There are many different ways you can trade stocks online with an online broker. Investment strategies come in all different shapes and forms and can integrate both technical and fundamental analysis together, while some strategies just involve one or the other.
Stock Trading Strategies are in no particular order:
- Day Trading
- Momentum Trading
- Swing Trading
- CANSLIM Trading
- Buy and Hold
- Penny Stocks
Day trading has a heavy focus on technical analysis and reacting quickly to changes in a given day of the stock market. To day trade successfully there are several steps you need to take and repeat. The main concept behind day trading is to buy a stock than sell it within the same day. Some day trades may last only a few minutes, some a few hours, and regardless of duration one thing is for sure, you better know what you are doing.
A momentum trader likes to buy or short stocks on any sort of recent momentum almost always put into motion by institutional investing. This type of trading style can combine both technical and fundamental anaylsis or simply utilize one. When it comes to momentum trading, Apple Computers (AAPL) recent upswing over the last several months offers a perfect example. All the hype over the iPhone release put Apple stock on a big upswing that lasted months. The momentum behind this move was almost all news related, and a momentum trader would have jumped onboard this train right when it began moving. The big challenge momentum traders face is to know when to sell.
Swing trading is a more short term strategy with a focus on technical analysis. Swing traders analyze stock charts and look for patterns when stocks in the past made big upswings or downswings. They then buy and sell stock chart in accordance with the next predicted price swing and make money off the move. A swing trade can last as long as a few days or a few weeks to a month or more. A firm understanding of technical analysis is required to become successful at this strategy.
CANSLIM Trading is probably the most well known investment strategy out there. Created by William O'Neil of investors.com, CANSLIM Trading combined both funamdental and technical analysis. The strategy enties buying well performing companies with solid fundamentals on certain technical breakouts. Some breakouts include the "cup and handle", or the "W formation". Chris Perruna wrote a guest article to breakdown the CANSLIM trading letters and offered some tips on how he uses it as an investment strategy.
Buy and Hold
It doesn't get much more basic than buying and holding. This strategy more often than not implies fundamental analysis or no analysis at all, and simply means what it is. Buying and holding is a long term strategy used by investors of all experience levels to buy a stock, hold onto it for a year or more, than sell it at a later date for hopefully a profit. Technicals don't come into play here and really you are banking on the overall market performing well over a longer period of time. The one main advantage of holding a stock for a longer period of time, more specifically over a year, is to take advantage of the long term capital gains tax.
Penny stocks are stocks that trade under $10 a share, and are more often than not a very risky form of trading. The reason these stocks are so risky is because they are so volatile and easily manipulated price wise. Simple math will tell us that a stock trading at $.50 a share will go down or up 2% for every penny it moves. When trading penny stocks fundamental analysis is a key component of trading because traders like to bank of news that can move the stock heavily in one direction. Technical analysis is also involved for those who like to use penny stocks to day trade. Buying and selling is also a problem because you need more shares to make up a sizable position in your portfolio.
Trading strictly biotechs can make or break a good trader. This strategy involves taking a large position in a biotech stock that has a drug or drugs in its pipeline awaiting FDA approval, and making money when the drug gets approved or passes one of its testing phases. Drugs go through a series of testing in three phases to determine their effects and safety. All of these results can greatly move a biotech stock price one way or another. Small biotech companies can trade for pennies a share or a few dollars a share and can be greatly affected by FDA results.