Different types of trading styles and which one is for you?
As we have already discussed in previous article about what is stock market and various other terminologies used in stock market, now we are going to learn more about trading styles and their types. Stock trading can be classified into various trading styles as there are numerous goods or commodities or shares in many markets. Stock trading, as everybody knows involves huge risks which need vigilant choice of good strategies.You should know about various trading styles and their strategies and techniques to decide which one is for you. You can do online or physical stock trading depending on the style that suits you best.
Here in this article we will be discussing about some of the most popular types of trading in brief. But before that there is another term that you must know when considering trading in stock market and that term is stock volatility.
What is stock volatility?
Stock volatility is the term used to describe the volatile nature of the stock market. The stock market keeps fluctuating- one day it goes up and then goes down for the next four days, then up again and again down, that is what is called as stock volatility.
Types of trading
14 different types of trading styles:
- Intraday Trading
- Swing Trading
- Positional Trading
- Options strategies
- Trading based on technical analysis
- Trading based on money flows
- Event Based Trading
- Quantitative trading
- Arbitrage Trading
- High-Frequency Trading
- Trend Trading
- Insider Trading
- Margin Trading
What is day trading?
Day trading as name suggests is a trading style in which both buying and selling of stocks is limited to a day. This means all of your positions should be closed before the market closes for the day. Traders who take part in day trading are called day traders or active traders. Day trading requires quick decision and quick action. A day trader generally holds a stock from a few seconds to a few hours. Its purpose is to quickly get in and out of any particular stock to earn profit on a day’s basis and avoid any overnight risks. Beginners should avoid this type of trading.
What is trend trading?
Trend trading is one of the easiest and most effective methods for earning profit in the market. Trend traders as name suggests try to make money from market trends. As long as the trend continues, the positions are kept open. This means that trend trading can be a short, medium or long-term strategy. Success of trend trading is dependent on identifying and grasping the trend after it has begun and getting out of the trend as soon as possible,once the trend changes. It is most risk free way to make money in the markets.
What is swing trading?
This type of trading works on the concept of the price ‘swings’ that take place during particular stages of the life cycle of a certain trend.Traders predict the lows and highs during a trend according to their research and data they collect for a particular security. The key difference between swing trading and day trading is the time frame. Swing traders try to predict the short-term swing in stock prices overnight. As a result, positions can last anywhere from a day to a few weeks. Traders can keep trades for longer duration in order to increase the profits made when a trend gains momentum. Swing trading is completely dependent on a trader’s prediction and accuracy of data on which they make a decision.
What is insider trading?
Insider trading is a term that most traders generally link with illegal conduct. But, in reality the term includes both legal and illegal conduct. The legal version is when company insiders-directors, officers and employees- buy and sell stock in their own companies. When company insiders trade in their own securities, they must report their trades to the Securities and Exchange Commission (SEC). Illegal insider trading, on the other hand, involves tipping others when you have any type of nonpublic information.
What is mahurat/muhurat trading?
Muhurat trading also called Mahurattrading is the stock market trading activity that takes place for about an hour on the day of Diwali. Generally, this trading session is conducted in the evening and most traders buy during this session. It is an established ritual that has been done for years and investors make some token purchases on this day. “Muhurat” is believed to be a fortunate time according to the Hindu calendar where the planets are aligned in a manner that the works done during this time become profitable and without the impacts of evil forces. Trading in the stock market on Diwali at a particular Muhurat time is therefore believed to bring wealth and prosperity for the coming year.
What is margin trading?
Margin trading means you can buy stocks even if you don’t have the full amount to do it. Traders borrow money from the broker or brokerage house to complete the trade. It is a great mechanism that lets you to buy stocks worth more than what is possible with your own resources. However, for this type of trading you need a margin account. The exchanges have an institutionalized way of buying stocks without having the capital through the futures market. The percentage of margin funding may range between 50-90%, depending on the broker and his relationship with the customers. The broker, in turn, funds his line of credit from a bank and shares are kept in his account with any profit or loss going to the customer.
We hope now you know about the types of trading and which one will best suit you. Keep Following our Share Market blog to know more insights.