The internet changed everything when it comes to trading in stocks. It allows traders to make trades worldwide at lightning speeds, all from the comfort of their own home. In order to make the most of these capabilities, however, there are certain trading strategies any successful online day trader will have to know in order to be successful.
In this piece, we will be outlining some of the most important techniques for online trading, as well as some of the most lucrative ones. We will be covering day trading, momentum training, swing trading, as well as some other ways of making profits that don’t seem as intuitive. With that in mind, let us get started.
Day trading places great emphasis on technical analysis, the ability to follow and understand charts and graphs, and the way the market works over the course of a single day. Day traders, by definition, are people who buy and sell a particular stock on the same day, preferably selling for more than they bought it for. The holding time for a particular stock may be a few hours or a few minutes, depending on a particular trader’s analysis or even instinct.
Momentum trading relies on profiting from any recent news that may have a large impact on the price of a certain company’s stock. If the news is good, the stock price will go up, and if it is bad, the stock price will go down, and there are ways for investors to profit off both of these cases.
Momentum can also be spurred on, not by good news about a company’s business, but also by the decision of a major institutional investor to invest in a particular company, The logic is that if this giant investor thinks the company is good, there is a high degree of likelihood that it is. That means investors can rely on either technical or fundamental analysis, or both, in order to make use of momentum trading.
Swing trading is a short term trading strategy (more of a tactic really), which places heavy emphasis on technical analysis. Traders subscribing to this model use technical analysis to look at charts in stock price and notice any regularities and patterns that they can exploit in order to make a quick profit. Simply put, these investors predict the short-term price fluctuations, and then buy when the price is at the lower end in order to sell when it is at the higher end. This strategy is not for beginners, however, since it requires a great amount of experience in technical analysis.
This is perhaps the most well-known trading strategy out there, for good reason. It was invented by William O’Neil, as a way to combine both technical and fundamental analysis, in order to make sound investments while being quick to profit off them. This approach entails buying companies with solid fundamentals, which has performed well, and doing so when certain technical criteria are met. There are many indicators investors look for in charts, such as the ‘cup and handle’ or the ‘W formation’, but these are too complex to be discussed in detail here.
This is the most basic strategy imaginable, but also one of the smartest. Buying and holding simply means analyzing the fundamentals of a company (though this ste can also be dispensed with), and then purchasing its stock for the long term. The holding times can vary, but they are usually a year or longer (due to certain tax rules), with the idea that the investor will be able to sell the stock for a profit.
This long-term approach means that there is really no use for technical analysis, as short-term market shocks, or even longer trends will not have a big impact on the bottom line for an investor who intends to hold a stock for a long time.
By definition, penny stocks are those stocks with a value of less than $10 per share/ These are far more risky than the stocks of well-established companies, seeing as though they are more prone to market shocks. On top of that, the future of these companies is uncertain, since there are a lot of shady companies operating worldwide, and there is often a limited amount of material for honest fundamental analysis to be done on them.
That is why penny stocks are a prime vehicle for speculation and technical analysis, with day traders being able to make a handy profit on them. With that being said, investors should always try to do fundamental analysis, since this will allow them to predict the stock price going up in a big way, due to certain breakthroughs made by the company.
It may seem odd to single out a particular type of stock related to one industry, but there are good structural reasons to do so. Biotech companies produce new medication, which has to undergo FDA approval. If the drug is approved, the stock price will skyrocket, and if it is rejected, the stock price will plummet.
A savvy investor will be able to predict which way this will go, and decide on their position accordingly, leading to great profits.