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Online Stock Market Trading Strategies

There are four different types of stock trading that we will discuss in today’s article. Read about each one and see which one is a better fit for you.

Day Trading Day trading focuses on technical analysis instead of fundamental analysis, which is basically the study and prediction of price movements in the stock market. Day trading is a form of short term trading and just as it sounds, the investor will buy stock and then sell it within the same trading day. Some trades may last only a few minutes and some may last a few hours. There is a wealth of knowledge that is required in order to practice day trading stocks successfully so you must do your homework first.

Momentum Trading – Momentum trading is another online stock market trading strategy that takes place when a trader buys or short sells stocks on a recent momentum that is typically put into motion by institutional investing. It typically combines technical and fundamental analysis or it can be the use of just one type of analysis. The biggest challenge that momentum traders face is knowing when to sell; however they look for stocks that are in a major upswing last should last for months.

Swing TradingSwing trading is another short term online stock market trading strategy and it also focuses on stock technical analysis. It involves the buying and selling of stock that can last a few days or a few weeks and sometimes a couple of months. Swing traders will use stock charts to help them predict price movements and they look for patterns of major upswings or downswings using these charts. Similar to day trading, you must also do your homework before you begin swing trading stocks or you risk losing a lot of money. It is of course a great way to make money if you know what you are doing.

Buy and Hold – This is really a basic trading strategy that sounds just like it is. You buy and hold a stock that you predict will increase in price over a long period of time. Many hold onto to the stock for a year or more hoping to make a profit and for those that hold it over one year, they receive a tax advantage that short term traders don’t have. That benefit is the long term capital gains tax.

There are other online stock market trading strategies available to investors. There is not one investing strategy that is better than the other. Investors must just find a strategy that suits them and their personality and they should stick with it. Knowledge, practice and discipline are important to all strategies.


Market Direction: Every investor has one major flaw, emotions! A trader is considered "seasoned" once they have experienced trading situations often enough, they know how to react. A seasoned trader is one that has learned how to control their emotions. They are usually the more 'mature' investor. Unfortunately, it takes many years, if not decades, for a trader to learn how to control their emotions. With candlestick analysis, that is not the case.

Candlestick analysis is the observation of the formations created by reoccurring investor sentiment. The candlestick signals and patterns are the results of many centuries of profitable conclusions. Why are emotions the downfall of most investors? Emotions are an inherent result when investors have their money on the line. Even a well thought out trade program can be easily reverted back to emotional decision-making. Fear and greed become an integral part of an investor's thought process especially when the results are not guaranteed. What becomes a great deterrent for allowing fear and greed to creep into the decision-making process? Having the knowledge of what should be the results of price movements. This may sound overly simplistic but if an investor can make decisions based upon expected pattern results, emotions cannot creep into decisions.

What is the best way to keep emotions out of your investment decisions? Knowledge! Candlestick analysis is the knowledge of what a price action should do based upon a signal or pattern. There are expected results. Candlestick analysis provides the opportunity to establish a game plan for a trade. Specific signals and patterns are going to produce specific results with a high degree of probability. This allows an investor to take an action based upon what should occur. It also allows for the taking of alternative actions when the results do not occur. The candlestick investor obtains a huge advantage by knowing what price moves should occur. This allows for taking advantage of that price move when it works correctly or closing out of a  position when the price action does not concur with the signal. This may seem like a very simplistic approach but reality shows that most investors don't have any great idea of what a price should do after they purchase.

Knowing what is occurring in investor sentiment to form a signal/pattern provides the analytical capabilities for evaluating what the next price trend will do. Currently, the Dow is forming a Dumpling Top. You will see that mentioned in previous as well as future newsletters. Why? Because a Dumpling Top, like a Fry Pan bottom pattern, takes a good while for it to develop. Knowing the nature of the investor sentiment that creates a Dumpling Top allows an investor to establish their trading program based upon the conditions of the market. The indecisive nature of the trading that creates a Dumpling Top suggests that  any buying has to be done with the idea that trade may only last a day or two. Eventually the end of the pattern is going to lead to a very strong downtrend. That becomes the opportunity to make big money on the short side. Check the affects of the Dumpling Top that occurred in August of this past summer.

DOW

During the pattern formation, there will be bullish trading days that appear to be countering the slow negative downtrend. A breakout from the current levels would immediately negate the rounding top pattern. It would create a wave 123 pattern. This would immediately change the character of the portfolio positioning. A new price pattern will now illustrate a different investor sentiment. The Dumpling Top pattern might have produced a mixture of long and short positions in the portfolio. A breakout of the Dumpling Top pattern would immediately warrant establishing long positions much more aggressively.

There are not a large number of signals or patterns that need to be learned. Investor sentiment can be identified by reoccurring price moves. Once you have learned to identify those price moves, you gain much better control of your emotions. Take advantage of the information found in candlestick analysis. It will keep you from being whipsawed into and out of trading entities at the wrong times.

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Good investing,

The Candlestick Forum Team


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