Feb 16, 2021 04:09 PM EST

Common Types of Trading Strategies

Common Types of Trading Strategies

(Photo : Common Types of Trading Strategies)

Investing is a way to set aside money while you are busy living your life and having that money work for you now so that you can reap the rewards later. However, understanding what trading and investing are, and how to engage in these practices, are two different things. There will always be different ideas and opinions offered to you regarding how often to trade, how long to hold a certain position, and when to enter and exit the market. When learning about the different styles keep in mind that a synonym for style, is preference. What you select should feel specific to your goals and authentic to your personality and risk tolerance level. Research the different styles of investing and trading so you can make an informed choice about which best suits you. 

Swing Trading

This style of trading is related to those who identify trends that are about to break and get into the game at that point. Utilizing swing trading strategies are best utilized when attempting to capture short to medium gains in stock. The general timeframe associated with this approach can be good for investors of all stages because the pace can be quick enough to remain exciting but slow enough to help mitigate risk. Being able to identify where an assets price is likely to move next is a key component. You have an opportunity with this style to focus on either volatile stock with lots of movement, or more sedate stocks. Some pros associated with swing trading are that they require less time than other styles, and that there is a heavy reliance on technical analysis. For those who love to identify data and study it thoroughly, swing trading matches with your brains ability to capture information and break it down piece by piece. 

Day Trading

This style of trading is arguably the most well know, as well as the most active. Understanding this strategy is almost as simple as knowing the name. Through this process, securities are bought and sold within the same day. This style of stock market participation is traditionally practiced exclusively by professionals who have the knowledge and the time to dedicate towards the quick decision making and high-risk factor associated with day trading. One major pro of day trading is that you eliminate overnight risk. Another advantage is that your return on investment will compound quicker than with strategies that include holding for longer periods of time. 

Position Trading 

Depending on who you ask, position trading can be considered active trading, or part of the buy and hold strategy. Either way the core element associated with this style is trend identification. These types of traders identify specific stocks and closely watch their trends to identify the risk and reward associated with investing. These positions are held for longer periods of time and are less concerned with short-term market fluctuations. Arguably the biggest benefit to position trading is the stress level. By design position trading is less of a time commitment than more aggressive styles so participants can expect more calmness in how often they must handle and manipulate their activity. You can expect a less volatile environment when participating in position trading.

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