Trading is the process of buying and selling financial assets, such as stocks, bonds, and commodities. It is an excellent opportunity for investors to expand their portfolios.
If you wish to earn revenue through trading but don’t know where to start, this blog post is for you. Here is a breakdown of four trading types for beginners:
Day Trading
Day trading, or intraday trading, is buying and selling securities within the same trading day. Traders aim to earn profits from small, short-term fluctuations. Investors rely on quick decision-making and technical analysis to minimize risks.
As a beginner, follow these tips to earn maximum profits from day trading:
- Scan the market the night before your trading day and prepare a plan.
- Wake up early and check pre-market data.
- Try to keep your watch lists short. This will help you give each trade the necessary attention. Focus on no more than three to four trading stocks per day.
- Trust your guts. Don’t question every purchase and stick to your previously decided plan.
Swing Trading
Swing refers to the periods when the price moves significantly upward or downward. Swing trading is the process of capturing these swings and taking advantage. Traders hold their positions for a few days to several weeks, depending on market fluctuations and price trends.
Traders identify entry and exit points based on chat patterns and momentum indicators. Here’s why swing trading is a suitable option for beginners:
High Volatility: The high volatility of swing trading leads to better income opportunities.
Clearer Trends: Swing trading focuses on identifying medium-term trends. These can be easier to spot for beginners.
Market Insights: Swing trading can be an excellent opportunity for beginners to learn market basics, such as how to read price charts and implement indicators and oscillators.
Options Trading
An option is a financial contract that gives you the right, not the obligation, to buy or sell an underlying asset at a specific price for a set period of time. This asset could be a stock, ETF, or index. The two types of options trading include:
Call options: It allows traders to buy an asset. If you’re expecting a stock to rise, buy a call option to earn profit without buying the stock itself.
Put options: It gives you the right to sell a financial asset before or on a specific date, also known as the expiration date. Most traders invest in put options to protect their portfolios from market downturns.
Options trading can be somewhat difficult to understand in the beginning. Make sure you read a comprehensive options trading 101 guide by SoFi before investing your time and money.
Momentum Trading
Often considered the easiest type of trading, it allows you to buy or sell assets based on their recent performance. Traders buy financial assets when the price starts to increase, assuming the trend will continue. On the flip side, a trader would sell the assets when the price is expected to drop.
Traders use various technical indicators to identify trends, such as:
- Moving Averages.
- Relative Strength Index (RSI).
- Moving Average Convergence Divergence (MACD).
The strategy is quite simple with momentum trading: Enter a market when momentum is building and exit before the trend reverses. This simplifies decision-making and helps you achieve high returns.
