Trading strategies discussed in this article include swing trading and day trading. Both are very similar ways for trading stocks online but the main difference between these two strategies is the time frame in which stocks are bought and held. In this article we will discuss both of these ways of trading strategies as well as the advantages and disadvantages of each.
Trading Strategies: Swing Trading
This is the first of our profitable trading strategies. Swing trading typically involves a smaller position size than when day trading stock online. Additionally, swing traders will typically hold onto stocks for a few days to several weeks and then trade the stock on the basis of its intra-week or intra-month movements. Stop loss orders are placed wider than when day trading as well. When determining exits when swing trading there are rules that every trader should follow. It is very important that the trading strategies as well as the trading rules are understood before placing trades in this fashion. For instance, if the prior day low is taken out on the breakout day, or the high for shorts, then the trader should exit the trade. Also, once a trade is held overnight, a stop loss order should be placed no further away than below the recent consolidation area. A move beneath it would indicate a failure.
Pros and Cons of Swing Trading
Swing trading stocks has its advantages and disadvantages as all trading strategies do. Some advantages include that swing traders can place fewer trades, therefore requiring fewer commissions and less chance of making a mistake. Additionally this type of stock trading provides the ability for successful traders to catch more significant multi-day profitable trades. A disadvantage to swing trading is the fact that the higher profit targets come with higher risk per trade. There is also overnight exposure that cannot be predicted.
Trading Strategies: Day Trading
Day trading stocks requires a larger position size since you are looking for a smaller move within a short time frame. Unlike swing traders, a day trader may trade a few times per day or more! There are also rules with day trading that every investor should follow. For instance, they should always keep their profit objective at least 3 times greater than what they are willing to risk. Also, day traders should allow no more than 1% move against them from the entry point. There are many more trading strategies and rules that day trading investors should learn in addition to these two rules.
Pros and Cons of Day Trading
Day trading also has its advantages and disadvantages as well. When day trading there is no overnight hold exposure and investors can profit from both long and short and take advantage of quick swings in both directions. There is also a higher percentage of winning trades when taking quicker profits and smaller investment risk. The disadvantages to this type of trading can be the trading costs which tend to be high when trading as frequently as you do when day trading. Also this investment strategy requires constant attention to the markets and a lot of effort.
Both trading strategies are a great way to make money by trading stocks. Continue to research them both as well as other strategies and find one that works for you.
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