By Aniket Bose. Edited by Arjun Chandrasekar.
Essentially stock trading involves the buying and selling of stocks frequently in an attempt to time the market at the right time. The main goal of stock traders is to be able to capitalize on short-term market events to sell stocks for a profit for the seller or buying stocks at a low price for the buyer. Some of the people that sell stocks are often referred to as day traders, which means that they buy and sell multiple times throughout the day.
There are four main types of stock trading: Day trading, Scalping, Swing trading, and Position trading. Let’s learn more about each one in detail.
This type of stock trading commonly corresponds with purchasing and selling a security within a single trading day. Securities are primarily the general term for stocks, bonds, mutual funds, exchange-traded funds, and other types of investments that you can buy or sell. Day trading can occur in any marketplace, it is most commonly used in the foreign exchange (forex) and stock markets. People who are day traders are typically well-educated and well-funded as well. Day trading is neither illegal nor unethical, it is just a very risky tactic for investors. Many individual investors don’t possess the amount of wealth, time, or the patience to make money and endure the heartbreaking losses that day trading can bring to investors.
This type of stock trading is a style where it specializes in profiting off of small changes in price and making quick profits off of reselling. Scalping requires traders to have a disciplined backup plan due to the particular reason for this circumstance is that one huge loss could eliminate all the small gains that the particular scalp trader had accumulated. It is also a risky investment strategy much like day trading but some investors are interested in scalping because it is an easy way to make money in short periods. It is a very difficult investment strategy for investors because it is not easy to execute and for it to be successful, it requires many trades to happen over time.
This type of stock trading is a style where investors attempt to capture short to medium-term gains in stocks or any other particular investing instrument throughout a couple of days to a couple of weeks. Investors that use swing trading as an investment strategy typically use technical analysis to look for more opportunities to trade. Investors usually start the strategy of swing trading when they have a range of $5,000 to $10,000 at their disposal because if you fall under these balances then investors could be risking too much on every trade they execute. Swing trading is frequently profitable for investors but it heavily depends on them having a good strategy for trading and having the discipline to continue swing trading during the ups and downs.
This type of stock trading is where traders take the advantage of multi-week and multi-month moves in a stock price. Traders have the option to either take short or long positions in a stock and then hold them anywhere from a period of two weeks to an entire year. Investors that use position trading are much less concerned with the short-term market fluctuations, as they typically hold their stocks or other financial instruments for long periods. It is the complete opposite investment trading strategy like swing trading because, in swing trading, investors will buy and sell their assets within days whereas, in position trading, investors will hold on to their assets for long periods of time.