10 different types of trading styles
The stock market is an ocean of opportunities for trading
enthusiasts. It is very lucrative if strategized and followed through well.
Since every trader has a unique personality, trading styles may differ from
person to person.
Following are the 10 trading styles. Choose the one which matches
your psychology.
1. Intraday Trading:
This is the most
common type of trading practiced in the stock market by traders. Intraday
trading refers to same–day trading. The traders have to sell and buy or buy and
sell their stocks in the same day before the market closes. This style can also
be referred to as “squaring off the trade”. It is one of the most aggressive
types of trading for ones seeking higher ROIs than any other formats.
2. Swing Trading:
This is a type of short-term trading
that typically lasts between 2 days to 2 weeks.
Swing trading is a good option when one wants to invest in stock or options.
Technical traders and chartists who like to observe short-term price momentum
using technical tools fall into this category. The capital required here is
larger than in day trading due to more margins in overnight trades.
3.Arbitrage Trading:
Arbitrage trading is a
style which takes advantage of price differences in two or more markets or
exchanges. This is reserved only for prime trading firms with a huge network as
this doesn’t need many analytical skills but needs more network speed.
4.Positional Trading:
This is a long term
trading strategy. Positional traders ignore short term fluctuations in the
market as they believe their long term vision settles things out. Traders are
always on the lookout for big game changers within the company to get them
their desired returns, hence holding period isn’t the most important concern.
5.Options Strategies:
Options trading require an objective and mathematical type of
thinking. Since strategizing is a difficult ball game, one might require a bit
of practice and time to become good at making their own strategies and
implementing them. In India, there are very few options traders, mostly due to
lack of awareness and sufficient knowledge.
6.Trade using Technical
Analysis:
Stock market technical
analysis is important to any strategy of trading. Use of stock technical
analysis tools may give you a better insight in the near changes in demand and
supply of the stock market. Having technical analysis as a skill helps traders
become successful day traders, positional or even swing traders.
7.Money Flow Based
Trading:
Money
flow based trading depends on open interest
analysis, promoter deals, stake sales, gross delivery data, FII inflows and DII
flows in and out of stocks. Such data is essential to identify upcoming trends
in the market. If you have a penchant for analysing money flows, this is the
right type of trading strategy for you.
8.Trade Driven by Events:
Event-based trading
takes advantage of a corporate event that has occurred or is about to occur. It
seeks to exploit the changes in the market prices at times of mergers and
acquisition, bankruptcy, earnings call and so on. This trading style requires
technical analysis skills to understand how such changes affect the market
before an event takes place.
9.High Frequency Trading:
High frequency trading
is all about speed. Investment banks, institutional traders, hedge funds etc.
make use of high speed computers to transact huge orders at high speeds. Since
everything is computer based, there is no room for analysis and only quick calls for execution. This type of trading is not advised to individuals, but
if you are interested, you may start your own fund or join a fund as its
programmer.
10.Quantitative Trading:
Quantitative trading
is based on quantitative analysis. It is a very sophisticated area of Quant
Finance. Many people from a statistical or mathematical background find their niche using
computer analysis and number crunching. An
interested person needs to have good programming and mathematical skills. It is
advised that you research this style extensively before adopting it.
Bottom-line
Every investor has different needs and demands from the money he
puts into the stock market. There is no conclusive “best trading strategy in the
stock market” because success comes to those who ace their own style.
If you are a beginner in stock market
trading and want to learn the proven and profitable strategies of stock market,
you can opt for our trading courses which will make things easier for you. For
hassle free trading, open your Demat account with Indira Trade.