About 20% of Americans were investing in the stock market in 2020, up 5% from 2019. It’s clear Americans are looking for ways to grow their money and want to make decisions about where it goes, too.
Many, though, have limited knowledge of the many different stock trading strategies they might use when investing.
The more you know about these strategy options, the better choices you can make about your investment in the stock market. Read on to learn more about trading stocks.
What Is a Trading Strategy?
When you’re involved in stock trading, especially if trading for someone else, you must know when to make a trade and when to wait. Often that decision about when to become involved in a trade comes from some parameters from the stock buyer.
The stock trader needs to have rules or parameters about when to proceed with the trading. This establishes the trading strategy. The parameters might come about from chart patterns, technical indicators, fundamental analysis, or price action patterns.
1. Day Trading
A stock investor who practices day trading buys and sells all in one day. They might buy securities, wait an hour, then sell them again.
It would be very unusual for a day trader to hold onto a stock for any extended period, even overnight.
The day trader will most commonly use one of these day trading strategies for when to make a trade:
- Fifteen-minute charts
Most experts advise investors to invest for the long haul, and that’s genuinely the way you’ll make money. Day trading can be risky and challenging for a novice investor to master.
2. Swing Trading
Swing trading is the next step from day trading. A swing trader will invest in stocks knowing they will likely keep the stock beyond a single day like a day trader would.
A swing trade will invest in a security knowing they will keep the stock for several days, a week, or sometimes even longer. They will use trending charts about the investment to help them decide how they’ll hold it.
Swing trading is sometimes called trend-following traders for this reason. You can view here for more information on swing trading.
3. Positional Trading
Positional trading is the next step from day trading and swing trading when investing in the stock market.
A positional trader will buy a stock knowing they will likely hold it for weeks or months before selling it again.
Since this type of investing mostly eliminates short-term fluctuations, this type of investor will look more closely at longer-term patterns in the stock.
The goal for a position trader is to know when to make that trade to accomplish a big win within a short period of time.
4. Algorithmic Trading
You’ve probably heard of the use of algorithms on social media platforms. These algorithms help dictate what viewers see and what social media considers important to provide viewership.
With many types of stocks, traders will use something called algorithmic trading. In this type of trading, they are not using their own smarts or instincts for when to buy or sell.
Instead, the trader relies on a computer program that follows a certain algorithm and helps the trader decide when to act. It’s worth noting that the trader is still impacting the algorithm since they’re entering the rules and guidelines for the algorithm to follow.
5. Seasonal Trading
Another strategy for investing in stocks is to use seasonal trading. This is when an investor relies on seasonal information from year to year that they expect to repeat.
Then they use this seasonal information to reinvest in the next season. Seasonal trades might be based on:
- Patterns in weather
- Government economic announcements
- Corporate earnings reports
This type of trader will use seasonal data to give them an edge when deciding if it’s time to buy or sell. While they might also use other trading methods, this is used to help guide their trading decisions.
6. Long-Term Investing Strategies
While many novices might assume that investing and trading strategies are the same because an investor buys stocks, they would be wrong.
Trading strategy defines how the trader approaches making a trade. What parameters and guidelines do they use to decide whether to buy or sell a stock?
On the other hand, an investor is almost always making a purchase for the long haul. They buy knowing they intend to hold the stock, allowing for growth over time. The data they use to decide what to buy is likely different because it will consider long-term gains.
7. Breakout Trading
A breakout trader will look for stocks that have stayed inside a range for a period of time. They want to act on the stock when it breaks out of the previous parameters.
When the stock goes past one of the levels, it’s considered a breakout and a time to buy or sell. A breakout trader uses a lot of data to help monitor potential breakouts.
8. News Trading
A news trader will decide to act on a trade based on events in the news. The news might come from:
- Economic reports
- Major business announcements
- Geopolitical events
Often a big news event will impact a stock price, so traders use the information and act on it when the news presents.
9. Order Flow Trading
Imagine order flow trading as the type of trading taking in all of the trade activity on the floor. If it’s an active trading day and stocks are trending upward, it might make the trader look for options to sell.
Likewise, on a slow day, the order flow trader will generally look for low trends where they might buy.
Try These Stock Trading Strategies
Deciding on stock trading strategies that might work as a trader means you have some fundamental knowledge of how the market works and how stocks respond within the market.
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