Online share trading might seem pretty straightforward at first. But the reality is that there are many layers to it, and trading can be of different types. Words like scalping, momentum trading, or intraday trading for beginners might be difficult to understand at first. However, it is essential to learn about all the different types of trading before deciding what suits you the best.
Types of Trading
Take a quick look at five common types of trading based on how or when the trade is done.
- Scalping: This type of intraday trading is also called micro-trading. That is because the time lapse between the buying and selling of stocks could be as little as a few seconds to a few minutes at the most. Traders who engage in scalping tend to be quite experienced, and this style of trading may not suit a beginner. A trader must rely on their understanding of trading and market news to make quick transactions. As the time window is very small, the price fluctuations are not very large. A scalper makes money by trading repeatedly and accumulating little profits. In fact, the trader may have to make a hundred trades each day to earn profits through scalping.
- Intraday trading: In day trading, buying and selling happens over the course of a single working day. The time between buying and selling could range between a few minutes to a couple of hours. But a day trader would have closed all the positions acquired during the day. Intraday trading is seen as a quick way to make money. However, that is not always the case. Day traders and scalpers may face heavy losses when starting out. Only experience and discipline can help you to achieve success in intraday trading.
- Momentum trading: In this type of online share trading, the trader follows the market. Once a stock starts going high, the trader jumps in and rides along as long as the prices keep rising. At the first sign that the prices might fall, the trader sells all holdings and makes a profit. A momentum trade may run for a few hours or a couple of days. It all depends on the price movements of the stock purchased. But if you time it wrong, you could lose all your money. A momentum trader must always be on alert—there could be external factors leading to price changes. The prices may fall suddenly without offering an opportunity to close the deal, or trends may be reversed, leading to a loss at the market.
- Swing trading: This type of stock trading falls midway between intraday trading and long-term trading. The holding time may range from a couple of days to about three weeks. The traders follow the short-term price movements of the stocks to decide exactly when to execute the orders. Swing trading is a relatively safe bet for new traders. It gives them time to read a stock and follow its pattern before closing the deal.
- Position trading: A position trader holds on to a stock for the long term. The holding period may often range between a few weeks to a few months. These traders are not bothered by price fluctuations or missing small gains. They look at the overall trend and take decisions based on a long-term strategy. But even these traders bear a certain amount of risk. Sudden changes in the price trend of a stock affect all traders. Besides, position traders lock up their finances in stocks for a very long time, which results in less liquidity.
If you are new to trading on the markets, take into account your ability to bear risk. This will help you to choose the form of trading that suits you best. It may also help to open a trading account with a reliable brokerage firm like Kotak Securities. You could then take advantage of a wide range of platforms and resources while carrying out your first trades.