What It Is

Developing a stock trading strategy that is compatible with your needs, expectations, and personality is the single-most important component of stock trading. First, determine your threshold for risk. Are you comfortable with making short-term investments and paying close attention to the ups and downs of the stock market?

Even factors such as age can have an impact on the decisions you make in stock trading. A few stock trading strategies used today are:

Day Trading - The term “day trader” refers to the fact that stock traders who use this approach buy and sell stocks within a single day, not holding a stock overnight. They make money by capitalizing on short-term fluctuations in the stock market, and avoid the risk of being exposed to changes in the market overnight. You can reduce the risks involved with day trading by sticking with quick, small profits rather than waiting for a stock to hit its peak.

You may reduce your risk of losing money by focusing on a greater percentage of winning trades by accepting faster profits. These profits are smaller due to the smaller risk. This strategy also has it downsides. It requires a lot of effort, time, and work. You must always be giving the market your attention during trading hours. The cost may be higher as you will be trading stocks at a high rate.

Swing Trading - Instead of day trading, you can hold your position in the market longer, for days or weeks, and look for opportunities to make larger profits. This type of trading is called swing trading. Because you are making fewer trades, you don’t incur as many commission charges. The profits can be larger and you are less likely to be pressured into making a mistake.

Swing traders frequently use technical analysis to determine when they should buy and sell a stock. The key points are identified based on the percentage of profit that the swing trader wishes to hit. It is important to keep in mind that typically the higher the percentage, the higher the risk. Because you are making fewer trades, you do have to go for a higher profit on each trade, so this additional risk has to be taken into account. In addition, you have to consider the risks associate to be exposed to market fluctuations for a longer period of time.

Long-Term Swing Trading - If you take this approach, you are basically following the same strategy as the swing trader described above, except that you hold the stocks longer. Trades are usually made over a period of months. You can use this approach to trading when focusing on stock indexes and mutual funds, or through technical and fundamental analysis of individual stocks.

Long-term Swing Trading - This swing trader is similar to the above, but instead of a days-to-weeks turnaround, this trader is focused on weeks-to-months turnaround. Focus on the indexes, mutual funds timing, and technical and fundamental analysis of stocks is commonly used in this type of trading. These longer turnaround times allow for less ‘noise’ found in most of the markets. Smaller market movements have less of an affect on this type of trading. The yield of this type of stock trading can be as high.

Of course, the longer timeframe equates to a higher risk, certainly with stocks that are more volatile. This type of trading also misses out on profiting from the short-term swings of the market.

Many investors who hold stocks for a long period of time are not actively carrying out a long-term trading strategy, but just picking up stocks and holding on to them for no particularly good reason. It may generally be better, even if you plan on holding on to a stock for a long time, to approach trading as a long-term swing trader. That way, if the stock does become less attractive over time, you are positioned to minimize your losses and maximize your gains. Go into the market with clear goals, and you will be better prepared.