Belligerent short-term stock traders adopt various strategies to make money real fast by taking advantage of the unstable stock prices. Generally, these instant stock traders basically make use of technical analysis to search gainful stock buying and selling prospects. However, some among them also corroborate their selections utilizing the fundamental analysis prior to actually buying or selling any stock. Some of the strategies adopted by these aggressive short-term stock traders are discussed in brief below.
While the buy-and-hold traders prefer to acquire a stock and wait for years to sell them after its price to goes up, the day traders purchase and sell stocks within few seconds, minutes or hours. In fact, day trading of stocks is considered to be an intense form of trading that requires moving into and out of the stocks continuously. The modus operandi of the professional day traders is simple. They make use of the technical analysis to foresee the movement of a stock in the near future and buy and sell in view of that. By and large, the day traders sell all their stocks bought on a particular day on the same day and collect their cash by the time the stock market closes for the day.
The day traders have a number of options to carry out their business - they may chose to operate from the comforts of their home or even trade stocks from the office of any day trading firm that offer high-speed telephone lines as well as personalized stock trading software. The day traders have been in existence since the inception of stock trading, but this concept became more popular during the bullish market during the later part of the 1990s when most of the stock prices were highly volatile. In actual fact, there were so many people trading stocks from their home during this period that they were known as online traders.
It may be mentioned here that apart from day trading of stocks, an online trader is also free to adopt several other interim plans. Swing trading is an ideal example of a short-term strategy that the online traders may follow. Swing trading, also known as position trading, involves buying stocks and holding them for some months before selling the stocks when their prices go up in the market. There are many online traders who follow the market trends while engaging in swing trading. They buy stocks when the movement of the market is upward and sell them when the market is showing signs of going down.
Although day trading may seem to be an easy way to make money on the stock market, but it is not as simple or effortless as it may appear to be. The fact remains that despite have facilities such as high-speed telephone lines, personalized software and other equipment, it is very difficult to regularly make substantial money from day trading. In addition, majority of the people usually don't have the patience to sit at their computers and observe the stock positions throughout the day. To be successful as a day trader, one needs to posses an unbelievable level of self-regulation, substantial money to trade and sufficient knowledge about the stock market. This is the primary reason why very few people are actually successful in day trading and prefer to make a living from it. It is true that even the day traders are able to make considerable earnings, but it is only occasional. Besides, day trading is a tremendously hard venture unless the trader is supported by a bullish market. Hence, it is by no means a concurrence that immediately before the NASDAQ reached the highest point at 5000; numerous people relinquished their jobs to take up day trading as a full-time occupation. According to market experts, this was a clear indication of the fact that things were heading towards a dreadful ending!
People who really think that day trading is an extremely complicated task and awkward as a source of sustenance simply cannot envisage how thorny it is to pursue the career of a market timer. For the uninitiated, the job of a marker is to envision the future movement of a stock or the market much in advance. Once the market timer has made a prediction in this regard, he or she will need to move ahead of the market. For instance, if a market timer believes that the stock market will go up in the subsequent week, he or she will transfer all their money in cash or bonds and put them into stocks with a view to make substantial gains from the upward movement of the market in the immediate future. In other words, the basic concept of market timing is to move one's money to the most gainful investment before it begins to rise. However, the truth is that this is something that appears to be easy, but extremely difficult to execute.
From the above discussion it is evident that market timing is an extremely perilous plan that may cost an investor dearly if he or she puts their money on an erroneous stake. In order to become a successful market timer, it is essential for a stock trader to know when to enter the market and when to get out of it unscathed. Since this is an incredibly difficult task, there are only a handful of people who have proved to be successful market timers. Although it is extremely tricky to time the market precisely, this obscurity has not been able to deter people from continuing to try their luck in the game. Here, many people may argue that even the buy-and-hold strategy is also a variety of the market timing plan, as in the instance of buy-and-hold an investor is required to time his or her stock purchase to enable them to buy the stocks at a lower price and sell them when the prices go higher.
'Short the rallies' is another stock trading strategy that helps investors to make money quite fast. Although the strategy is very effectual in making money quickly, at the same time, it is a highly hazardous approach to stock trading. When an investor is following the 'short the rallies' strategy, he or she does not buy more stock when the market goes down, but just do the opposite. In fact, they are not engaged in buying on the dip. Contrary to this, the investors sell the stock they own when the market or the price of the stock goes up significantly. They purchase the same stock at a lower price later when it is going low. Although shorting the rallies is a highly risky stock trading approach, the strategy performed very well for many years. This is primarily because the prices of stocks usually drop more rapidly than they rise.
