The art of trading

What is trading?

trading, as the word trade implies, is the trading of various assets in the financial markets.

As a trader, you can trade various types of assets, each offering its own unique characteristics and opportunities. The types of assets you can trade include:

  1. Equities (Stocks): Shares or ownership stakes in publicly traded companies. Trading equities involves buying and selling stocks with the aim of profiting from price movements.
  2. Bonds: Debt securities issued by governments or corporations. Bond trading involves buying and selling bonds to capitalize on interest rate changes and potential price fluctuations.
  3. Commodities: Physical goods or raw materials, such as gold, silver, oil, natural gas, agricultural products, etc. Commodity trading involves speculating on price movements in these goods.
  4. Currencies (Forex): Foreign exchange trading involves buying and selling different currencies in the foreign exchange market. Traders aim to profit from fluctuations in exchange rates.
  5. Cryptocurrencies: Digital or virtual currencies like Bitcoin, Ethereum, and many others. Crypto trading involves speculating on the price movements of these digital assets.
  6. Options: Financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified period. Option trading allows for more complex strategies and risk management techniques.
  7. Futures: Contracts that obligate the buyer to purchase or the seller to sell an asset at a predetermined price and date in the future. Futures trading is prevalent in commodities, currencies, and financial instruments.
  8. Exchange-Traded Funds (ETFs): Investment funds that trade on stock exchanges and represent a basket of assets, such as stocks, bonds, or commodities. ETF trading allows for diversification in a single trade.
  9. Indices: Market indices that represent a specific group of stocks, reflecting the overall market’s performance. Traders can speculate on the direction of an index’s value.
  10. Mutual Funds: Investment funds that pool money from multiple investors to invest in a diversified portfolio of assets. Although not directly tradable like stocks, mutual funds can be bought and sold through fund companies or brokerage platforms.

Types of trades according to time criteria

Intraday trading

also known as day trading. In day trading, traders aim to open and close trades within a single day. This method of trading is popular, as it involves buying and selling assets within one market session. Day traders typically focus on short timeframes, which requires continuous monitoring of charts to quickly react to market movements and close trades. However, it’s important to note that each trader may have their own preferred timeframe, and over time, individuals develop their unique trading styles.

Long trades

In long-term trading, traders aim to hold positions for weeks, months, or even years. This approach provides a more comfortable trading experience, as it doesn’t require constant monitoring of screens for extended periods. Long-term traders don’t need to be concerned with short-term price fluctuations and can focus on broader market trends. However, it’s important to note that individuals have different preferences, and some may find it difficult to wait for long periods for trade outcomes. Day trading, as mentioned before, suits those who prefer quick results and are willing to dedicate more time to monitor the market. Over time, traders will develop their own trading style based on their comfort level and goals.

Swing trading

In swing trading, traders aim to capture short- to medium-term price movements in a specific direction. This trading style involves identifying chart patterns, trends, and support/resistance levels to enter trades. Swing traders focus on riding the price “swings” within a larger trend.

To illustrate, imagine each swing as the peak of a mountain. Swing traders aim to profit from the descent of the price after reaching a peak or capitalize on a significant acceleration towards the next peak. Swing trades typically last longer than a day but are usually closed within a week.

Unlike day trading, swing traders can hold positions overnight, allowing them to take advantage of potential price movements during non-trading hours. However, swing traders need to consider overnight risks, such as market gaps or news events, that can affect their positions.

Swing trading combines elements of both long-term and short-term trading, providing traders with opportunities to capture intermediate-term price fluctuations while avoiding the constant screen time required in day trading. The holding period and time frames may vary depending on the specific trading strategy and market conditions.

Scalping

If you’re seeking an adrenaline rush in trading, scalping can be an exciting choice. In scalping, traders aim to quickly profit from small price movements in a given asset, typically within minutes or seconds. This style of trading demands constant monitoring of the market, with traders closely observing every price fluctuation.

Scalping is a popular trading strategy known for its potential for rapid profits. However, it requires a significant amount of experience, sharp reflexes, and strong nerves. Many traders are attracted to scalping due to its quick profit potential, but mastering this strategy is considered an art form.

Position trading

Position trading is a style of trading that resembles investing. Traders aim to hold assets for a long period, relying on fundamental or technical analysis. It requires patience and a long-term perspective, as positions are held for weeks, months, or even years. Position traders focus on long-term growth potential and are less concerned with short-term market fluctuations. This approach requires thorough analysis, risk management, and a commitment to staying invested for an extended period.

Fundamental trading

In this area I would include everything that is not so much related to technical analysis, but rather news that happens around the world, whether it is natural disasters, politics, economics, whether we want or not all of this information affects us. So it also influences the mind of all traders and therefore the market. The market is actually made up of leaders so if someone doesn’t like something and sells or buys a given asset, most people may follow suit and slowly but surely the market price will be affected, sometimes it’s not so slow :).

if you liked this article, check out Is it really true that 98% traders lose their money?

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