What Is Trading And How It Make Money

Tradings and Investing are two different terms and have different performance. But people gets confused in differentiating these two financial terms.

And that's where we come to teach you about Trading.


Introduction To trading and fundamentals.

Trading implies active participation in the financial markets as opposed to investing, which suggests a buy-and-hold strategy. Trading success depends on a trader's ability to be profitable over time.

Every traders' main aim is to earn profit. In Trading, stocks are held only for a short duration—it could be a day, few weeks or months. On the other hand, investment involves longer periods of time like a few years or even decades.

That is the main difference in Trading and Investing and active participation.

While Trading, a Trader deals with fluctuations within a type of trade he is doing, 
On the other hand, a Investor deals a slow fluctuations in the market.


Types Of Trading Method or Techniques.


There are five main types of Trading available to technical traders: scalping, day trading, momentum trading, swing trading and position trading. Mastering one style of trading is very important, but the trader also needs to be proficient in others.


1. Scalping Trading


Scalping is the shortest time frame in Trading and it exploits small changes in currency prices.[1] Scalpers attempt to act like traditional market makers or specialists. To make the spread means to buy at the Bid price and sell at the Ask price, in order to gain the bid/ask difference. This procedure allows for profit even when the bid and ask don't move at all, as long as there are traders who are willing to take market prices. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.
The role of a scalper is actually the role of market makers or specialists who are to maintain the liquidity and order flow of a product of a market.
The profit for each transaction is based only on a few bips (basis points), so scalping is typically conducted when there are large amounts of capital and high leverage or there are currency pairs where the bid–offer spread is narrow. 

Principles

  • Low exposure, low risk - Scalpers are only exposed in a relatively short period, as they do not hold positions overnight. As the period one holds decreases, the chances of running into extreme adverse movements, causing huge losses, decreases.

  • Smaller moves, easier to obtain – A change in price results from imbalance of buying and selling powers. Most of the time within a day, prices stay stable, moving within a small range. This means neither buying nor selling power control the situation. There are only a few times which price moves towards one direction, i.e. either buying or selling power controls the situation. It requires bigger imbalances for bigger price changes. It is what scalpers look for – capturing smaller moves which happen most of the time, as opposed to larger ones.

  • Large volume, adding profits up – Since the profit obtained per share or contract is very small due to its target of spread, they need to trade large in order to add up the profits. Scalping is not suitable for large-capital traders seeking to move large volumes at once, but for small-capital traders seeking to move smaller volumes more often.
Trading is a work of art and science.

2. Day Trading


Day Trading is Trading and holding and selling of shares for a period of single day.
You buy and sell shares within the day and focuses on earning profit with the upward and downward movement of the share price.

It is also known as Intraday Trading, day Trading was once an activity that was exclusive to financial firms and professional speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management.

Techniques used by Day Trader.

  • Scalping-  attempts to make numerous small profits on small prices changes throughout the day.
  • Range trading-  primarily uses support and resistance levels to determine their buy and sell decisions.
  • News-based trading- which typically seizes trading opportunities from the heightened volatility around news events.
  • High-frequency trading (HFT)- strategies that use sophisticated algorithms to exploit small or short-term market inefficiencies.

3- Momentum Trading


Momentum Trading is a system of buying stocks or other securities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period.

Richard Driehaus is sometimes considered the father of momentum Trading but the strategy can be traced back before Donchian. The strategy takes exception with the old stock market adage of buying low and selling high. According to Driehaus, far more money is made buying high and selling at even higher prices.

In the late 2000s as computer and networking speeds increase each year, there were many sub-variants of momentum Trading being deployed in the markets by computer driven models. Some of these operate on a very small time scale, such as high-frequency Trading, which often execute dozens or even hundreds of trades per second.

4- Position Trading


Position trader refers to an individual who holds an investment for an extended period of time with the expectation that it will appreciate in value. The average time frames for holding positions can be measured in weeks to months. They are less concerned with short-term fluctuations and the news of the day unless it impacts the long term view of their position. Position traders do not trade actively, with most placing less than 10 trades a year.

Methods

Fundamental analysis- is especially important to position traders who expect to hold the assets for a longer time frame. Fundamental analysis in position trading is frequently associated with stock-picking. It allows traders to find winning stocks that may provide high returns.


Technical analysis- is used to identify trends in asset prices that will allow a trader to earn profits. In addition, it aims to identify trends that will last long enough and provides warning signals of potential trend reversals


Technical analysis usually provides position traders with two options: trade the assets with strong trending potential that have not yet started trending, or trade the assets that have already begun trending.


5- Swing Trading


Swing trading is a speculative Trading strategy in financial markets where a tradable asset is held for between one and several days in an effort to profit from price changes or 'swings'. A swing trading position is typically held longer than a day trading position, but shorter than buy and hold investment strategies that can be held for months or years. Profits can be sought by either buying an asset or short selling.Momentum signals (e.g., 52-week high/low) have been shown to be used by financial analysts in their buy and sell recommendations that can be applied in swing trading.


How Can You Make Money Trading.

With each of the mentioned Trading styles and techniques you can easily make money, but gain profit, you need to have proper analysis and knowledge of the stock you are buying and selling and have to be ready for losses too. 

Share market is not always about profit there are losses too, but you need to learn from the, believe me I'm speaking of experiences but after you learn the from them there are less chance you repeat them again.

You need to stay put to every market details and movements and trends going in the share market.
This is what makes a intelligent investor or trader.

These are some of the basics knowledge that you should have to get to know Trading and its details.

If you haven't seen the post about prediction of Stoke Market click here  How to predict stock market

Comments down below to tell your experience about trading and what you have learnt so far.

For mailing us [email protected]

Post a Comment

4 Comments

  1. Honestly this is the fastest and simplest explanation.

    ReplyDelete
  2. The pin bar value activity Forex trading procedure is an inversion framework. It is intended to exchange tops and bottoms of business sectors and can likewise be utilized in pattern continuation by purchasing plunges in vertical patterns, and selling tops in downtrends.
    Saham

    ReplyDelete
  3. Enormous grounded firms who have shown great productivity and development, profit payout, and quality items and administrations are called blue chip stocks. Fortune best cryptocurrency to invest in

    ReplyDelete
  4. Forex exchanging signal suppliers help you in limiting dangers or misfortunes in exchanging. Nano is Reddit best cryptocurrency

    ReplyDelete