Trading in the share market has been one of the most preferred modes of investment among today’s investors. People even started trading at a very early age, probably during their college days as well. But before someone delves into trading, it is important for them to understand the types of stock trading and figure out some effective ways to trade well, especially for beginners.
TYPES OF STOCK TRADING
– Day Trading/Intra day trading
This is one of the most well-known active trading style that involves buying and selling securities within the same day. Positions are closed out within the same day they are taken, and is not held overnight. Thus, the traders need to complete the entire transaction in a day and the idea is to gain from the fluctuations in the market during the day. But the traders need to monitor the stock market, all throughout the day.
– Swing Trading
In case of swing trading, the trader needs to hold the stocks for more than a day to minimize the risks of trading. Swing trading takes place only when the price volatility sets in.
– Position Trading
The traders need to hold the stocks for longer period ranging from a few weeks to a few months and get a better understanding of the 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 a day to a few weeks ad traders always buy and sell the shares within a few days to produce significant outcomes.
– Medium Trading
The trader always hold the share for a medium duration (not more than a month) and sell it off after that.
– Long-term Trading
It is more like a long-term investment where the traders hold the stock for years, and sell them after a year or more after considering various technical aspects. The profit is calculated based on the growth in dividends, bonuses, and the elaboration of the company.
TRADING FOR BEGINNERS
– Pick a stockbroker
It is better for beginners to consult a stockbroker. But one needs to be extremely careful about selection of brokers as there could be many fraudulent brokers.
– Start with smaller amount
Beginners should start trading with smaller amount and invest small amounts in various shares, rather than investing hefty amount in shares of one company. It is because, in case, the stock gets into red, there will be other stocks to help balance the loss.
– Better Not to use margin facility
Beginner often runs out of capital and during those time, often they go for margin facility. But traders who have strong knowledge on market technicalities should only go for margin facility. So, it is better if beginners avoid it, as they often don’t have strong knowledge on the market analytics.
– Time matters
Market usually remains volatile in the morning after the market opens, so for beginners who want to start trading, it is better to buy sometime before the noon and sell in the evening, as the volatility is usually less during the noon and prices usually go up during the closing bells.
– Decide on the funds
Trading can be risky, so one should invest with cautions. One needs to decide on how much capital he or she is willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade. Only trade for an amount, you can even risk to lose.
– Dedicate time
Especially those who are interested in day trading, they should dedicate a fixed amount of time each day to follow the market. Traders need to track the markets and identify opportunities which can arise at any time during trading hours.
– Invest frequently
Never engage all your funds in one stock rather diversify your funds. Moreover, it is better to make one comparatively bigger investment once in a year or quarter and then investing small corpus in small stocks, equities and IPOs (Initial Public Offerings).
– Trading and investment
For beginners, it is better to go for trading rather than investing. Once you get a grip over trading, then go for investing. Investing is a comparatively less risky strategy even for novices, especially for those who want a source of passive income without devoting too much effort and time to the analysis every second or minute.
Understanding the mode and types of investing is the prime step for the newbies. Making mistakes and losses are inevitable for the novices but keeping an eye on the market and following some simple steps surely help them get better results in long term.
(The author is Shivansh Bhasin, Founder & CEO, The Investrology)