Stock Market Basics > types of stock trading

Know The Different Types of Stock Trading

"Trading Recipe: Take the obvious, add a cupful of brains, a generous pinch of imagination, a bucketful of courage and daring, stir well and bring to a boil". — Bernard Baruch

The stock market is the place where people dare to dream and where dreamers are dealt a healthy dose of reality. Of course, the smartest ones learn how to deal with that reality to make their dreams come true! Whether its trading stocks, options, futures or commodities, there are plenty of types of stock trading.

Equity markets provide opportunities which allow investors and traders alike to use different trading styles to take advantage of those opportunities. Lets have a look at some of these:

Fundamental Trading:
By using fundamental analysis, this investment style looks at the health of a company's bottom line before taking a position. If the company appears strong, fundamentalists will take a position with the intention of owning it until the health of the company changes. This can range anywhere from a few months, to a few years.

Scalping:
A scalper is like a day trader on speed. Utilitizing cheap commission rates, a scalper can make dozens to hundreds of trades, trying to get a small profit from each trade. By taking advantage of the bid / ask spread, a scalper aims to make a few dollars. These small profits can start to add up.

Technical Trading: Technical trading involves buying/selling stocks based on signals from charts. Technical analysists or chartists, predict where a stock is headed – upward or downward – based on charts and graphs calculated by volume and price movements of a stock. They issue buy and sell calls along with price targets and "stop loss" figures. Technical trade calls may be valid for a day or also for long term.

Day Trading: Just as it sounds, day traders move in and out of positions based on news or technical triggers, however, do not hold positions overnight. Day traders often will trade multiple positions throughout the day. One of the riskier methods of trading, many fortunes have been made and lost as would be day traders chase the dream and end up losing their shirts.

Momentum Trading: Massive volume and wild price swings are the characteristics of momentum stocks. This type of trading takes advantage of abnormal behaviour of stocks that have just released news that either has everyone pouring into the stock, or getting out of a stock quickly. Get in at the right time, and you can make easy and fast money. Buy at the top or sell at the bottom, and you're left holding the bag well after the party is over.

Different types of stock trading options are available in the market. If you want to get into the stock market, tread cautiously, and choose a type of trading that goes with your financial resources and risk tolerance.