Trading is all about buying and selling any financial instrument in a short period of time. and there are processes for trading types but most traders follow these types of trading strategies.
When two parties (buyer and seller ) complete a transaction. If the seller sold financial instruments within a short period of time. we can call this transaction as trading. after buying financial instruments If buyers sell this financial instrument within a short period of time, it’s also trading. But if the buyer took this Financial instrument for a long period of time ( above 1 year or more) then this will be investing.
In the same transaction, one can be a trader and one can be an investor. Also, both parties can be trader similarly both parties can be investors. Trading or Investing it’s only the Nature of buying selling financial instrument.
Types Of Trading Strategies
Trading is a strategy to make money in a different way this is not the method.
Basically 6 types of trading strategies we use. So I will discuss that below
In this trading strategy, people buy, sell stock multiple times in a day. you can buy a stock and a fraction of seconds you can sell it. This strategy is scalp trading.
Advantage: traders do multiple trading with low stop loss. So that it will prevent more losses.
Disadvantage: Because of multiple trading trader paying more brokerage.
2. Momentum Trading
Example: If you know 1st April Share market regulator, company, or any stock market-related event will announce at 2 pm or that day. after the announcement market will react. So in momentum traders will wait for those moments and do trade watching the momentum of the stock price.
Advantage: Momentum traders don’t trade every day, they wait for special events in the stock market. As event days stock price movement is too much that why momentum traders can make more money compared to normal trading days.
Disadvantage: If any mistakes with stop losses so the trader can lose more money because of stock price changes too much on that day.
3. Intraday Trading
Buy and sell stocks within a day. If you buy a stock and before closing the market you square off your position. This strategy is to call Intraday trading. Traders don’t carry stock positions overnight.
Advantage: Buy and sell stocks on the same day so traders don’t have to lock their money for the next day also this will reduced overnight concern about the stock.
Disadvantage: If you are in the loss for that trading day still you have to sell the stock with losses within stock market hours.
4. Swing trading
the stock price cannot be gaining every time. after gaining the price then stock price falls a little bit. and stocks price go through this type of price pattern.
So swing traders sell these stocks at the pick price of the stock & and go with the trend as trader hope price will fall if share price fall they traders buy at a low price and will get profit. similarly, traders buy the stock after falling price and sell it when the price will gain again.
Advantage: Traders follow the trend of the share market. So that it’s the possibility to earn money.
Disadvantage: Traders have to lock their money for uncertain times. Also if trend change movement that will be in loss.
5. Derivative Trading
Derivative trading is the futures contract that gives you the right to buy or sell stocks, a commodity at a contract price.
Let’s an example: Petrol, diesel is the derivative of crude oil. if any price changes of crude oil it will impact on petrol and diesel prices.
if you buy or sell companies stock its stock trading .if you not buying companies stocks and buy a or sell companies derivative its called derivative trading.
Advantage: Many traders do derivative trading to earn money in the short term. or even some Traders in the market only do derivative trading.
Disadvantage: long term investors don’t want to do derivative trading. also its quite not easy for beginners.
4. Positional Trading
If traders buy stock for weeks, months this is a positional trading strategy. trader buy or sell stock expectations for the next quarterly results.
Advantage: As traders buy stocks for a few days, week, or even month so that positional trading is a quite low risk.
Disadvantage: You money will lock for a short period of time.
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