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Developing a stock trading strategy that is compatible with your needs, expectations, and personality is the single-most important component of stock trading. First, determine your threshold for risk. Are you comfortable with making short-term investments and paying close attention to the ups and downs of the stock market?

Age may affect the type of strategy that you should choose for stock trading. We will discuss many of the strategies that are used in today’s market.

Day Trading - A day trader is someone who buys and sells during the day (intraday) and may have a high volume of trading throughout the day. Advantages? No overnight hold exposures, capitalizing on both longs and shorts throughout the day.

Quicker, smaller profits can result from a higher percentage of winning trades, thus reducing risk. Reality check: This type of trading requires vigilance. You must pay attention to the market during the day. This strategy can prove costly when making frequent trades because of transacion costs.

Swing Trading - A swing trader takes more calculated risks, making larger trades and holding them throughout the day, up to several days or weeks. This yields fewer commissions because of a slower cycle of trading, but there is a smaller margin of error because of the decreased frequency of trades. It can be more profitable with several days’ worth of profits as opposed to profits accumulated within a single day.

Opportunities for swing trading can often be found using technical analysis. Typically, the aim is for a higher profit margin than that of day trading. Of course, this also means a higher potential level of risk per trade.

Stock and futures market trading is ebb and flow by nature. If you are trying to capitalize on trading over a longer period of time, you must be prepared to fall into a higher category of risk as the sizes of market swings are larger.

When they concentrate on longer-term, noise that is common in the market can be filtered out of the markets. If you are deciding to look at longer trend, you can consider a slight move against it to be relatively insignificant. Be aware that you should keep track of consistent moves against the trend. This kind of stock trading can provide profits that are greater than other types of trades! Remember that the longer timeframe will yield a greater risk, especially with stocks that may not remain stable. When you use this strategy for trade, you could miss the profits from the shorter-term market swings.

Of course, the longer timeframe equates to a higher risk, certainly with stocks that are more volatile. This type of trading also misses out on profiting from the short-term swings of the market.

Many investors who hold stocks for a long period of time are not actively carrying out a long-term trading strategy, but just picking up stocks and holding on to them for no particularly good reason. It may generally be better, even if you plan on holding on to a stock for a long time, to approach trading as a long-term swing trader. That way, if the stock does become less attractive over time, you are positioned to minimize your losses and maximize your gains. Go into the market with clear goals, and you will be better prepared.

Last 5 posts by Carl G. Robertts

• How To Become A Stock Trader And Profit From Stock Trading - March 15th, 2008

Tags: Investing