Trading Methods - Swing Trading - Day Trading - Trend Trading

 

Trading Methods

There are several different trading methods that can be used to trade. Here three main popular trading methods given below:

1. Swing Trading

2. Day Trading.

3.Position Trading / Trend Trading.

1. Swing Trade

What is Swing Trade?

Swing Trading takes advantage of brief price swings in strongly trending stocks to ride the momentum in the direction of the trend.

• Swing trading combines the best of two worlds -- the slower pace of investing and the increased potential gains of day trading.
  
• Swing traders hold stocks for days or weeks playing the general upward or downward trends.
  
• Swing Trading is not high-speed day trading. Some people call it momentum investing, because you only hold positions that are making major moves.
  
• By rolling your money over rapidly through short term gains you can quickly build up your equity.
  

How does Swing Trading work?

• The basic strategy of Swing Trading is to jump into a strongly trending stock after its period of consolidation or correction is complete.
   
• Strongly trending stocks often make a quick move after completing its correction which one can profit from.
   
• One then sells the stock after 2 to 7 days for a 5-25% move. This process can be repeated over and over again. One can also play the short side by shorting stocks that fall through support levels.
   
• In brief a Swing Trader's goal is to make money by capturing the quick moves that stocks make in their life span, and at the same time controlling their risk by proper money management techniques.

What are the advantages of Swing Trading?

• Swing Trading combines the best of two worlds -- the slower pace of investing and the increased potential gains of day trading.
   
• Swing Trading works well for part-time traders — especially those doing it while at work. While day traders typically have to stay glued to their computers for hours at a time, feverishly watching minute-to-minute changes in quotes, swing trading doesn't require that type of focus and dedication.
   
• While Day Traders gamble on stocks popping or falling by fractions of points, Swing Traders try to ride "swings" in the market. Swing Traders buy fewer stocks and aim for bigger gains, they pay lower brokerage and, theoretically, have a better chance of earning larger gains.
   
• With day trading, the only person getting rich is the broker. "Swing traders go for the meat of the move while a day trader just gets scraps." Furthermore, to swing trade, you don't need sophisticated computer hook-ups or lightning quick execution services and you don't have to play extremely volatile stocks.

We believe that the Swing Trading method is a better way for the individual investor to attain superior investment results through short-term trading in the stock market. This trading strategy has been carefully designed for the needs of the individual investor who does not have the resources that institutions and professional money managers may have.

How to Swing Trade?

To fully understand what swing trading really is, you first need to understand what up/down trends are.

Up Trend: Simply put an uptrend is a series of higher highs and higher lows. In other words, an uptrend is a series of successive rallies that extend though previous high points, interrupted by declines which terminate above the low point of the preceding sell-off. Often the high of the last "swing" in the trend will serve as support for the next low. These areas are circled.

Down Trend: Simply put a downtrend is a series of lower highs and lower lows. In other words, a downtrend is a series of successive declines that extend though previous low points, interrupted by increases which terminate below the high point of the preceding rally. Often the low of the last "swing" in the stock's trend will serve as resistance for the next high. These are circled.


Long Swing Trades: Once an uptrend has been identified a swing trader looks for buying opportunities in that stock. This can be identified when the stock experiences a minor pullback or correction within that uptrend. The swing trader then activates a trailing buy-stop technique. If prices break out above the trailing stop loss, you will be stopped out and long in the trade. If prices decline, your buy-stop will not be touched.

Short Swing Trades: Once an downtrend has been identified a swing trader looks for selling opportunities in that stock. This can be identified when the stock experiences a minor rally within that downtrend. The swing trader then activates a trailing sell-stop technique. If prices break down and fall below the trailing stop loss, you will be stopped out on the short side. If prices rally, your sell-stop will not be touched.

2. Day Trading.

What is Day Trading?

• Day Trading involves taking a position in the markets with a view of squaring that position before the end of that day.
   
• A day trader typically trades several times a day looking for fractions of a point to a few points per trade, but who close out all their positions by day's end.
   
• The goal of a day trader is to capitalize on price movement within one trading day.
   
• Unlike investors, a day trader may hold positions for only a few seconds or minutes, and never overnight.

What day trading really means.

The term "day trading" is a widely misused and misunderstood term. Real day trading means not holding on to your stock positions beyond the current trading day; in other words, not holding any position overnight. This is really the safest way to do day trading because you are not exposed to the potential losses that can occur when the stock market is closed due to news that can affect the prices of your stocks.

Unfortunately, many people who claim to be "day trading," hold stocks overnight because of fear or greed, thus setting themselves up for the catastrophic elimination of their capital. When day trading currencies, the term "day trading" changes slightly. Since currencies can be traded 24-hours-a-day, there is no such thing as "overnight" trading. Thus, you can have open positions for longer than a day with active stop losses that can be activated at any time.

Day trading can be further subdivided into a number of styles, including:

• Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.
   
• Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

Advantages of Day Trading

• Zero Overnight Risk: Since positions are closed prior to the end of the trading day, news and events that affect the next trading day's opening prices do not effect your portfolio.
   
• Increased Leverage: Day Traders have a greater leverage on their trading capital because of low margin requirements as their trades that are closed in the same market day. This increased leverage can increase your profits if used wisely.
   
• Profit in any market direction: Day trading often will utilize short-selling to take advantage of declining stock prices. The ability to lock in profits even as markets fall throughout the trading day is extremely useful during bear market conditions.

3. Position Trading | Trend Trading

What is a Trend?

A trend is nothing but the general direction of the price of an asset or market in general.
A trend can apply to equities, bonds, commodities and any other market which is characterized by a long-term movement in price or volume.

What is Trend Trading?

• Trend trading is one of the most effective and easy to use methods for making money in the market. Trend trading success depends on identifying and catching the trend after it has started and getting out of the trend as soon as possible after the trend reverses.
   
• Trend Trading involves taking a position in the markets with a view of holding that position for weeks to months for larger than normal gains. Trend traders or investors generally trade the long term or secular trends and are not concerned with the day to day market volatility.

Advantages of Trend Trading?

• Trend trading is the fastest and most risk free way to make money in the markets. In trend trading you can identify a change of trend in the market as early as possible, take your position, ride the trend and close your position shortly after the trend reverses.
   
• With Trend Trading it is very possible to catch 60 to 80% of many intermediate term and long term market movements and thus create wealth for yourself and your family.
   
• Trend Trading will help you take large profits out of the market, without having to watch the market or stocks on a minute-by-minute or even a day-by-day basis.
   
• Whether you are a short-term day trader or a long-term investor, we believe incorporating Trend Trading into your overall trading plan is a must. There are two types of trades: "Income producing" trades and "Wealth-building" trades. Swing trading and day trading produce income, while Trend Trading Picks is designed to amass wealth.