Are You Considering The Stock Market
Like any venture for profit, stock trading requires a sound knowledge base. If you know what you are doing, stock trading can be very profitable. Here is some information which the beginner might find useful in starting their trading business.
If you are cashed up and looking to invest and acquire a good return on investment, then you may have already looked at the stock market. The stock market can be profitable if you employ an effective strategy which will optimize your results.
There is a plethora of information available when first learning the ropes of the share market. Answering the question as to which strategy is best for your circumstances begins with an understanding of what each strategy has to offer and the elements of risk involved.
Firstly there is day trading. With this strategy stocks are purchased and sold within the same trading day. As with any strategy, there are advantages and disadvantages. The advantages include quick profit and a measure of protection from the actions of foreign traders overnight. This strategy usually is employed many times in any given business day since it is generally based on small percentage profits. The accumulative profits can be very substantial for a day and over a month. The disadvtanges also include the fact that there are multiple trades since you will also incur fees for each trade. As well, there can be accounting charges based on the number of trades when preparing your taxes. These factors need to be added in when calculating your profits. Additionally, there is a large time investment for day trading. Since small price fluctuations can mean the difference between profit or loss it is essential to stay on top of the price throughout the day.
Swing trading is the next strategy on a continuum from short-term to long-term trading. Using this method a swing trader will hold stocks from a few days to one or two weeks. Variations in price are considered on an intra-week or intra-month basis. Overall the stocks which are best suited to swing trading are large-cap stocks such as Microsoft, Intel or Cisco Systems. A baseline price is needed to evaluate the oscillations in stock price for any given stock. This can be provided by charting a stocks Exponential Moving Average (EMA). From this baseline it is easy to examine price fluctuations. This is particularly true of a market which is going nowhere. In strong bull or bear markets, a longer term strategy is more applicable. Swing trading is especially suitable for the new trader to gain some experience in the stock market. One advantage of swing trading over day trading is that there are fewer trades and therefore lower brokerage fees.
The third trading strategy is long-term trading which is encapsulated in trend following. In this method, the stock market, market sectors and individual stocks are examined for price movement over time. Once the trend is established, action can be taken whether this is to enter a trade or, if the price has moved against you in a current position, to exit a trade. Trend following decisions are based on what the price is actually doing and not what is might do. Thus the emphasis is on the trend already being established. Because of this approach, the intial change in market direction will be missed but there is a higher degree of certainty and false signals will be by-passed. All stock trading strategies should include the consideration of money management and risk management and trend following is no exception. How much or your capital base should you commit and what are your strategies for cutting losses.
Knowing the difference between stock trading, allows you to discern which one will best serve your needs. It is important to keep in mind to respect your budget limits and to invest only what you can afford.
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