However, it must always be borne in mind that trading stocks successfully utilizing the shorting the rallies strategy requires incredible amount of time, talent, expertise as well as patience on the part of the investor. In the event of the investor making an erroneous guess and the stocks that he or she has sold continues to go up instead of dropping, he or she needs to have great control to buy back the shares for a minimum loss. This process of re-purchasing the shares for a small loss is called 'covering your position' in the stock market parlance.
An exchanged-traded fund (ETF) is an investment product that is very akin to a mutual fund, but can be traded like a stock. In effect, the ETFs always gather the securities that are in an index, but never track actively managed mutual fund portfolios as most actively managed mutual funds reveal their investments only a few times in a year making it difficult for the ETF to regulate its holdings most of the time. It is, however, that the investors are able to do almost everything that they can do with ordinary stocks. Again, unlike most mutual funds, as the ETFs are traded on the stock exchanges, they can be purchased and sold during any time of the day. In the recent times, ETFs have become quite popular both with the traders as well as investors, including several professional investors.
Similar to the stocks, even the prices of the ETFs fluctuate on the marker quite frequently often making it necessary for an investor to seek the services of brokerages and pay commissions. There are no sales loads or investment minimums required to purchase an ETF. Hence, an investor may spend as little as $500 to buy an ETF that tracks a particular index or sector. The index funds such as the NASDAQ 100 (QQQ), the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) comprise the ETFs. New ETFs are being generated all the time owing to the abrupt popularity of this investment product.
Trading ETFs have a number of benefits. They are inexpensive, almost cash and also tax-friendly. In addition, the ETFs automatically offer an instantaneous diversification as they comprise a package of individual stocks. In any case, it would certainly be very expensive as well as a time consuming affair for an individual investor to buy so many stocks alone. As the ETFs are just like stocks, an investor is able to buy or sell them through a brokerage firm or via the Internet. Finally, it is important to note that both the investors as well as traders can easily get the ETF they want to buy or the one that suits their requirements the best.
However, like everything associated with the stock market, the ETFs also have their share of disadvantages that are very akin to those related to trading stocks. The first and foremost disadvantage with ETFs is that whenever an investor wants to buy or sell an exchange-traded fund, he or she is required to pay a commission to their brokerage firm. Secondly, as ETFs are a relatively new investment product, they don't have much of a background or past performance to enable an investor or trader to study their trends. Hence, anyone wanting to learn to trade ETFs successfully needs to spend a lot of time to know how this new investment product operates and deciding to do so is worthwhile too.
Stock trading on news is a method to buy and sell stocks, equities and other financial instruments of the financial markets. In fact, trading on news releases can turn out to be an effective too for most financial investors. It has been seen that financial news reports frequently incite robust interim moves in the market that may create trading openings for the stock traders. In fact, news such as declaration of a corporation's profits, management changes, rumors regarding mergers are capable to pushing a company's stock price violently up or down. Even news regarding interest fees, unemployment, export fees or even any change in the central bank's policy may result in significant change in foreign exchange rate.
Much akin to day trading, buying and selling stocks on the basis of news is a tricky strategy to be successful in the market. Actually, no one ever knows the extent to which the stock market will react to news regarding any particular stock. In fact, there is a proverb vis-à-vis trading on news that says 'Buy on the rumor, but sell on the news'. As mentioned earlier, on several occasions the price of a stock may go up or fall in expectation of a news regarding any incident or a Fed conference. To everyone's surprise, when the news is finally released the price of the stock may move in a direction that people had never anticipated. To a certain extent, this aspect elucidates the reason why it is very difficult to trade stocks on the basis of any news item.
As a matter of fact, any news is reaching an individual from several sources - newspapers, magazines, television, the Internet and even other people, including friends and relatives. And the most difficult task here to decide which news or information should be considered valuable and which should be ignored or discarded as junk. There are several instances when people, both professionals as well as amateurs, have proven wrong regarding the market. Hence, it is advisable to bear in mind that the majority of things that people tell others or talk about the market is simply worthless. All the same, always remember that the prices of stocks rise or fall depending on what people actually recognize to be the truth or reality.
There are a number of people who often intentionally attempt to sway the movement of stocks by spreading rumors or wrong information regarding different companies. It is amazing to note that some time back, the price of a stock could go up or come down swiftly on the basis of something trifle as a well-placed gossip in an Internet chat room. As hundreds and thousands of people have already lost plenty of money by trading stocks depending on tips and gossips that they have now stopped listening to others, albeit temporarily. It is apprehended that when the market becomes bullish once again, it is likely that it will not happen for a long time now; swindlers will reappear from under the rocks to tempt gullible investors into losing money on trading stocks.
When an investor steps into the stock market, it is natural that he or she may find it difficult to comprehend the different stock trading options available to them. However, with the passage of time and with some practice, the investors begin to realize the logic behind different stock trading options. This is one reason why a number of professional stock trades take in different option plans in their investment portfolios. In general, these professional traders make use of the option strategies to protect their investments in such a manner that they suffer minimal losses when the goings is really bad. In other words, by including the options in their portfolio, the traders take the reverse side of a trade to diminish risks involved with stock trading.
