Are You Thinking About Stock Trading?

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Author: Mark Crisp (Stress Free Trading)

Article source: http://www.articledeshboard.com/. Used with author's permission.

Like any venture for profit, stock trading requires a sound knowledge base. If you know what you are doing, stock trading can be very profitable. Here is some information which the beginner might find useful in starting their trading business.

If you are cashed up and looking to invest and acquire a good return on investment, then you may have already looked at the stock market. The stock market can be profitable if you employ an effective strategy which will optimize your results.

There are a number of different strategies available when trading shares. Learning about the various trading strategies is essential to develop a clear understanding of a style which will best serve you. This will allow you to get started with a enough clarity to make effective decisions.

The first strategy to consider is day trading. Here a stock is purchased and, according to the strict definition, sold again on the same business day. For seasoned day traders, there may be many trades undertaken on any given day. Whilst some trades can result in large percentage gains, the value is in multiple trades for a small percentage profit. Because the time frame is so short profits are realized quickly. The downside of day trading is the amount of time taken. It is important to stay informed of the price since small changes can result in either a lost opportunity to take profit or if the price moves against you, a loss. The other thing to consider is the brokerage fees. Multiple trades means multiple fees as well as additional accounting. These prices need to be factored into the equation to determine your actual profit.

Swing trading is the second strategy and represents a mid-term solution. Whilst day trading involves buying and selling stocks within the same trading day, and trend following is a long-term strategy, swing trading positions may be held from a few days to two or three weeks. Picking good stocks is essential for a favourable result and generally speaking, stocks are chosen from large-cap companies such as Cisco Systems, Microsoft or Intel. The type of prevailing market is also a factor in swing trading which is best suited when the market is "going nowhere" rather than in a strong bull or bear market. It is the consistent oscillations in share price which benefits the swing trader. Charts can be used to determine the Exponential Moving Average (EMA) for stocks of interest and this will provide a baseline from which to examine oscillations and also to determine buy and sell points. Swing trading is a good method for the new trader to jump into the market since feedback on price changes is considered in the medium term rather than the ultra short term of day trading or the longer term of trend following. In comparison to day trading, swing trading involves fewer trades and therefore brokerage fees will be less.

Trend following is the third strategy. This is a long-term strategy where greater profits can be realized. However, with the potential for greater profits comes a higher risk. In trend following the overall movement of the market, market sectors and individual stocks is considered. The minor variations in stock price are overlooked in favour of the prevailing trend. Factors for consideration in discovering buy and sell signals are moving average and breakout. Buying and selling is undertaken once the trend is established. In this case the initial stages of a breakout will be missed until the trend is established. Whilst it is always important to be aware of your stock positions and performance, trend following doesn't require the same time investment as day trading and can be a much more "comfortable" way to trade stocks. Other elements in trend following include money management and risk management. How much of your trading funds to invest and strategies to cut losses effectively.

With an appreciation of different trading strategies, you are now armed to make an informed decision as to which one will best meet your needs. At all times, exercise caution and be certain to invest within your budget.

Mark Crisp is an experienced stock trading and the creator of the Momentum Stock Trading System which focuses on big moves for big profits. Click here www.crispstocks.com to pick up your complimentary copy of The Seven Habits of a Successful Trader.