Trading in the stock market has been one of the most preferred ways of investing by investors today. People even started trading at a very young age, probably while in college as well. But before anyone gets into trading, it is important that they understand the types of stock trading and find effective ways to trade well, especially for beginners.
TYPES OF STOCK TRADING
– Day trading / Intraday trading
This is one of the most well-known active trading styles which involves buying and selling securities on the same day. Positions are closed the same day they are taken and are not held overnight. So, traders have to complete the entire transaction in one day and the idea is to take advantage of market fluctuations during the day. But traders must monitor the stock market throughout the day.
– Swing trading
In swing trading, the trader should hold the stock for more than one day to minimize trading risk. Swing trading only takes place when price volatility sets in.
– Position negotiation
Traders need to hold stocks for a longer period ranging from a few weeks to a few months and better understand price temperament and technical trends. Position traders prepare longer term charts and use technical analysis to trade. It follows more of a buy and hold strategy.
– Short term trading
The trading is valid from one day to a few weeks and traders always buy and sell the stocks within a few days to produce significant results.
– Average Trade
The trader always holds the stock for an average period (no more than a month) and then sells it.
– Long term trading
It is more like a long-term investment where traders hold the shares for years and sell them after a year or more after reviewing various technicalities. Earnings are calculated based on the growth of dividends, bonuses and business development.
TRADING FOR BEGINNERS
– Choose a broker
It is best for beginners to consult a stockbroker. But one must be extremely careful in selecting brokers as there might be many scam brokers out there.
– Start with a smaller amount
Beginners should start trading with a smaller amount and invest small amounts in various stocks, rather than investing large sums in the stocks of a single company. This is because, in case the stock turns red, there will be other stocks to help balance the loss.
– Better not to use the margin facility
Beginners are often short on capital and during these times they often opt for a margin facility. But traders who are well versed in the technical aspects of the market should only opt for the margin facility. So it is better for beginners to avoid it, as they often do not have a strong knowledge of market analysis.
– Time Matters
The market usually remains volatile in the morning after the market opens, so for beginners who want to start trading, it is best to buy some time before noon and sell in the evening, as volatility is usually less around noon and the prices generally go up during the closing bells.
– Decide on funds
Trading can be risky, so invest with caution. One has to decide how much capital he is willing to risk for each trade. Many successful day traders risk less than 1-2% of their accounts per trade. Only trade for an amount, you can even risk losing.
– Spend time
Especially those who are interested in day trading, they should dedicate a set amount of time every day to follow the market. Traders should follow the markets and identify opportunities that may arise at any time during trading hours.
– Invest frequently
Never commit all your funds to a single action rather diversify your funds. Moreover, it is better to make a relatively larger investment once a year or quarterly, and then invest a small corpus in small stocks, stocks and IPOs (Initial Public Offerings).
– Trade and investment
For beginners, it is better to opt for trading than investing. Once you have mastered trading, go for investing. Investing is a relatively less risky strategy even for novices, especially for those who want a source of passive income without spending too much effort and time analyzing every second or minute.
Understanding the mode and types of investing is the first step for beginners. Making mistakes and losses is inevitable for novices, but keeping an eye on the market and following a few simple steps will surely help them achieve better results in the long run.
(The author is Shivansh Bhasin, Founder and CEO, The Investrology)