Stock Market Investing Strategies

There are different trading strategies (Short, Medium and Long term) for every market conditions, and the process of selecting one strategy can be a very exhaustive task. The strategy that you will decide on should be part of your plan of stock trading, and it should assist you in limiting the choices for stock selection.

First, the short-term stock trading strategies, they involve losing confidence when high risks arise, this will result in losing whatever the investor worked for so fast. It includes Momentum Stock Trading, Penny Stock Trading, Shorting Stocks, News Trading, and Extended Hours Trading. The Momentum Stock Trading is based on complying with the trend, and when researching you should concentrate on determining stocks that are becoming of more strength (strong uptrend and downtrend). The Penny Stock Trading is concerned with trading with stocks that have extremely low prices. This strategy is of a high risk because it is hard to find information about penny stock companies, and a stock can be easily influenced and manipulated. The Shorting Stocks focuses on receiving profits from the decrease in the price of a stock. This strategy is very risky because it depends on stocks that experience significant falls, and is mostly used by professional traders. The News Trading strategy is concerned with following the most crucial and real time public statements (Macroeconomic new releases, earnings releases of companies, bond auctions, political speeches, etc). This strategy is short term oriented. The Extended Hours trading strategy is usually combined with News trading. It involves a trader buying or selling a “moving” stock before or after the market opens/closes, and then the position gets closed inside the regular hours of trading.

Second, the medium-term and the special stock trading and investment strategies, they include; Gap Trading, ETF Trading, Elliott Wave Theory, Fibonacci Trading Strategy, Contrarian Investing Strategy, and Following Insiders. The Gap Trading strategy involves gaps which are sections on a chart where the stock price moves significantly up or down without any trading taking place. Gaps take place for different reason, for instance, when the earnings of a company are much more than expected, as a result, the price of the stock starts higher than it closed the day before. These gaps are discovered by traders who want to profit when the price of the stock reverses to meet the gap. The ETF Trading strategy involves risk diffusion, and it contains a set of stocks in a certain region or sector. It could be short, medium or long term. ETF and Momentum trading strategies are usually used together. The Elliott Wave Theory strategy depends on a theory that the psychology of the investor drives the prices of the stock up in a set of five waves and down in a set of three waves. Charts are used by traders to figure out these waves. The Fibonacci Trading strategy involves the usage of Fibonacci sequence in trading. This type of technical analysis demonstrates the possibility that the price of a financial asset will follow a large part of an original move and detect support or resistance at the major levels of Fibonacci before it goes on in the original direction. The Contrarian Investing Strategy focuses on gain returns by investing in a way that is different from the conventional wisdom one. Finding and buying stocks after their prices have decreased, and selling them when their prices increase can lead to very high returns. The Following Insiders strategy involves observing the main insider trading transactions. Insiders are directors and officers of a company or stockholders that posses at least 10% of the company’s equity.

Third, the long-term investment strategies, they include Income Investing, Value investing, and Growth Investing strategies. The Income Investing, also called Investing for income, focuses on stocks that provide high dividends. These stocks are usually volatile and safely pay dividends every year. The main aim of this strategy is to hold a low risk stock and generate income. The Value Stock Investing strategy focuses on determining stocks from successful companies that are severally undervalued comparing the price of the stock to their true value. When investing in these companies, you need to know the company’s fundamentals in order to realize their actual value. The main aim of this strategy is to combine capital growth and income generation with a medium level of risk. The Growth Investing strategy involves determining stocks that have a high growth possibility. This type of stocks is usually riskier than value stocks because they have a higher possibility of going down. These stocks sometimes don’t pay dividends because they use the company’s profits for future investments. The main aim of this strategy is capital growth but still involves high levels of risks.