There are several approaches to online trading, and getting to know what style suits you could make your trading experience more productive
With so many different online trading platforms, it is no wonder that an increasing number of people are turning to online trading in an attempt to get higher returns on their investments. However, online trade involves risk and an understanding of the market, therefore it is best to come prepared. A key factor to figure out before starting to trade is determining your trading style, there are a number of approaches to online trading and each corresponds with different aspects of each trader’s lifestyle and personality.
Investing vs. Trading
While many see “investing” and “trading” as synonyms, generally speaking there is a difference. Investing is the more comprehensive term, referring to allocating funds using a certain financial instrument to gain profit over time. While the act of trading is essentially the same, the word is usually used to depict actions that are short-term. In other words, the general notion is that an investment takes place over longer periods of time, and requires little involvement by the investor, while trading is more short-term and sometime requires the trader to be very active when buying and selling.
How much time do you have?
If you’re thinking about going into online trading, time is a factor you must take into consideration. Trading styles usually fit into one of four types, ranging from position trading in which assets are held for long periods of times, sometimes years, to scalp trading, in which sometimes assets are only held for seconds at a time. One of the more common styles is day trading, which involves short-term transactions, ranging from minutes to hours, and are never held overnight. The fourth for is swing trading, which refers to traders holding assets for periods of days to weeks.
Each style requires a different amount of time. Since there are numerous instruments to choose from when trading, it is best to do some research and adjust your portfolio to the amount of time you intend on spending in front of the screen.
Technical Vs. Fundamental
Another way of separating different types of traders is by the way they make decisions. In this respect, traders are categorized into two main groups: Technical traders and fundamental traders. In abstract terms, technical traders rely on graphs and charts, under the assumption that the past is an indication of the future. A fundamental trader on the other hand, will rely on recent news, current events and upcoming announcement to make their trading decision.
For example, the recent iPhone 7 launch was accompanied by a jump in Apple’s stock price. To prepare for such an event, a technical investor would look at the stock’s performance closer to a previous launch, its fluctuation on the same dates in previous years etc., and try to cross reference the data in order to determine how the stock will be affected. A fundamental investor will look into various news sources and analysts’ predictions, and try to make their decision according to those. As there is alway unpredictability when it comes to trading, there is no “right” or “wrong” approach – just each trader’s individual preference.
What tools should you use?
Each online trading platform has a different set of tools to automate some of the process and gain insight into certain transactions. While several tools are a must-have, such as stop-loss and take-profit orders (which automatically end a transaction once a predetermined amount is lost or gained, respectively), other vary from platform to platform. A key element to contemporary online trading is the social aspect. Since there are thousands of traders on each platform, some offer social features, such as a news-feed, status updates and user-to-user interaction, which enable traders to share their knowledge and gain from other’s experience.
If you are short on time, or generally prefer to be less “hands-on,” you could consider Copy Trading. Copy Trading essentially enables you to attach some of your funds to another investor’s portfolio, automatically copying everything they do. Some platform offer detailed information regarding each trader’s past performance, risk factor and portfolio, so it is relatively easy to choose which investors to copy.
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* All trading involves risk. Only risk capital you’re prepared to lose.
* Past performance does not guarantee future results. Trading history presented is less than 5 years and may not suffice as basis for investment decision
*This post is not investment advice.