What Type Of Trader Are You?
When it comes to trading, there are many different ways that people go about it. What we mean by this is that there are different strategies that one can take to approach the stock market. Everybody is different and has many different goals in life. One person may trade for fun while working a full time job, where the other individual may trade stocks as a full time gig. Below we will go over some of the different techniques that people take when they approach the stock market. You can then identify which technique you think best fits your lifestyle!
Day Trading
"Day Trading" is one of the more popular techniques when it comes to the stock market. The reason for this is because so many people trade stocks for a living. When someone trades stocks for a living, this obviously means they are dedicating 100% of their time to identifying opportunities in the market. Someone that is day trading is available from the time the market opens to the time the market closes. They focus on many different charts and have strategies they can use throughout the day. What this means is that they may be buying and selling multiple times throughout the day. These types of traders look for "quick profits". They may enter a trade and be out of that trade within minutes. That is crazy to think, but many day traders go by this approach because it can limit their risk in a sense. If they are placing multiple trades, they can afford to lose a couple trades, if in the long run they win additional trades throughout the day. Usually people that day trade have bigger sums of capital. The reason for this is because it can be costly to continuously buy and sell throughout the day. Many brokers may charge $10.00 to buy and $10.00 to sell. Day traders trade with higher capital, because it then gives them the opportunity to cover those commission costs throughout the day.
Swing Trading
"Swing Trading" on the other hand takes a different approach. Instead of someone continuously analyzing the market every minute of the day, they take a "buy and hold" approach. Now don't get me wrong, some day traders may also swing trade as well, but it's important to understand the difference. To better understand Swing Trading, think about someone that has a job outside of trading. This person simply doesn't have the time to assess the market during trading hours. Instead, they may like an approach where they can buy a stock with the anticipation they can sell that stock in a week or so. This way they can reap the potential benefits of the stock market, but also be generating secure income on the side through their other job. Now Swing Trading may sound like a great thing, but on the other hand you have to take risk into consideration. If someone is Swing Trading, they are placing less orders than someone that is Day Trading. With this being said, theres the potential that the Swing Trader may lose one of their swing trades and have a harder time getting afloat because they are spending less time in the market. On the other hand, the swing trader can save in costs like commissions due to the fact they are placing less orders. In our upcoming lessons, we will identify how people can find opportunities in swing trades, but for now we just want to get through the basics. A simple example of a swing trade would be buying a stock on a Monday with the anticipation of selling that stock on Friday or the following week. Now take a look at the picture above. This will give you the most accurate difference when comparing the two. As you can see from Day Trading, the chart is "intraday." Intraday means trading a stock throughout the day and having the buys and sells in place. On the other hand, the swing trading chart shows how a trader may buy a stock and then sell it in multiple days/weeks
Long Term Trading/Investing
Now this form of trading may be self explanatory to some people, but it's also important to understand the difference. Long term trading is simply buying a stock and holding it longer than Swing Trading. Now why might someone want to hold a stock long term? There can be many reasons for this, but there are some people that don't like to mess around with the stock market. They rather buy a company and reap the potential benefits as the company grows. Think of a stock like Apple for example. There are many people out there that hold apple due to potential growth and also the opportunity for income. Bigger companies like Apple pay something called a dividend. Companies pay their investors dividends which are the companies profits. A company may pay a .10 dividend. For every share somebody owns of that company, the company will pay that shareholder .10. Usually companies pay dividends quarterly meaning 4 times a year. Long term trading is a lot different than the 2 methods above. Investments like Mutual funds and ETFs allow investors with little to no experience invest in the stock market and reap potential benefits.
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