Good to Know Stock Trading Information

Stock trading is a complex process that may be quite confusing and deceitful to a new trader. Therefore, if you plan to start investing your money in shares, you should first choose a stock trading strategy that is most suitable for yourself.

The major difference between stock trading strategies is based on timeframe. It means that an active day investor will act and react differently than a long term trader. Any stock trading strategy has its own pros and cons so analyse them carefully before starting investing your savings in stock shares.

The day trader is an active player; he is always buying and selling shares inside the timeframe of a day. This kind of stock trading has to advantage of saving you the trouble of facing any overnight risk. If a share’s price is experiencing a sudden rise or drop, he can immediately take advantage of the situation. A day trader is usually targeting to get quick profits while facing small risks. The bad thing about this type of stock trading system is that it is very time consuming, you have to be permanently alert and focused on the stock trends. But the trading costs represent the worst thing. The commission tends to be very large when you sell and buy several times a day.

The swing trader is an investor who is focusing on longer periods of trading, meaning a few days or even weeks. This method has the advantage of having few commissions to be paid and the opportunity to experience some important changes in share’s price. The main downside of this method is its higher risk due to the longer trading period.

The long term swing trader is an investor much alike the swing trader above. The difference between these two is the longer period of time, several weeks, he is targeting. This method has a good aspect: the long term swing trader is avoiding the inconvenience of being affected by minor trading swings. And the profit is bigger; experienced traders target even a 50% profit using this method.

But bigger profit brings bigger risks; you will be trading over a longer period of time, therefore you will be exposed to bigger trading risks. And it is likely for you to miss many short-term trend changes.

The buy and hold trader is the investor who is buying stocks and hold them for a very long period of time, even for years.

This type of stock trading can bring you a very good profit with a small effort. But be careful when you choose to use this method as it may turn against you if you don’t have a good, strong investment strategy. This means that the secret to earn money out of this method is not just holding to the stock and hope for the best, but to analyse the stock trend, the market evolution and to set a profit target.

In conclusion, there are methods of stock trading for any type of person. You just have to analyse every type of method and use the one it represents you best. And remember that making profit on the stock market requires brains, instinct and luck!

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Profitable Stock Trading - 5 More Rules To Trade By

In "Profitable Stock Trading - 5 Rules To Trade By" we discussed the first five rules that will help you gain stock market trading success. Here we finish up with the final five rules.

When we examine our stock charts (a stock trading technique, not a rule, thus a discussion for future articles), we'll pick a price at which we will place a sell stop order as soon as our buy order is executed. A sell stop order (sometimes called a "stop loss") is triggered when the price falls to a certain level. When the price is hit, a market order (it can be a stop limit order, but that's also for a later discussion) is automatically placed to sell your stock. The idea is that if a stock starts to trend down and hits certain key price factors, we need to get out to prevent further loss.

Rule 6: always use sell stop orders to protect yourself from devastating price declines.

If we get stopped out of a stock, we should not repurchase it for some number of trading days. This prevents us from jumping back into a stock we have "fallen in love with" too quickly after getting stopped out when our emotions tell us we "should have canceled that stop order" (almost always a bad idea). Jumping back into a stock we were just stopped out of does work once in a while, but probably 90% of the time we get stopped out, the price decline is not over. In fact, often it is just starting. Take the time to cool down and re-evaluate the stock unemotionally before making a decision to buy it back.

Rule 7: you cannot buy a stock you were stopped out of for 10 trading days.

If a stock has gone up in price more than expected or is in a parabolic rise, we should cancel our static sell stop order and place trailing sell stop orders to protect from price reversals. Trailing stop orders set a price a certain dollar or percentage amount under the current stock price. The sell stop trigger price increases as the stock price goes up. It does not decrease as the stock price comes down. So, if a stock reverses its trend, our position will automatically be sold while we are sunning ourselves on the beach in Waikiki.

Rule 8: use trailing sell stop orders to protect profits.

Remember, we are trading stocks, not buying and holding them for years. This means we will sell some very good stocks once our profit goals are met, then possibly watch them go higher, maybe even much higher. If we absolutely love a stock and cannot stand the thought of not owning it, we can establish a core long-term position then trade an additional amount of shares (our "trading" position), giving us the best of both worlds.

Rule 9: when your profit goals for a given trade are met, sell the stock, regardless of its presumed long-term prospects.

We hope to get very rich and be able to trade large stock positions. Stock prices rise and fall for one reason only, supply and demand. If too many people want to sell a stock (more sellers than buyers - a large supply), the price goes down. If too many want to buy it (more buyers than sellers - a large demand), then prices go up. In either situation, we need to be able to move fast and either establish or get out of a position quickly. That requires that the stock trades sufficient volume to allow us to execute our transaction without our order causing a major price move against us. We need to know the average stock volume for at least the 10 trading days prior to our buy date.

Rule 10: the average daily trading volume for the 10 trading days prior to our buy date should be at least 100,000 shares.

There we have it, 10 trading rules that will drastically improve our trading profitability. There are many other rules that we could discuss, but if you make more than 10 they are too hard to follow and become more harmful than helpful. Also, these are rules which only require discipline, not skill, to apply. They are not trading techniques, which are in a whole different category and require skill and judgement to effectively buy and sell stocks at the optimal time and price. Stock trading techniques will be discussed in future articles.

Erv Mrotek is a retired Information Technology consultant. Part-time stock trading allowed him to retire at age 57. Mr. Mrotek has successfully traded stocks, stock options, commodities and futures. He lives in the northern Arizona mountains where he still passionately trades stocks and runs the Stock Trading Techniques blog, which is dedicated to educating investors how to be profitable stock traders. The blog may be viewed at http://www.stocktradingtechniques.com/

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