Eschew greed and fear Most new entrants to the online stock trading are beleaguered by the fears of loss and greed. Both these negative features induce you to take wrong steps that hasten the losses rather than profits. Fear makes you buy and sell off the stocks at the wrong time. You hold on the stocks for too long out of fear that their prices may fall further or because of the greed that the prices will rise further.
Invest what you can afford
Before you enter into online stock trading you must bear in mind the age-old wisdom that warns against investing more amount of money than you can afford to lose.
But the question is why should you lose?
A determined stock market winner devises strategies to secure himself from losing any amount even if it is affordable. These strategies also protect you against making knee-jerk reactions.
Meaning of stock trading strategy
A stock trading strategy is a kind of game plan that charts out how you are going to successfully invest in the stock market and derive maximum profits from it. The most popular stock trading strategies are: day, swing and position trading.
Day trading involves buy and selling the stocks the same day. Day trading is conducted to derive immediate benefits from stock price fluctuations as the trading day unfolds. The goal of a day trader at the end of the day is to own nothing and yet makes a profit. Day trading is a very risky business and is not for the newbies and the faint-hearted. A single bad move can work havoc with your finances.
Online day trading has become one of the most powerful tools for making quick money in the United States even though the economy has been sluggish in the recent years.
Lots of people are making money through day trading. But you can make a killing in day trading only if you are well versed with the techniques of buying and selling the stocks at the right time. You need to develop technical and fundamental strategies to determine when exactly to buy and sell your stock.
You also need to know how much to diversify your portfolio and manage the risks by spreading your investments. Your broker is always available to provide you the critical guidance whenever you need it. In course of time you develop an intuition about the right stock and right time to trade, which enables you to make a steady income.
Swing trading means devising strategy to take the advantage “of brief price swings in strongly trending stocks and riding the momentum in the direction of the trend.” In swing trading, you buy when the trend is up and sell when the trend is down. This type of strategy is called “riding the direction of the trend.” The basic strategy is to trade a strongly trending stock after its current consolidation and correction period is over. Quite often the strongly trending stocks make quick move after completing correction.
Swing trading is safer and a better strategy of making money than day trading. You get the benefits of day trading without suffering the tension of observing the price movements every minute of the trading day. As a swing trader, you develop the strategy of holding on to your stock for days, sometimes even weeks while you watch the trend play out. Swing trading is also known as momentum investing because you trade in stocks that make major moves.
Swing trading is a great strategy for the new entrants as well as part time investors in stock trading. Since your trades are not frequent, you have to pay less in brokerage fees as well.
Position trading is also known as investing. It involves taking a position in a stock with an objective of holding on to it for a stipulated term, which may range from a few days to months or even longer. Position traders are obviously long-term traders and are not bothered about the day-to-day fluctuation in stock prices.
The strategy for making fast and risk free money through position trading is to identify a trend in the market as early as possible. Once you identify the trend, you take your position, ride the momentum of the trend and close your position as soon as you notice reversal in the trend. Ordinarily the markets follow the cycles of ups or downs. Position traders, therefore, usually buy into an up trend and sell into a downtrend. They stay out of the market when it is neither up nor down but remains sideways.