Online trading has given us an opportunity to trade across different financial instruments from any part of the world. You can hold stocks of all sorts and keep a record of the transactions through a demat account.
Once you open a demat account, the broker provides you access to a trading app. Through this app, you can buy and sell stocks in real-time and benefit from the volatility of the stocks that causes their prices to shift up and down consistently. Different traders opt for different trading strategies. Some traders participate in short-term trading whereas some like to hold their securities longer to make bigger profits. These are some types of online trading depending upon the trading strategy:
Day Trading
When the entire buying and selling process takes place on the same day, it referres to as day trading or intraday trading. It is a short-term trading strategy in which you try to capitalize on the fluctuating prices of stocks within the same day. In this type of online trading, you need to monitor the stock prices closely and close the positions before the closure of the trading window.
Scalping
Scalping is a form of intraday trading but it involves purchasing and selling stocks repeatedly through trading algorithms. The stocks are only held for a few minutes or even seconds resulting in a higher frequency of trades.
The ultimate aim is to earn a decent profit by taking a large number of profitable trades. However, if you are a scalper, you must be ready to bear some losses as some trades might not go your way. Also, high liquidity is required to indulge in different types of trades at the same time.
Momentum Trading
If you try to make a profit by using the momentum of the stock market, it means that you are following momentum trading. When you participate in momentum trading, you might have to wait for a few weeks or even months to earn the desired profit.
If the stocks are following a bullish trend, you can sell the stocks when their prices are higher than the normal range. If the stocks are bearish, you can purchase the stocks in bulk and try selling them when their prices go above the average price.
Swing Trading
Swing trading is another type of online trading where you exploit the changing patterns or swings in the price of any financial instrument. You need to study the movement of price fluctuations by analyzing 5 minutes, 15 minutes, 30 minutes, or 1-hour charts. Similarly, you also need to analyze the daily price fluctuations to make the right prediction of the waves.
Swing traders take advantage of the volatility of the market to earn big profits. Due to its trading method, swing trading can seem like positional or day trading. As constant monitoring and deep analysis and research are required to execute a swing trade perfectly, it is considered to be one of the most difficult forms of online trading.
Positional trading
Positional trading is meant for you if you do not get panicked by the short-term price fluctuations. However, learning how to be patient and investing in the right stocks at the right time is essential to earning decent profits from positional trading.
If you are a positional trader, you must know how to read the charts and analyze the journey of a stock using support and resistance lines. Also, learn how to use technical indicators like Moving Average, RSI, Simple Average, etc. to predict the direction of the stock.
Long-term trading
Long-term trading is for conservative investors who don’t want to participate in frequent trading. Instead, it allows investors to benefit from the significant rise in the stock price over a long period.
If you follow this type of trading, you must understand the two basic stock types in the market viz. growth and income stocks. Income stocks are the ones that provide dividends to the investors. If you are looking to earn a regular income through trading, invest in stock companies that have a history of providing lucrative dividends to their shareholders.
Some companies don’t pay dividends to their investors. Instead, they reinvest their profit to grow the company faster. As a result, the prices of growth stocks seem to increase steadily over a period.
To reap both regular and high returns over the long term, invest in both these stock types smartly. However, you also need to pick the stocks wisely by evaluating their annual growth, balance sheet, and other fundamentals. Also, understand the economy and acquire the knowledge of the industry to which the stock belongs while picking the stocks. If you are a long-term investor, be ready to hold the stocks for years or even decades.
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