Well, this is the situation in stock market trading. Many traders have spent many decades in this field, and when you take a trade, don’t forget you are fighting against them!
Hence, it is better to prepare ourselves and build an armory before planning to take trades.
I am answering in detail about this preparation, and it consists of 4 parts:
What are the Types of Trading?
What are the Different Trading Instruments available to Trade?
10-Steps to Elevate your Trading Skills
Checklist before taking Trading as Full-time Career
What are the Types of Trading?
Different types are trading in the stock market based on two parameters:
– Time-frame of the trade
– Technical Aspect
Image – Different Types of Trading
Based on the timeframe of the holding, we can identify 4 different forms of trading.
1 – Scalping
Scalping is a very short-term trading strategy that aims to make profits from the trades’ quantity and volume rather than focus on maximizing each trade’s gains.
Typically the holding period is very few minutes. It got its name because people who adopt the style—known as scalpers—they quickly enter and exit the market to accumulate small profits off of a large number of trades (and quantity) throughout the trading day.
Please note only experts can do successful scalping. If you are a beginner in the stock market, please avoid scalping.
2 – Day Trading
Day Trading, also recognized as Intraday Trading, is a famous trading type in the trading community.
In Intraday Trading, one has to close their trade on the same day. If the stock has moved in the expected direction, then the traders will make profits. Otherwise, they lose money.
Suppose a stock opens at Rs 200 in the morning, and soon price moves to 225 within 1-2 hours. If a trader had bought 1000 shares in the morning and sold at 225, then he would have made a decent profit of Rs 25,000 within a few hours. This is the advantage of Intraday Trading.
3 – Positional Trading
Positional trading is a type of trading in which a trader carries the positions overnight for a few days or weeks.
A person need not be a full-time trader and keep himself glued to the screen for the entire day like a scalper or intraday trader.
BTST trades, STBT trades, or any trading type with a few days to few weeks holding period will fall under positional trading.
4 – Investment
Any holding period between a few months to years will fall under the investment category.
When it comes to investing, there are two schools of thought:
Fundamental Analysis and
Fundamentalists are more concerned about the company’s management, various products, Sales, Price to earnings ratio, Balance sheet, Cash flow, Debt to equity ratio, etc. Broadly they are concerned about qualitative as well as quantitative aspects of the Company analysis.
Technical Analysts consider the analysis of past behavior of prices to interpret their study. They believe that the price contains all the information, and it’s enough to analyze the price chart.
Again based on the technical concepts, we can identify 4 different forms of trading.
1 – Breakout Trading
A breakout trade opportunity is nothing but a stock price moving outside a defined resistance level with increased volume.
A breakout trader enters a long position after the price breaks above the resistance level, keeping a stop-loss below the resistance.
In this process, they either trail their stop-losses or target to exit at higher levels to make profits.
2 – Price Action Trading
‘Price Action Trading’ is a trading technique in which a trader reads the market and makes subjective trading decisions based on the price movements, rather than relying on technical indicators or other factors.
In simple words, traders use only ‘Price’ and ‘Volume’ to make any trading decisions.
3 – Swing Trading
Swing trading is a trading technique that seeks to capture a swing when the price goes to a complete sideways zone.
The idea is to get out of the trade before the opposing pressure comes in. It means you look to book your profits before the market reverses.
Swing Trading Strategy
1. Identify a range-bound market or script based on individual choice.
2. Observe price action carefully at the Support level (for a long trade) and the Resistance level (for a short trade).
3. If there is a firm price rejection at the support level, then go long on the next candle open (the technique is the same for a short trade if there is a rejection at resistance level).
4. Trial your stop-loss when the price moves upside and book profits before the Resistance level (for short trades, book profits at support level).
4 – Indicator Trading
In this type of trading, traders depend on 1-2 indicators to plan their trades.
Technical Indicators help beginners in the stock market as they bring some discipline by avoiding unnecessary trades. They also help Algo Traders to design a mechanical system to manage their work.
I will take one simple example of the ‘Stochastics’ indicator.