Profitable Stock Market Trade Strategies
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.
Short-Term Stock Trading Strategies
Momentum Stock Trading
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.
Long-Term (Buy & Hold) Investment Strategies
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.
Use Trading Plans for Consistency
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!!!
Written by: Goran Dolenc
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Links to Articles Covering Stock Market Trade Strategies
Momentum Stock Trading Strategy In 5 Easy Steps
Momentum stock trading strategy focuses on stocks that are moving significantly in one direction on high volume offering traders potential for significant profit.
Penny Stock Investment - For Experienced Investors Only!
Penny stock investment is high-risk investment in stocks priced less than $5 and traded outside regular stock market exchanges. It is often connected with scams.
Shorting a Stock - Short-Term Trading Strategy Or Hedge
When shorting a stock trader sells borrowed stock hoping its price will fall and he will be able to by it back at lower price, thus making some profit.
Pre-Market And After-Hours Stock Trading Strategy
Pre-market and after-hours stock trading strategies rely closely to news releases like earnings announcements, offering scalpers enough room for profits, while having some unique risks.
Gap Trading Strategy - Simple And Disciplined Trading Approach
Gap trading is one of many trading strategies based on technical analysis, which is very simple to trade and can be very profitable, but it requires discipline.
Using the Elliott Wave Theory for Predicting Stock Market Moves
The Elliott Wave theory assumes that crowd psychology moves from optimism to pessimism in predictive waves; improve your trading results by recognizing them.
Fibonacci Sequence - Trading Fibonacci Numbers Like Professionals
Fibonacci sequence can be a very powerful tool or even the basis of a standalone trading strategy for investors and traders in bull or bear market and any time frame.
Contrarian Investing Strategy - Profit From Wrong Conventional Wisdom
Contrarian investing is a very powerful investment strategy, focusing on undervalued stocks, industries or asset classes in extreme market sentiment situations, when the majority is wrong.
Insider Trading Reports - Useful Sentiment Indicator For Enhancing Your Trades
By analyzing insider trading reports you can intelligently evaluate the stock market and find valuable gems that have yet to be discovered by the masses.
Investing For Income - Long Term Conservative Investment Strategy
The aim of investing for income is putting together a collection of stocks, bonds and other asset classes that generates the highest possible annual income at the lowest possible risk.
Value Stock Investing - A Warren Buffett Investment Strategy
Value stock investing simply means buying a stock, or indeed a business, at less than its intrinsic value; this strategy was also adopted by legendary investor Warren Buffett.
Growth Investing Strategy - Capital Appreciation At The Cost Of Higher Risks
Growth investing strategy is focused in stocks with a high growth potential, providing investors long term capital appreciation, but at the cost of higher risks.
Core/Satellite Approach Simplified
Build Your Stock Market Portfolio With Core-Satellite Investment Approach
Core-Satellite approach in building stock market portfolio combines managing risk and return, experience and insight, and the reality of managing emotions such as greed and fear.
How To Invest In Stocks - Implementing A Core-Satellite Portfolio
Are you asking yourself how to invest in stocks, which strategy is the best? Core-satellite is well established and successful investment approach.