The stock market is an ocean of opportunities for trading enthusiasts. It is very lucrative if strategized and followed through well. Since every trader has a unique personality, trading styles may differ from person to person.
Following are the 10 trading styles. Choose the one which matches your psychology.
1. Intraday Trading:
This is the most common type of trading practiced in the stock market by traders. Intraday trading refers to same–day trading. The traders have to sell and buy or buy and sell their stocks in the same day before the market closes. This style can also be referred to as “squaring off the trade”. It is one of the most aggressive types of trading for ones seeking higher ROIs than any other formats.
2. Swing Trading:
This is a type of short-term trading that typically lasts between 2 days to 2 weeks. Swing trading is a good option when one wants to invest in stock or options. Technical traders and chartists who like to observe short-term price momentum using technical tools fall into this category. The capital required here is larger than in day trading due to more margins in overnight trades.
Arbitrage trading is a style which takes advantage of price differences in two or more markets or exchanges. This is reserved only for prime trading firms with a huge network as this doesn’t need many analytical skills but needs more network speed.
This is a long term trading strategy. Positional traders ignore short term fluctuations in the market as they believe their long term vision settles things out. Traders are always on the lookout for big game changers within the company to get them their desired returns, hence holding period isn’t the most important concern.
Options trading require an objective and mathematical type of thinking. Since strategizing is a difficult ball game, one might require a bit of practice and time to become good at making their own strategies and implementing them. In India, there are very few options traders, mostly due to lack of awareness and sufficient knowledge.
6.Trade using Technical Analysis:
Stock market technical analysis is important to any strategy of trading. Use of stock technical analysis tools may give you a better insight in the near changes in demand and supply of the stock market. Having technical analysis as a skill helps traders become successful day traders, positional or even swing traders.
7.Money Flow Based Trading:
Money flow based trading depends on open interest analysis, promoter deals, stake sales, gross delivery data, FII inflows and DII flows in and out of stocks. Such data is essential to identify upcoming trends in the market. If you have a penchant for analysing money flows, this is the right type of trading strategy for you.
8.Trade Driven by Events:
Event-based trading takes advantage of a corporate event that has occurred or is about to occur. It seeks to exploit the changes in the market prices at times of mergers and acquisition, bankruptcy, earnings call and so on. This trading style requires technical analysis skills to understand how such changes affect the market before an event takes place.
9.High Frequency Trading:
High frequency trading is all about speed. Investment banks, institutional traders, hedge funds etc. make use of high speed computers to transact huge orders at high speeds. Since everything is computer based, there is no room for analysis and only quick calls for execution. This type of trading is not advised to individuals, but if you are interested, you may start your own fund or join a fund as its programmer.
Quantitative trading is based on quantitative analysis. It is a very sophisticated area of Quant Finance. Many people from a statistical or mathematical background find their niche using computer analysis and number crunching. An interested person needs to have good programming and mathematical skills. It is advised that you research this style extensively before adopting it.
Every investor has different needs and demands from the money he puts into the stock market. There is no conclusive “best trading strategy in the stock market” because success comes to those who ace their own style.