Over the last decade, online trading accounts have swelled to the point one must wonder if the full service broker should be placed on the endangered list as a protected species. Once someone opens an online brokerage account, they must decide what sort of trading to pursue. For the sake of this article, we will describe three forms Over the last decade, online brokerage accounts have swelled to the point one must of trading available to people that wish to become active traders.
Swing trading requires the least amount of time spent in front of the computer and is usually the best avenue for people just beginning in online trading. Swing trading is not a long term investment, however it is not a day trade with the holding time of the trade being anywhere form a few days to a few weeks. For example, if a person looked at a chart of IBM and saw that it was in an uptrend and felt that the stock would continue in the uptrend for the next few weeks before reaching resistance. They could purchase shares of IBM in their online brokerage account and hold the stock the next few weeks and sell at a profit once the stock reached the resistance point.
Shorter term profits also can be realized with swing trading by purchasing stocks and holding for as little as two or three days. In this case, the stock would need to have the momentum and volatility to move the stock up in this time frame. Swing trading is a favorite of options traders. Options can be day traded in a highly volatile stock, but is not recommend since options require a larger move in the underlying stock for the option to become profitable. Swing trading lends itself naturally to option trading.
Day trading is self explanatory. Day trades are trades that are opened and closed within the same trading day. In order for day trading to be profitable, the stock chosen must have the momentum and have the volatility that allows enough movement during the session to exit at a profit before the market closes. Day trading requires discipline and a tested trading system with no room for emotion from the trader. Being successful as a day trader requires time and effort, with sometimes years of experience before being successful on a daily basis.
Day trading also requires dedicated trading software in real time in the form of charts and other related trading indicators. Most importantly for the day trader is implementing a trading system that is tested by the day trader over time with trial and error until a system is in place that allows the trader to be profitable. It cannot be emphasized enough that a trading system is vital to the success of a day trader. Scared money and emotion have no place in a day trading environment. Scared money and emotion have done more to deplete and destroy more trading accounts than any other factor.
Scalping is a form of day trading that shrinks the holding time from a few hours to mere minutes. When a trader places a scalp trade, it is with the intention of buying a stock or futures contract and selling it all within a matter of minutes. Scalp trading is only for the most experienced of traders and is not recommended for anyone that has not spent hours trading and testing different systems. Scalp trading is not designed to earn the trader huge profits in one trade, but to earn the trader small profits many times throughout the session.
Some futures traders may place scalp trades as many as 20 or more times during a trading session. The idea is to have more winning trades than losing trades at the end of the day. Scalp trading is a white knuckle experience and is only for the most disciplined of traders.
Trading can be fun and profitable if one is willing to take the time and educate themselves on the different time frames. Swing trading is by far the easiest and least costly for someone new venturing into the trading arena. Time spent learning to read charts and other technical analysis is the most important part of becoming proficient and profitable as a online trader.
Phillip Hatley is a frequent trader in the stock markets. For more information about trading in the stock market, please visit his blog.
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