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Stock trading is considered an easy means of acquiring a sizeable profit within a short period of time. But stock trading is also considered a risky business. With a proper education and discipline one is bound to succeed as a stock trader. Stock markets present a wide variety of trading options for its players. But one should choose the type that suits his financial resources and his risk sustaining capabilities.
Depending on how the stock traders react to different market situations, stock trading can be classified into various categories.
(a) Fundamental trading, which is based on fundamental analysis. In case a company is doing well, fundamental traders would hold on to their stocks as long as they see the company tiding strong.
(b) Scalping as a method is somewhat similar to day trading. Scalpers complete multiple trades and enjoy commissions for each transaction they close. This enables them to make moderate sums.
(c) Technical trading is the type of stock trading that involves the use of graphs and charts prepared by technical analysts. A close look at the price and volume movements of stocks determines the calls. Technical trading might be both short term and long term.
(d) Day Trading involves day traders who complete their transactions within the span of a single day. They do not hold shares overnight. Day traders often depend heavily on market sentiments. This type of trading is considered one of the riskier methods. Many a fortune is known to have been made or broken through day trading.
(e) Momentum Trading is the type of stock trading that takes advantage of the abnormal price trends of stocks; and depending on the price swings if you can get in at the right time you can make money easy and fast.
The ultimate motive of every stock trader would be to gain the maximum profit possible from his investments. But there would be traders harboring varying strategies. Some would be playing with his shares to gain quick profits while others would be interested in using their stocks as a long-term investment tool. Hence on the basis of the stock trader's goal, they can be said to be of three different kinds: Position traders, Swing traders and Day traders.
Position traders buy stocks and hold on to them for a long time, which can stretch from a few months to years, with a view the to ultimate wait for the stocks to get appreciated in value and they expect very high returns. They thus have a conservative approach towards the stock market and base their decisions on fundamental analysis. The company's financial status interests them more than exercising technical analysis and they simply ignore any short-term market fluctuations.
Swing traders are those who employ a middle path. They hold on to their stocks for a reasonably shorter period compared to position traders. They use both their fundamental and technical analytical powers. They take advantage of market fluctuations and sell off large volumes of shares with an aim to incur huge profits.
Day traders trade on their stocks on a daily basis using their technical analytical capabilities. A day trader would thus be interested only in making short-term profits. For a day trader, a stock market would thus be simply a source of income rather than an investment option.
It can thus be concluded that stock markets provide a plethora of crisis moments for the traders staking huge sums of money. But at the same time, each human being is bound to react differently to stressful situations in stressful moments. And he should thus choose his trading practice methods that he thinks is best suited for him.
