Basic Strategy Day Trading

Stock trading is a very competitive field and in order to succeed you need to focus on a set of simple strategies that you can implement without hesitation. That's why the most important aspect of stock trading is the knowledge filter you employ to make your buy & sell decisions.

Day market online stock trading is not more risky than other trading activity, but substantial gains and losses can occur a small period of time. Money management in the field of stock trading is almost as important as stock selection. A primary motivation of day trading stock online is understandably the lure of quick money. Another motivating factor is that it isn't necessarily any riskier than other forms of trading activity.

There are six basic strategies day traders use to make a profit:
1. Spread Covering: Refers to buying at the BID price and then selling at the ASK price. The spread is the difference between these two prices.

2. Technical Trading: Simply the action undertaken by a technical analyst. He or she evaluates securities by relying on the assumption that market data, such as price charts, volume, and open interest, can help predict future, usually short term, market trends. Unlike fundamental analysis, the intrinsic value of the security is not considered. Technical analysts believe that they can accurately predict the future price of a stock by looking at its historical prices and other trading variables. Many technical analysts are also market timers, who believe that technical analysis can be applied just as easily to the market as a whole as to an individual stock.

3. Scalping: Refers to an extremely quick trade for a small profit. For example, if you bought 20,000 shares in XYZ Corp. @ $1 per share, i.e. $30,000 invested, then sold them 30 minutes later for $1.025 per share, $30,750 gross return, you would end up pocketing a cool $750 less brokerage. Note: when you are day trading stock online, the round turn brokerage fees are minimal.

4. Range Trading: It is a little harder and inherently more risky, but the returns can be proportionately greater, too! If you are canny enough to be able to pick the intra day market swings and either BUY at or near a low, then SELL at or near a high you can often make substantial profits using this method. But you do have to be wary, because if you buy into what you think is an intra day low point, only to discover that the market sentiment has changed and that a severe sell off is in progress, you could get badly burnt!

5. Playing News: It is the realm of the adrenaline seeking day trader. The technique refers to buying a stock which has just announced, for example, a short sell on bad news, the contrarian traders love this sort of play as they will be standing in line to BUY the stock at the end of a short, sharp sell off in the belief that most if not all the bad news is already factored into the market and therefore there wont be any further downward pressure. The sheer volatility offered by unexpected news announcements can provide the diligent day trader with huge potential for quick profits, or losses if they call the market incorrectly.

6. Trend Following: Assumes that if a stock have been rising steadily it will continue to rise. Admittedly, this technique is better suited to position traders, i.e. where stocks are held for a number of days, weeks or even months, but in strong bull markets some stocks will rise steadily for days on end, making the intra day trend follower excited.

However, unless thoroughly tested and proven trading strategies are put in place with each trade, the risk of incurring substantial losses within a frighteningly short period of time is all too real. So, watch your step carefully

Published under category : Stock Trading Strategy