Stock Trading Strategies

To be successful as a stock trader it is essential that you have developed some of your own stock trading strategies to follow. You can use others strategies at first to help you with creating your own but you will get the best results out of having your own trading methods.

It can take many years of trial and error before you find a truly profitable stock trading strategy to follow. There is only one solid strategy that all successful traders have – buy when the market is low, sell when the market is high. This is obvious though, and you will need more strategies to help you with buying and selling at the right time so you follow this main strategy.

Basically, you need to have techniques that you use when buying and selling stocks. This will help you with getting the best results out of your investment. Even with the most effective techniques you cannot guarantee you will succeed and be profitable though. The major benefit of having these techniques or strategies in place is that you will be more likely to know the optimal times to buy and sell certain stocks. A quality stock trading strategy will consist of many useful stock trading techniques combined together.

Types of Stock Trading Techniques
There are many different stock trading techniques that people will use. The main difference between these types of techniques is the length of time the stock is held. There are different types of strategies you can use when trading stocks short term and long term. You will have to determine what type of trading you want to be, a short term or long term stock trader. It may be beneficial to hold some stocks long term even as a short term trader but for the most part you will need to establish a short term or long term strategy to follow.

Short Term Stock Trading Strategies
As a short term stock trader you are putting yourself at risk of major gains or losses in a very short period of time. Due to this it is very important for you to have an effective short term stock trading strategy to follow. One effective stock trading strategy to use utilizes a stop loss trading method. With this type of strategy you will need to have a pre-determined maximum for the amount you are willing to lose during a downswing on a single stock trade. By following this you can limit the losses incurred in your investments and make sure the only serious swings are profitable ones.

Once you decide on a short term stock trading strategy it is very important that you follow it. It can be very easy to get lost in the trend or popularity of a stock and decide to hold out on selling during a downswing. This is a major fault that many stock traders make and it can have serious effects on your overall profits both in the short term and long term. While the stock may still increase in value exponentially after time, it is not worth the risk. As a short term stock trader you will want to hold the stocks until they have no visible uprising or have fallen too much. In the long run this logic will prove to be very beneficial and will prevent serious losses that could put you out of the trading business.

Long Term Stock Trading Strategies
If you are a long term stock trader then there is a chance that you make most of your investments correctly and lose all your gains in one failed investment. This is because long term traders are prepared to hold their stocks through severe downswings. If you are only investing in a small number of stocks with the long term holding approach then it can be very risky.

The best long term trading technique to follow is portfolio diversity. You will want to invest in various stocks throughout the stock market and invest in different types of industries as well. The reason for this is if there is a downswing in the industry as a whole, then it does not have a huge combined effect on the stocks that you are holding. If you make sure to diversify your portfolio properly then you can minimize your potential losses.

The momentum trading method that short term stock traders use can be hazardous when making a long term holding approach. You should not invest in stocks based on their current trend and momentum. This can lead to serious downswings even in a short amount of time. You want to invest in stocks that are guaranteed to hold strongly over a long period of time. To be sure that you invest in quality stocks that will hold in value you will need to research the company of the stock and the market they are in. There is an abundance of information available online so you should have no trouble with researching any publicly traded company to determine the value of their stock.

There is one more important technique to follow to make sure that your long term stock trading strategy is effective. Basically, you should not secure yourself to a stock and be willing to hold it indefinitely. Instead, watch the stock carefully as it progresses while you are holding it. If there are signs that the stock will drop in value significantly then you should sell it off quickly. The same mentality can be used with the opposite situation. If you find a stock that is likely to rise significantly in value in a short amount of time due to it being undervalued then you should invest in it. Be prepared to hold the stock for a long period of time even if no significant changes in its value occur, but be prepared to sell it quickly if necessary as well.

Developing a quality trading strategy is the key to any stock traders success. Incorporating risk management into the strategy will help maximize your potential profits when trading. The techniques mentioned in this article are all common sense and should be implemented into the stock trading strategy that you develop. Make sure you spend time observing your stock trading performance and progress so you can modify your stock trading strategy accordingly.

[catlist id=5 numberposts=100]