An investor or trader consider a trade option as an indenture that will provide him or her privilege, but necessarily not any commitment, to buy or sell a thing. The item could be anything - a house, any article of trade such as oil or corn, or even stocks. For instance, there is a type of stock option that offers the investor the privilege to purchase a specific stock at a given price within a specific date. The great aspect regarding trading options is that an investor doesn't need to own a stock to be able to operate them. Options are also known as derivatives owing to the fact that their prices originate in or are derived from the stock price.
Among the various types of trading options, the 'call' and the 'put' are the most popular or widely accepted by the people. A call option offers an individual the privilege to purchase a stock at a particular price. On the other hand, a put option gives an individual the privilege to sell a stock at a particular price. Thus, with the call and put options, an individual has enjoys the privilege to buy or sell the original stock, but, interestingly enough, majority of the people do not apply this privilege. Instead, they merely sell the trading option. Thus, in return for a small part of the price of the shares, a person is able to be in charge of stocks worth hundreds or thousands of dollars!
Let us take the example of the Bright Light stocks again to understand the subject better. Suppose, the Bright Light stock is selling at $20 per share. An investor has a preference for Bright Light and believes that it will go up to $25 each share. Hence, the investor makes a decision to buy a call option with a strike price of $25. It may be mentioned here that an investor is free to select any strike price and the wider the gap between the current price and the strike price, the less expensive the trading option will be. For instance, an option having a strike price of $20, will be significantly costlier compared to an option having a strike price of $25. And in the event of the Bright Light stock going up to $25 or more per share, the investor will make considerable earnings. In fact, the theory is that the higher a stock moves from its current, the more amount of money will be made by the investor.
Nevertheless, there are some set of rules that one needs to abide by while using a trading option. When anyone purchases an option, he or she also needs to mention a specific termination date that is normally any time between the first and third month from the date of purchasing the option. Hence, this rule signifies that the price of the Bright Light share to attain the strike price or more before the expiry date of the option. If this doesn't happen the stock trader will lose his or her total savings. However, the trader possesses the right to sell the option before its termination date if he or she feels that the share is unlikely to hit the strike price. All said and done, keeping in view that some options increase two-fold or even three-fold in a few days, it is prudent to lock in a profit.
For the uninitiated, here is how one can purchase trading options. For instance, an investor may call up his or her brokerage firm and tell the people there that they would want to purchase five June contracts with a strike price of $25 a share (each contract denotes 100 shares of a particular stock). This may also be done by placing an order online. When an order like this has been placed, it means that the price of each Bright Light share should go up to a minimum of $25 or higher before the third Friday in June so that the investor may earn profits. Again, as mentioned before, the investor can also sell the option before its expiry and also earn a profit. If you are wondering what would be costs involved in purchasing the options, let's make it clear that costs are directly related to the expiry date of an option. The further away the expiration dates of the option, the more the cost involved. For instance, the five June contracts may cost the investor $2 each. Hence, if the investor decides to purchase five option contracts, it will cost him or her $1000 at the rate of $2 each for a total of 500 shares. On the other hand, if the investor buys July contracts, they will cost him or her $4 each. However, it is important to bear in mind that the price of the options keeps on changing continuously all through the day. In fact, contracts are available for all months of the year and round the year.
Like all other things related to the stock market, the trading options too have their shortcomings or disadvantages. First and foremost, in the event of the price of Bright Light stocks failing to rise up to $25 per share by the third Friday of June or the expiry date of the trading option, the investor will lose his or her entire investment of $1000. In this case, the trading option will expire without yielding any money to the investor. If truth be told, researches have demonstrated that almost 90 per cent of the trading option contracts expire worthlessly. In addition, after paying all the taxes and commissions, majority of the investors do not even earn a cent by trading options.
Nevertheless, one may diminish the risks involved with trading options by purchasing a put option instead of a call option. In such an instance, the investor is hopeful of the stock prices falling and not going up. It is interesting to note that during the latest bear marker, many traders who had traded options did not have to suffer much loss or virtually ended on an even note financially. The reason behind this could possibly be that these investors had sold their option contracts much before their expiration dates.
Again, like any other stock trading strategy, even the trading option is a difficult plan to follow as well as be successful with. In order to earn profits from stock trading without options, it is essential for an investor to be accurate with two aspects - timing and the direction of the price of the basic stock. In case an investor makes any error with any of these crucial aspects, he or she is more likely to lose their total endowments. Nevertheless, if any investor is still captivated by trading options and desires to become more skilled at it, there are definitely several other trading option plans.