Just like the different kinds of stock exchanges, there are also different ways you can take trades in these exchanges. These trading techniques vary based on many factors such as the risk/reward ratio, the frequency of trades, the value of money invested for a specific term, etc.
Here are the most prominent types of trades:
- Scalping - The practice of traders consistently booking modest profits is sometimes referred to as micro trading. Trades typically last a few seconds to many minutes. The goal of the trading method known as "scalping" is to maximize profits from minute price swings. The traders who use this method believe that little price changes in stocks are simpler to capitalize on than huge ones, and they will execute anywhere from 10 to several hundred trades in a single day. Although many individuals find the idea appealing (and exhilarating for adrenaline addicts). Beginners are not advised to learn as it is an expert ability.
How to take a scalping trade??
A trader is required to buy at breakouts(when a stock moves up abruptly) and sell off quickly in case there is no movement. He should book smaller and partial profits by selling half of the position and book the remaining position at the desired target levels.
- Day trading - In day trading, positions are bought and sold on the same day rather than being held overnight. This strategy requires holding positions for minutes to hours as opposed to seconds to minutes while scalping. Before the market closes, a day trader closes out all open positions. Leverage is typically used by day traders to increase gains from modest price changes.
Day trading is frequently popularized as a simple way to become rich rapidly. This is rarely the case, though. In their initial few months of trading, day traders frequently sustain significant financial losses, and many never advance to a position where they are making a profit. The bid-ask spread, trading charges, and other costs are disadvantages for day traders.
Due to these expenses, day traders need to make substantial trading profits in order to break even. Both scalping and day trading demands strong self-control, ample capital to sustain unexpected and possibly larger-than-expected losses, and the time and aptitude to quickly learn how to trade with a proven and effective method.
Best methods that can be applied for an intraday.
Scalping, booking numerous small profits during the change in price that occurs throughout the day.
News-based trading, on the other hand, works well on the opportunities that arise due to the high volatility that occurs from news events.
Range-based, this strategy uses predetermined support and resistance levels in prices to determine the trader's buy and sell decisions.
- Swing trading - Catching the short-term trend is the skill of swing trading. It is a method of trading when gains in a stock are sought after within a one- to seven-day period. Technical analysis is used by swing traders to identify stocks with short-term price momentum. These traders are more concerned with price trends and patterns than stock fundamentals or intrinsic value.
The only two trading strategies, in which a person with a full-time job can still successfully trade part-time, are swing trading and position trading. Since the holding time is prolonged, intraday movements won't have as big of an impact on the swing trader as they would on a day trader. A swing trade's normal holding period is three to seven days.
How to take a swing trade?
Well, to take a swing trade, one can use the indicators like Support and resistance, Simple moving averages (Candles of 10 to 20), MACD crossovers, Bollinger Bands, etc. These terms are explained in detail in the technical analysis section.
- Positional trading - For weeks or months, position traders remain in a transaction. In contrast to momentum or swing traders, position traders attempt to predict whether the present trend will last for a significantly longer period of time.
Position trading allows traders who are unable to trade regularly to have a great deal of freedom because it does not reduce profit potential and allows for substantial gains. Because they think that their long-term investment horizons will smooth out short-term swings, long-term traders are not bothered about them. Position trading, which aims to profit from changes in the main trend rather than the daily swings that occur, is the exact opposite of day trading.
Strategies that can be used for Positional trading
Some of the indicators that are used to take a swing trade also can be applied to a positional trade. Such as Support and resistance, 50-day moving average, Fibonacci retracement, identifying breakouts, etc.