be a difficult decision.
Whichever you use, it should be a part of your complete stock trading plan and helping you narrow down your choices for stock selection. By disciplinary following a particular strategy combined with other research tools, such as technical analysis or fundamental analysis, you can increase your probability of success of your stock market trade.
Short-term stock trading strategies are used for trading; their biggest risk is that overconfident investor will take on too much risk too early and find that they have quickly lost what they have worked hard for. Long-term stock trading strategies are used for investing; they are often less risky, but the reward for successful stock market trade is accordingly lower.
Momentum stock trading is based on following the trend and your research should focus on finding stocks or sectors that are moving in a direction with some sort of strength (strong uptrend or strong downtrend).
Penny Stock Trading
Penny stock investment is focused on trading with stocks with very low price, generally under $5.00 per share. There is a higher risk involved in penny stock trading, since legitimate information on penny stock companies can be difficult to find and a stock can be easily manipulated.
Shorting a stock is strategy to profit from a decline in a stock price. Since stock can drop fast and significantly and because of lack of regulation in this area, this type of strategy is known as more risky. It used to be available only for limited group of professional traders, but today with brokers offering margin account and with evolution of new financial instruments like for example short ETF's, it is becoming more and more popular also among other traders.
News trading is focused on following the most important news announcements real-time: macroeconomic news releases (unemployment, interest rate change, GDP growth...), earnings releases of companies, bond auctions, political speeches, etc. This stock trading strategy if very short-term oriented, usually geared towards Scalping or Day Trading.
Extended Hours Trading
Pre-market or after-hours stock trading is done most often in combination with news trading. Trader buys or sells a "moving" stock before market opens or after market close and then closes the position inside regular trading hours. Not all brokers offer the possibility of trading outside regular trading hours.
Medium-Term (Swing) & Special Stock Trading Strategies
Gaps are areas on a chart where the price of a stock moves sharply up or down with no trading in between. Gaps occur for example if a company's earnings are much higher than expected; the stock price opens higher than it closed the day before, thereby leaving a gap. Traders are exploiting these gaps and looking to profit as the stock price reverses to fill the gap. More about gap trading.
ETF trading is designed to spread out risk because an ETF contains a basket of stocks in a particular region or sector. ETF trading is usually combined with a momentum trading strategy. Could be short, medium or long-term.
Elliott Wave Theory
The Elliott Wave trading strategy is based on a theory that investor psychology moves stock prices up in a series of five waves and down in a series of three waves. Traders are focused on charts to identify these waves.
Fibonacci Trading Strategy
One of the most common uses of Fibonacci sequence in trading is using Fibonacci Retracement Levels. This form of technical analysis refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction.
Contrarian Investing Strategy
Contrarian investing strategy attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong. For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains.
Following insider trading reports involves researching major insider trading transactions. Insiders are directors and officers of a company and also stockholders who own more than 10% of equity in a company.
Investing for income or income investing strategy is focused on stocks with high dividend yields. This type of stocks experience little volatility and typically are safe investments paying dividends year after year, which are passed on to the fund investors. The objective of this strategy is mostly income generation through dividends while keeping risk at a minimum.
Value stock investing strategy researches stocks from profitable companies that are fundamentally undervalued comparing the stock price to their true worth. People who invest in these companies need to understand the fundamentals of a company to understand their true value. The objective of this strategy is a combination of capital appreciation (growth) and income generation (through dividends) with moderate risk.
Growth investing strategy is focused in stocks with a high growth potential. These stocks are riskier than value stocks, as they have a potential to go sour. Many of these stocks do not pay dividends since they reinvest their profits in business expansion. The objective of this strategy is mostly capital appreciation but at the cost of higher risks.
Many investors have problems being consistent in following their trading strategy, which often results in big loses. What do I mean? If you have clearly define the criteria for entering and exiting the position, do not change them if current market conditions do not suit you (for example changing the stop-loss limit). Stick to what you have determined before entering the position. You have to know every time, why did you enter the stock market trade, and why and at which level you will exit the position, no matter it will bring you profit or loss. To be strict in following your trading strategies, we recommend using trading plans. This can be a simple Excel or Word file, which will help you refresh your mind before making any stupid mistakes. Your mind and hart shouldn't influence your stock market trade, never!!!
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