Buying and selling securities as a hobby, side job, or full-time endeavor can be exciting and profitable. Sometimes, the best way to approach any financial or investment-related pursuit is to use time-tested strategies and techniques that have served others well. When it comes to trading stocks, bonds, options, and even forex, it’s possible to employ an approach, or combination of approaches, in order to structure your hunt for profits and measurable gains.
One of the most valuable things you can get from a method is predictability. Instead of simply guessing which stocks might rise in value and choosing them haphazardly, a formal system gives you more control over both the result of the trade and the process of the transaction. The following four strategies are among the most common in current use.
Everyone’s heard the old saying about buying low and selling high. Of course, it makes great mathematical sense but is nearly impossible to do with consistency. Most stock trading strategies are based on that principle, even though the cliché has become something of a joke in the financial media.
Oddly, one of the most common ways people choose individual companies for investment purposes is by following the crowd or taking a tip from a popular financial personality. Social media is full of free advice for anyone who is hungry for market tips. Many others watch the Sunday financial TV shows or check-in with major trading websites each morning to see what companies the experts have their eye on.
Swing techniques have been around forever, having gained wide popularity in recent decades. The name is based on what you’re trying to do, which is catch an upswing in the value/price of a particular security. If you’re diligent and follow the charts closely, you might try to capture an entire leg of a price rise, or at least a large portion of it.
The typical timeframe for swing enthusiasts ranges from a few days to a few weeks. The general goal is to catch as much of an upturn as possible before getting out. This kind of buying and selling is based on common sense but success is based almost entirely on timing. Get out too soon and you could miss out on much larger profits. Get out too late and prices might have slipped back to their original position.
Day traders and other short-term enthusiasts often rely on technical indicators and minute-by-minute price action to make entry and exit decisions. You need a keen eye and a lot of discipline to make fast decisions. Many short-term investors are full-time experts who devote their entire careers to day trading, scalping, and taking profits within very small time frames.
The Long Game
If you prefer blue-chip stocks, amassing a portfolio that has the potential to grow over a decade or more, and don’t care much about day-to-day movements in value, then long-term methods are the way to go. Many amateur and part-time traders use this technique to build retirement funds and save for their golden years.