Is Stock Trading on Your Agenda?

People start stock trading in order to make profits; an obvious statement. It should also be obvious that you need understand what you are doing. Following is some information which might be helpful to assist the new person considering trading.

You may have extra money available to you which you have thought about investing. It is also likely that you have previously considered the stock market. One of the disciplines in stock market trading is to put together a strategy you can follow which will put your money to work and deliver the best results.

There is a plethora of information available when first learning the ropes of the share market. Answering the question as to which strategy is best for your circumstances begins with an understanding of what each strategy has to offer and the elements of risk involved.

The first strategy to consider is day trading. Here a stock is purchased and, according to the strict definition, sold again on the same business day. For seasoned day traders, there may be many trades undertaken on any given day. Whilst some trades can result in large percentage gains, the value is in multiple trades for a small percentage profit. Because the time frame is so short profits are realized quickly. The downside of day trading is the amount of time taken. It is important to stay informed of the price since small changes can result in either a lost opportunity to take profit or if the price moves against you, a loss. The other thing to consider is the brokerage fees. Multiple trades means multiple fees as well as additional accounting. These prices need to be factored into the equation to determine your actual profit.

Swing trading is the next strategy on a continuum from short-term to long-term trading. Using this method a swing trader will hold stocks from a few days to one or two weeks. Variations in price are considered on an intra-week or intra-month basis. Overall the stocks which are best suited to swing trading are large-cap stocks such as Microsoft, Intel or Cisco Systems. A baseline price is needed to evaluate the oscillations in stock price for any given stock. This can be provided by charting a stocks Exponential Moving Average (EMA). From this baseline it is easy to examine price fluctuations. This is particularly true of a market which is going nowhere. In strong bull or bear markets, a longer term strategy is more applicable. Swing trading is especially suitable for the new trader to gain some experience in the stock market. One advantage of swing trading over day trading is that there are fewer trades and therefore lower brokerage fees.

The third strategy is trend following which is a long-term method. Here the overall trend of the market and specific stocks is considered and stocks are held for as long as the overall trend is moving in the right direction. Charting is important to understand stock movements over time and to determine elements such as moving averages and breakouts. This will assist in determining the direction of the market and individual market sectors and stocks. From this information buy and sell signals can be generated. The primary factor to consider in trend following is price. What is the market doing now, rather than speculating about what the market will be doing. Money management and risk control are also important features of this trading stategy.

With an appreciation of different trading strategies, you are now armed to make an informed decision as to which one will best meet your needs. At all times, exercise caution and be certain to invest within your budget.

Mark Crisp is an experienced stock trading and the creator of the Momentum Stock Trading System which focuses on big moves for big profits. Click here http://www.crispstocks.com to pick up your complimentary copy of The Seven Habits of a Successful Trader.