Beginner’s Guide To Stock Trading Strategies

Stock Trading Strategy

As a beginner, online share market trading can feel a little overwhelming. Research and training can go a long way to help you trade efficiently. But once you have been trained and are done with enough research, what can you do next? You need to come up with some effective strategies which can help you earn profits. Before you start brainstorming for strategies it is important you know some stock trading terminologies. They are listed below:

Stock Trading

Stock trading is where traders buy and sell the shares of listed companies on the stock exchange. Traders capitalize on daily price fluctuations.

Active Trading

Active trading is when traders buy and sell securities which are based on short term fluctuations in the price. Active trading is done in highly liquid markets. Traders usually focus on foreign currency, derivatives or volatile stocks. Traders who so active trading make use of stop-loss orders. For e.g., a stop-loss can be used for a lower price point to limit the downside of a trade.

Day Trading

The basic definition of day trading is the buying and selling of securities within a single trading day. Day trading is most common in foreign exchange and stock markets. In day trading, traders use a high amount of leverage to capitalize of small price fluctuations.

Sector Rotation

Sector rotation is a type of investment strategy, which traders use. This involves the movement of money from one industry sector to another sector. The motive of this strategy is to beat the market. The movement can be from one country to another, out from the markets and into cash, bonds or real estate, etc.

Things to Keep in Mind When Formulating A Stock Trading Strategy

Online share trading involves a trader to adapt to the changes in the stock market. The strategies need to evolve constantly. Here are a few things which you need to keep in mind while formulating a strategy.

1. A systematic approach is a way to go. You need to have a verified trading strategy.

2. You should build a database which will help you gauge the performance over a prolonged period of time.

3. Have an objective for your trading.

4. Have a proper understanding of the asset you want to trade. This will help you determine its volume, volatility, liquidity etc.

5. Set up entry and exit point triggers.

6. Position sizing for a given set up. This is where you define your risk.

Two Important Aspects of Trading Strategies

Technical Analysis

As the name suggests, this is a technical approach to determine the price movements. This process involves the observation of chart patterns, technical tools, indicators, etc. Some of the key indicators you should know about are:

1. Moving Averages

2. Bollinger Bands

3. Moving Averages Convergence Divergence

4. Relative Strength Index

5. On Balance Volume

Fundamental Analysis

Fundamental Analysis is where a trader observes the fundamental indicators of an economy. This is a process of finding the real value of a stock. It involves gauging the financial health of a company and taking into account the different factors affecting its industry as a whole.

Stock Market Trading Strategies for Beginners

1. Growth Investing

This form of investing focuses on the growth of an investor’s capital. As companies grow and dividends are shared, investors expect the share price and profits to increase.

2. Income Investing

This is a strategy to pick up a good stock by putting together a collection of assets.

3. Value Investing

This is a strategy where stocks are identified which appear to be traded for less than their intrinsic value. The investors hold the shares until its price rises.

4. Quality Investing

Quality investing strategy means having a clear set of outstanding quality characteristics for a company. This approach focuses on buying a high-quality company.

5. Following Trends

As the name suggests this strategy involves following the online share market trend.

6. Gap Strategy

In this strategy, one finds the stocks that have a gap in its price from the previous close. After identification, the trader observes the first hour of the trading to gauge the trading range. The rise above the range is a signal to buy and a fall is a signal to sell.

7. Flag Pattern

This is a chart pattern that is based on the price action of a stock.

If you have chosen a strategy for your trading then you can back test it. This is the process of applying the strategy to historical data. This can help you evaluate how well a strategy can work for you. Keep in mind the abovementioned tips and select a strategy which suits your trading style.

There are many Indian Share market apps which help you identify trades and give you live updates. Indiabulls AMC has designed a one of a kind trading app. The Shubh trading app is a stock market app in India that not only gives you real-time updates but also helps you to trade on the go. Such technological advancements have made trading in the stock market easier.

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