4 Popular Investing Styles
Before you start looking for buy and sell signals, you need to choose which of the popular investing styles you will use. The style you choose to trade will determine which buy and sell signals to look for.
Scalping involves buying large quantities of shares in a stock, and you are just looking for a small move in the stock price. This is great if you have a lot of money. On the other hand, it’s also a risky strategy in today’s market where it is not unusual to see stock move 5% or more in one day. If the stock moves the wrong way you can loose a large amount of money. Unless you have tons of money I would avoid this one when you are first starting out.
Similar to scalping but you are looking for bigger moves in the price, and you do not hold the stock overnight. This is an excellent strategy in today’s volatile markets. The downside is you need to be at your computer monitoring your stocks for most of the day. If you are an average working guy, this could be a problem. Another downside is the need for additional, specialized software designed for day trading and scalping. This software can be costly. You’ll also need to make many trades. If you are not careful, the commissions can eat up a lot of your profits.
BUY & HOLD
Buy and Hold is when you plan on holding on to the stock for a long time. You believe the company is going to grow in value and the price is going to go much higher. This is perfect for those who don’t have a lot of time for research and trading. Unfortunately, this style of trader will go broke in these volatile markets.
This is where you trade the ups and downs in the market. Generally you hold for a week or two. Swing Trading is great for any market. You can play the market to the downside when the markets go down then quickly switch and go long when the markets rise again. You can make money no matter which way the markets go. The amount of time you’ll need for trading is a lot less than Day Trading and a bit more active then Buy & Hold.
For the Average Joe who doesn’t have a lot of money and needs to make quick profits, Swing Trading is the trading style of choice in volatile times. Stocks go up or down for no more than 2-3 days (which is why it’s called volatile) and you want to jump on these swings as they can be 5% to 10% or more in one day. (OK I have made over 100% in as little as a day or two but those are more the exception than the rule – at least if you want any sort of safety for your capital).
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