Stock trading is one of the most profitable options to increase your money. Now the profit and percentage depend upon the online trading types they opt for.
It is the trading style and segment that determines the loss and profit percentage of an investor or trader who tries their luck in the market.
So, ideal trading in stocks should begin with the right understanding and approach of a trader. This is mainly because most of beginners are not aware of the opportunities that the stock market offers to them.
This article examines numerous stock market trading approaches to help you make better decisions and turn a reasonable return.
How Many Types of Online Trading?
Online trading in the stock market is broadly categorized into 2 types the basis of delivery or non-delivery of shares.
- Intraday Trading
- Delivery Trading
As you all are aware that as per the stock exchange rules, the shares are settled in T+1 days, i.e. shares bought or sold are credited and debited to the demat account after one day of trading.
Now on the basis of this, in intraday trading where the trader takes and exits the position within the same trading session no delivery of shares takes place, while in the delivery trading as the name suggests the actual delivery of shares happens in the prescribed time.
Now further on the basis of the holding period, it is further categorized into 5 different types.
You can enter into the position and can exit within a few seconds or minutes, or can hold a position for years.
In the former case, the mindset of the trader is just to make a profit from the volatile market while the latter invest in the share market with the objective of wealth creation.
Here is the list of different online trading types in India:
- Scalping
- Intraday Trading
- Swing Trading
- Position Trading
- Long Term Investment
Scalping
Scalping is a component of intraday trading. While day traders look for opportunities and remain active all day, scalpers put up numerous short-term transactions to profit from the waves.
A scalper possesses comprehensive information, the ability to execute exact deals, and excellent observational abilities to implement the intraday scalping strategy effectively.
A scalper has no problem with trading some wins for some losses. At the end of the day, they compare the lost transactions with the winning ones to determine if they made a profit or loss. A scalper may place trades that last anything from a few minutes to an hour.
Scalping is a trading strategy that uses the shortest time frame possible and takes advantage of minute changes in exchange rates.
Scalpers pose as renowned market makers or industry professionals. In order to benefit from the difference between the two prices, one must buy at the bid price and sell at the ask price, which is known as building a spread.
This strategy generates profits even while the bid and ask remain static, provided that there are traders ready to accept market pricing. Usually, it involves quickly building up and taking down a position, often in a matter of minutes or even seconds.
Scalpers are actually market makers or professionals who keep a market’s product’s liquidity and order flow in check.
Scalping is generally done in the currency segment where a little movement in the value of currency brings in the opportunity to earn profit.
To get an understanding of scalping let’s say you buy 10,000 shares of the company that is currently trading at ₹100 and in a few seconds sell it as soon as the share price reaches ₹100.90.
Here ₹0.90 for 10,000 shares is equal to ₹9000. In this way, scalpers make money in the market. But as this trading style comes with multiple opportunities for profits it involves a lot of risks as well and therefore one must do a proper analysis of the market and follow online trading tips before taking a position.
Intraday Trading
Intraday trading is one of the most widely used stock market trading. Even though skilled traders make the majority of their profits from intraday trading, it is also the riskiest. However, the risk is a little less than scalping.
Day traders look at the momentum, trends, volume, and volatility of stocks and indices, and follow a defined intraday trading strategy to conduct precise trades.
Either they buy first and then sell, or they sell first and then buy they can take a position according to the current market situation during the intraday trading time in India.
To increase the profit percentage, stockbrokers also provide the benefit of margin trading where the trader can trade more by taking leverage from the broker.
However, if you are a novice trader, it is advised against using margin. Margin trading may increase your losses if the trade does not go well for you.
Now for any trader, trading intraday should be aware of the market technicalities and other aspects. There are a few tools and intraday trading indicators that help a trader in getting the right signal and eventually help them in taking the right trade position.
Along with intraday trading charts and candlestick charts further makes it easier for a trader to understand the market trends that help them to trade accordingly.
Taking a random decision while doing day trade can lead to losses and it is therefore suggested to learn technical analysis and other important parameters to know how to select stocks for intraday trading.
Swing Trading
Here is another online trading types, swing trading. This is the type of trade where trader hold position in stock for few weeks to month.
Swing traders generally examine the chart for varying amounts of time, such as 5 minutes, 15 minutes, 30 minutes, 1 hour, or even a day chart, in order to discover the waves of price swings.
Positional trading and day trading may overlap with swing trading. Investors and traders generally view swing trading as the most difficult type of stock market trading.
