Three Common Stock Trading Strategies

When I first started looking into trading in the stock market, I found 3 basic overarching strategies that most people use.  Interestingly enough, these 3 common approaches are very different and require vastly different skill sets and circumstances.

I do need to make a disclaimer. Stock market trading is a very risky activity. You can lose most or all of your initial investment.

Here are some common stock market trading strategies that people use.

Day Trading

Day trading has become popular among retail investors over the past 10-15 years. That is all due to the internet. There are everyday day traders who are making hundreds of thousands of dollars each and every year using these simple strategies.  This requires that you sit in front of your computer all day for 8-9 hours straight.  You have to be glued at least from 9:30am-4pm when the market is open.

Some day traders merely follow the market makers. These are the large financial institutions like hedge funds and investment banks that trade large amounts of money. When they buy a stock, it moves.

These traders go in on the tail end as the stock is being bought and as it rises. They do the same thing when a large firm sells a stock as well. You can use the NASDAQ Level II for this stock market trading strategy.  Again, you have to be planted in front of your computer to get in and out when you first notice the market makers moves.

Swing Trading

This is less intense than day trading.  You will generally look for weekly or monthly patterns.  Then you look for signals that the price trends might be changing direction.  You may hold a position for weeks to months with this strategy.

Some traders even program in their strategies for this.  They may enter a position and not look at it again until their software package tells them something is going on.

For this strategy, you do not need to be sitting in front of a monitor all day.  You can even have a normal day job and do swing trading.

Position Trading

This is the least intense of these three.  In fact, position trading resembles investing quite a bit.  Actually, many investors are doing position trading right now since the market has been so volatile these last few years.

There are certain ways to invest that will require you to do position trading.

For most long term investors, they try to hold a stock for longer than a year so they don’t get dinged by the short term capital gains taxes.  But there are instances when they have to turn from being an investor to a position trader.  There are circumstances that happen where the investor has no choice.