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Stock Market Trading Strategies


Understanding Stock Market Trading Strategies

stock market trading strategiesAlthough the stock market seems overwhelming to many people, understanding basic stock market trading strategies is not terribly difficult.  Even passive traders and investors that rarely trade or invest in the stock market can gain a great deal by understanding stock market trading strategies.  Anyone who is considering trading stocks or stock market products, such as exchange traded funds (ETFs) or mutual funds, has to first understand stock market trading strategies to get a grasp of how money is made in the stock market.

Some Basic Stock Market Trading Strategies

There are many different stock market trading strategies from the very basic to the very complex.  The following are examples of some basic stock market trading strategies that traders and investors use to make money every day.

Buy low and sell high is the most basic stock market trading strategy.  The strategy sounds just like its name says, a stock market trader or investor buys stocks or stock market products when they are low and sells tem when they are high.  The trick to implementing the buy low sell high stock market trading strategy is to understand when stocks or stock market products are at lows and should be bought or are at highs and should be sold.  The important thing to remember is that just because a stock or stock market product has a low price, does not mean that it is cheap and should be bought.  The actual valuation of a stock or stock market product is not indicated by its nominal price, but instead by its underlying earnings and the prospect for earnings growth in the future.  A “cheap” stock or stock market product can always get cheaper, if the earnings outlook is poor.

Position Trading is a stock market trading strategy in which a trader positions themselves in a stock or stock market product before an anticipated event that could potentially send the stock or stock market product higher or lower in the near term.  Position trading includes trading opportunities, such as an earnings report, a pending product release, or an anticipated sales contract.  For example, if a mobile phone maker is expected to release their latest version of their phone in the not too distant future, a stock trader may initiate a position in the company’s stock well ahead of the phone release event in anticipation of a move higher around the time of the product release.

Swing Trading is a stock market trading strategy that takes advantage of intermediate moves in stocks or stock market products.  Swing trading requires an understanding of charting techniques to identify levels on a chart in which a stock or stock market product is likely to reverse direction, which signals the end of a swing trade.  For example, some stocks and stock market products trade within well-defined trading ranges.  A swing trader would buy at the bottom of a trading range and sell at the top of the range, using charts and momentum indicators to take their cues regarding when to buy and sell.

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