Swing traders are short-term traders who visualized stock in a different way in comparison to day traders. They see instability as their closest ally, in contrast.
In actuality, swing traders have a better chance of making money from choppy stock markets. Therefore, if correctly anticipating waves is your area of expertise, swing trading is all you need.
In order to eliminate subjectivity, emotional considerations, and labor-intensive analysis from swing trading, swing traders usually adopt a set of objective criteria for buying and selling that is based on mathematics.
Swing traders make use of different strategies and time frames on charts to analyze the stocks and take the position from where they expect the stock to change its direction.
Now, in this online trading type, the trader enters with the objective to take a position for a few weeks. Hence one must consider the stock that is going to trend for a few days or weeks.
Gain the right knowledge of how to choose stocks for swing trading and earn the benefits from the price swings in the market. For better understanding read some of the best books about swing trading too.
Positional Trading
Like day traders, positional traders assess a stock’s momentum before buying it. Unlike day trading, position trading does not support back-and-forth trading. It is a medium-term strategy for brave investors who can ignore short-term market volatility and focus on long-term gains that they can make in the next few months.
Since the holding of stocks is more than one day, hence delivery of shares takes place in positional trading.
Some positional traders look to the stock’s price movement to determine the entry and exit positions. They draw support and resistance lines on a chart to understand the stock’s movement. Since positional trading is a mid-term trading style, hence one must consider doing both technical and fundamental analysis of stocks.
So, the company which is fundamentally good enough can give you the chance to earn a profit because of its current volatile trend, which is expected to continue for a few months.
For example, the Government offered some development projects to any mid-cap company that need to be completed in the next 8 months. This news directly impacts the profit and other figures of the company.
No doubt, traders get attracted to such news and they start trading actively in the stock which increases the volatility of the stock. Positional traders take benefit from this volatility as it contributes a lot to increasing the price of the right stock.
Now, the volatility and traders’ interest in such stocks is generally for a few months and this is where it creates room for positional traders to earn profit.
As positional trading, you checked for the historical aspects, balance sheet, and how the company has delivered its past project and analyzed the future prospects.
Further to take the right position at the right price, you did your technical analysis with the expectation of growth of around 20-25% before the stock loses its high volatility.
This is how positional traders trade when the market condition suits them. If you want to gain a deep understanding of positional trade using technical analysis, then here are some of the books for technical analysis that you can read.
- Technical Analysis from A to Z by Steven B. Achelis
- Technical Analysis For Dummies by Barbara Rockefeller
- Japanese Candlestick Charting Techniques by Steve Nison
- Encyclopedia Of Chart Patterns by Thomas Bulkowski
- The Art And Science Of Technical Analysis by Adam Grimes
Delivery Trading
However, swing and positional trading is a type of delivery trading, but here it generally means the trading type where the holding period of the stock is more than one year.
It is more correct to say a long-term investment rather than trading, as here the trader does not keep an objective of earning profit from the market volatility or small change in the market.
In the investment, the investors actually invest in the company’s business and have nothing to do with the stock movement on a daily basis.
The investors have a strong belief that the company is fundamentally strong and with the growth of the company they gain huge returns and profit.
A long-term trader evaluates a stock’s growth prospects by reading the news, examining the balance sheet, researching the industry, and learning about the economy. They have no trouble holding onto equities for a long time—for decades, for their entire lives.
Since their main focus is the market’s future potential, the majority of long-term traders heavily rely on fundamental analysis. They are less focused on the intraday ups and downs and more on the fundamentals underlying the longer-term trend. Due to their focus on the longer term, long-term traders frequently use daily, weekly, and even monthly charts for their research.
So, if you are interested in investing in any business then it is important to learn fundamental analysis in-depth and to know various tricks and tips that help you in finding the right company.
As a beginner, you can also refer to the fundamental analysis books like:
- Security Analysis by Benjamin Graham and David L. Dodd
- Intelligent Investor by Benjamin Graham
- Mastering Fundamental Analysis by Michael C. Thomsett
- Fundamental Analysis for Dummies by Matt Krantz
- Ratio Analysis Fundamental by Axel Tracy
These books help you in understanding the right way and strategy of doing long term investment in stocks.
Conclusion
There are different online trading types and each type comes with an opportunity to trade and make money in the share market.
As a trader, all that is required is to define your goals, strategy, and trading style. This will help you in knowing what important things to be considered to become a successful trader in the market.
To give your trade a right start you can also rely on the online trading courses available online.
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