In my last post about investing, I wrote about how I chose my stock broker. This post is going to be about determining what kind of trader/investor you want to be. There are many different strategies/philosophies in stock trading. Some may decide to focus on one strategy while others use an assortment of them. Here are some of the basic strategies.
Long Term Investing: This is the strategy that the majority of people who trade focus on. This kind of trader is focused more on the fundamental aspects of the company. It’s simple really, you pick a stock/mutual fund and invest in it for the long run. Over time you add to the position, which is called dollar cost averaging (or DCA for short). If you pick a fundamentally sound company this strategy works a lot of the time. This kind of trader does not focus on intraday swings or short-term price fluctuations. They are in it for the long hall, focusing more on dividends and stability. Mutual funds are normally considered a long-term position.
Swing Trading (aka trend trading): Swing traders focus on companies that have solid trends to them, be it cyclical trends or just trends on the chart. They hold stocks for short time frames, typically under a month. Focusing on chart patterns, trends and not really on the fundamental aspects of companies.
Day-trading: This strategy is one of the hardest to master, and also takes a lot of money. This kind of trading is not for the faint of heart though, as money is real easy to lose. Daytraders focus on intraday swings in stocks. They do not focus at all on fundamentals, and purely base their trades off of technical analysis or news that provides momentum to a stock. Buying and selling the same day. There are regulations the government has put in place to limit daytraders. One of them is the pattern daytrading rule. Anyone can buy and sell in the same day, but you are limited to 3 daytrades within a 5 day rolling period (Round trip is buying and selling the same day). This rule is phased out if your account (cash+value of assets) is above $25,o00. Why did they pick this amount? I have no idea.
What kind of trader am I? If I had to classify myself as any of those 3, it would probably be the swing trader. Most of my trades I hold for under a month, its pretty rare that I have held a position longer than that. I do a little of everything though. I focus on both the fundamental and technicals of companies. Daytrading can be really fun, and also be really frustrating. Right now I don’t consider myself a long-term investor, mainly because I don’t have the funds that I feel confident enough in going long. That doesn’t really make much sense considering that long-term investors don’t worry about that, they DCA into positions. I just really like to see shorter term swings, and that is mainly what I try to play. One of my strategies that has worked well for me in the past is swing trading into long positions. Buying stock and when I am ready to sell I just sell to get back my initial investment. This is also called “riding free shares”. The shares are free because they didn’t cost me anything, it was the profit left in.
What kind of trader to you see yourself as? Do you focus more on fundamentals or technical analysis?
***I have no professional knowledge or training on stocks. Just what I have learned through other stock traders and my own research. All of these posts are from MY experience. You should always consult with a certified financial professional.***