Types of Trading in the Stock Market

• There are typically three styles of stock trading.Stock Market image by Paul Heasman from Fotolia.com
  
  The stock market can be a confusing place because there are so many ways to approach it. There are short-term, medium-term and long-term strategies to fit anyone's needs. The trick is finding the style that fits your personality and financial goals. It may take a bit of experimentation to figure out exactly what suits you.
  
  

Day Trading

• A day trader is a person who will hold on to their trades usually for a few minutes to a few hours. Regardless, they are out of all of their positions at the end of the trading day and do not hold onto anything overnight. A person who only holds on to their trades for a few minutes is called a scalper and they will usually look at 1- to 5-minute charts from which to make their trading decisions. Other day traders will use 15 minute or 30 minute charts and will hold their positions for up to several hours. The advantage here is that you don't hold any risk overnight. This means that if there is bad news in the market such as an economic report or an act of terrorism your positions won't be adversely affected.
  
  

Swing Trading

• In swing trading you are holding your positions for a few days to a few weeks. These types of traders will usually be looking at 1 hour, 4 hour, or daily charts from which to make their trading decisions. These types of traders will generally look at mostly technical indicators such as moving averages, support, resistance, and indicators such as the stochastic and the moving average convergence divergence (MACD). These traders hold trades overnight so there is some risk associated with this type of trading. However, they may be rewarded when there is good news overnight and the markets rally at the open.
  
  

Position Trading

• These types of traders will hold positions for months or even years. Although they will look at weekly and monthly charts from which to base their trading decisions, they will more often look at the fundamentals. These include economic data on the company and the overall economy. They do not pay much attention to the day to day gyrations of the market and trades can often move against them quite a bit before they go in the direction they want them to. Although this trading style isn't very time consuming to execute, one of the biggest disadvantages is that there may only be a few big movements per year, since much of the time markets move sideways--when the markets trade in a certain range. If you happen to miss this move then may have to wait a while for the next one.