Common Active Trading Strategies for Any Beginner

Stock traders are usually of two types – long term traders and short term traders. Long term traders are generally called investors and they follow the buy–and–hold strategy. This means that they buy the shares and hold it for a longer period of time till the stock appreciates to a desired level - when they sell and book profits. They ignore the short term movements in price. They enter into a fewer number of trades and look for more profits in a single investment.

Short term traders, on the other hand, look to take advantage of the sharp or sudden price movements to make profits. They enter into multiple number of trades and make their profits from a relatively large number of transactions. As a consequence, the short term trader incurs larger transaction costs, which he must factor in while effecting trades.

Short term traders depend on the shorter time frames for guidance. They may enter into trades with large volumes and make profits thereon in a narrow price movement. There are many methods adopted by short term traders and some of the more common ones are:-

Day Trading: As the name implies, in this method of trading, a trade is entered into and closed the same day. No position is carried overnight. This was originally carried on by professional traders only, but with the opening of demat accounts and electronic trading platforms, anybody with access to a computer and internet connection and having an account with the broker can indulge in day trading.

Position Trading: This is often misconstrued as a long term trading strategy. These traders use charts of longer duration, daily, weekly or even monthly to take positions in scrips. Usually only experienced traders enter into such trades. These traders try and identify trends based on the charts and other indicators and try to make money by going with the trend. They buy shares in a rising market and sell shares in a falling market. Mostly they try and predict the direction of the market without trying to predict price levels for entry and exit.

Swing Trading: When a trend is coming to an end, there will be certain level of price volatility before a new trend tries to establish itself. Some traders try to cash in on this volatility. These traders hold the shares longer than day traders, but not so long as positional traders. These traders are at risk in a sideways market or in a range bound market. They trade based on algorithms.

Scalping: This kind of trading is possible only in scrips which are liquid or which trade in large volumes. Here the trader tries to buy the share at the bid price and sell it at the ask price, taking advantage of the price difference or spread between the two. As the range is bound to be very low, he looks to make quick and small profits.

Any beginner can trade using one of the above strategies, but before that the cost and risk associated should be explored and considered.

Atreyee Roy (have 690 posts in total)

Be the first to comment....

(ex: John Thor) *