Three ways to make money trading stocks are day trading, swing trading and stock options trading. Each of these three ways to make money trading stocks has its own logic, strategy and pace. First let us look at the very short term approach to making money trading stocks.
The first of our three ways to make money trading stocks is day trading. There are several profitable day trading strategies. These include trend trading, rebate trading, scalping and continual technical analysis in order to spot opportunities. The point of technical analysis is that certain market conditions generate certain price patterns for stocks, commodities and currencies. Because market conditions repeat themselves so do specific price patterns. Thus a technical trader learns to predict the market in the very short term by paying close attention to technical signals. If you are going to make money day trading you need to be in place when the market opens and stay at your trade station until it closes. However, this does not mean that you will trade all of the time. The most effective day traders pick and choose their trades. The old saying that if you do not enter a trade you cannot lose money in a trade is appropriate to day trading. Wait for the right signals and make a short term profit. Then wait for the next opportunity.
We wrote recently about swing trading Chinese stocks. This article provides a good example of how swing traders use fundamental as well as technical analysis to predict stock price movement over weeks and months. Swing traders study the fundamentals that drive prices. They often take a contrarian stance when a stock or an entire sector is going up faster than fundamentals would dictate. These traders look for over priced stocks and short them. And they look for underpriced and overlooked stocks and buy. The point of this second of three ways to make money trading stocks is to study the stock, make the trade and get out with a reasonable profit. As with day trading you can never get hurt by staying out of a trade that you do not understand.
There are times when a trader can safely predict that a stock will go up or down and there are times when no one can be sure. In a volatile market it is possible to make a lot of money with the correct trade and it is possible to lose your shirt. The beauty of buying stock options is that any losses are limited to the price of the options contract. Another nice aspect of buying options is the manner in which a trader can leverage his trading capital. You simply invest less in the trade with options and your percent return on invested trading capital is often a multiple of what you invested. This is often the most safe and secure of our three ways to make money trading stocks.
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