Types of Trading in Stock Market: Which Strategy is Right for You?

What is trading? 

Trading in the stock market refers to the trading of financial instruments like stocks, derivatives, bonds, etc. It provides opportunities for investors to participate in the growth of any business and a country’s economy. Trading also helps in the efficient allocation of capital.

Regulatory authorities regulate trading and there are certain rules and regulations traders are required to adhere to. In India, trading is regulated by the Securities and Exchange Board of India, commonly known as SEBI.

The first step of trading will involve studying a few important things related to the market, like economic indicators, the company’s fundamentals, market trends, etc. 

Traders seek the help of different types of trading strategies to trade in the market and in this article, we will discuss the same.

Types of Trading

The stock market is wide and traders are trading for a different set of financial goals. Hence, each trader employs different types of trading strategies, depending upon their understanding and preferences. 

Below mentioned are the 8 types of trading-

1. Intraday Trading - 

Intraday trading  is the type of trading indulged in by experienced traders. Traders in this strategy make the purchase and sell of stocks on the same day, in the Indian market the timing for this is between IST 9:15 to 15:30 on weekdays.

Intraday trading involves the highest risk and for that, it also awards traders with the highest profits. Day traders need to fix their focus on the market movements, and should also have a better understanding of the volatility or the stock value fluctuations, to make the most of the opportunities.

In this trading strategy, traders can choose between either going for sell first and buying later or vice versa.

2. Positional Trading - 

This strategy is for traders who are looking to gain from long-term investment in stocks rather than focusing on and profiting from a single day's movements in stock price. Positional trading, however, does not allow traders to sell first and buy later. 

Traders functioning with this type of trading benefit from the general market trends, hence it is advisable to be disciplined, and patient.

3. Swing Trading - 

Swing trading is focused on making a profit within a short period, ideally it ranges from one to seven days. Volatility benefits traders in this strategy, all they need is to closely monitor the market to find the swing in price fluctuations. But this type of trading is extremely challenging.

4. Long-Term Trading -

Long-term trading is for people who are not bothered to hold their stocks for a long period. Their decisions are largely influenced by news, economic conditions, and thorough study of a company’s balance sheets to understand a company’s performance.

5. Scalping - 

Scalping can be known as a type of intra-day trading. Where in day trading, traders make gains by locating opportunities throughout the day, scalpers are looking to gain from the short-term fluctuations, within a few minutes. This strategy comes with its risks, many times it might be the case that transactions result in more losses than gains.

This type of trading also demands from traders the experience of the market, and the promptness to transact making the most out of market fluctuations.

6. Momentum Trading - 

Momentum trading is comparatively easier to understand and function with. Here, traders are required to act on the momentum of stocks, they keep an eye on the upward or downward movement of the stock. Timing is important here, the right time to buy is when the stock price is low, and a stock should be sold when the market is expected to break out.

7. Fundamental Trading-

Fundamental trading expects traders to be skilled in analyzing a company’s financial well-being, tracking their past performances, and should also be aware of the major economic factors, this will eventually help them to determine the intrinsic value of a stock. 

8. Technical Trading - 

In this type of trading, traders know and use it to study the charts, patterns, and key indicators before making any decisions. Technical trading largely includes studying price movements in the past, which helps them to predict future price shifts.

Cautions Before Investing

Trading is rewarding but at the same time, it involves risk as well. Therefore, it is advisable for beginners, to keep certain cautions before starting with their trading journey. 

1. It is important to get yourself educated on the fundamentals of the trading and the market.
2. Be aware of your financial goals and pick out a strategy that helps you achieve them.
3. Make an effort to keep your investments diversified into different asset classes.
4. Beginners can always start with small investments to gain experience and knowledge. This amount can be expanded gradually.

Summary

In the stock market, there are different types of trading, and it depends upon the individual which strategy works best for them. Every trading strategy has its pros and cons, and it involves different skills and knowledge. You must choose a strategy that compliments your risk tolerance and investment objectives.

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