Trading Styles in Stock Market

Investment in the stock market can be made in two ways. You can invest via the mutual fund. In this case, your mutual fund company will handle the entire investment portfolio accordingly. In this case, you need not require the demat account. The mutual fund allots your units against your contribution in your respective folio. The second option is that you can invest in direct equity via demat account. In this case, you need to select stocks after making fundamental, technical, qualitative aspects of the company or stock along with the profit and loss account and the balance sheet. In this column, we will discuss the different trading styles in stock Market traders make use of.

Open a demat account

First of all open a demat account i.e., trading account in a bank or a financial institution. Select some stocks after analyzing the stocks’ fundamental, technical, qualitative aspects as well as the profit and loss account and the balance sheet. The fundamental analysis reveals the debt ratio, compounded sales growth, compounded profit growth, return on equity etc. Qualitative analysis reveals the business model, management and staff of the company, competitive advantage, entry barrier, etc. Smart investors invest their money after making the above-mentioned aspects for long-term horizon i.e., 10-15 years. In most of the cases, a long-term horizon in investment generates profit.

Again, long-term returns are further amplified by compounding if the investors reinvest their dividends also. Successful trading involves more than reading a few articles or magazines or books or watching business channels and the morons sitting in there who deliver 15-20 trading calls within a day. There are many so-called experts who suggest share tips. Their tips change between buy and sell call just within a span of 3 months according to the market condition. It is better to avoid these tips and experts. You should have a clear roadmap, a proper research, a good trading plan or strategy before moving to investment.

Here are some strategies or preparations to adopt before starting investment.

Position Trading

This trading method is a combination of technical and fundamental analysis and takes a position for long-term horizon between a year and 5 years accordingly. This type of trading works according to some news or certain changes occur or are going to take place in the country. Let’s make it clear with the GST as an example.

Impact on FMCG

With the implementation of GST, the overall tax rate has been lowered by 5-6% than the previous rates. Companies like Colgate-Palmolive, HUL, and Britannia will benefit from this move.

Impact on consumer durable

With the implementation of GST, the overall tax rate is lowered by 2% than the previous rates. Companies like Symphony, Whirlpool, Havells, and Voltas will benefit from this move.

Impact on Airlines

With the implementation of GST, the overall tax rate has lowered by 3% than the previous rates when a person travels to economy class. Companies like Inter Globe Aviation, Jet Airways, and Spice jet will benefit from this move. 

Impact on Cement

With the implementation of GST, the overall tax rate is positive as GST has cut the tax by at least 5%. Analysts take an eye on Companies like Ultra Tech Cement, JK Lakshmi cement, Rain Industries, ACC and Ambuja Cement.

So after making the proper analysis of these sectors and the big guns in any specific sector, you need to invest in those companies with strong fundamentals. After the implementation of the GST, the stock market has started a bull run and it will be beneficial to the economy of the country in the long run.

Swing Trading

Swing trading refers to trading at the eve of any big event. It is seen that many consumer durable companies make a profit during the festive season of September to December every year. These companies declare their quarterly results or performance report after the month of December, in January. So, swing traders buy the stocks of those companies during this festive season or just before the announcement of quarterly results. Then when the companies declare results in January, these investors sell the stocks and make a profit. There are many other events after which share prices go upward. Just like the Govt. of India announced the anti-dumping duty on the rubber products the tyre stocks started the Bull Run and the swing traders made money.

Day Trading

Day trading is also known as intraday trading involves trading in a single day. At very short time interval investors buy and sell stocks. Investors make use of technical analysis to find out and exploit intraday price fluctuations by making use of charts, daily moving average, stop loss, resistance, support etc. Day trading relies on small margin and frequent small gains.

Scalp Trading

The riskiest way of trading is scalp trading. Buying and selling shares takes place in minutes to seconds. This is one type of gambling. You can gain or loss crores within seconds or minutes. No fundamental, technical, qualitative theory or application of any method is useful in this type of trading. Suppose, you buy a stock at a lower price there is no guarantee that with any negative news it does not inch lower. It is seen that many traders make or lose millions by applying this type of trading style without making any fundamental and technical analysis.

Which Trading Style fits you better?

As a trader or an investor, you must consider a variety of factors while applying any of the above-mentioned trading styles,

  • Amount of capital available
  • Investor or trader
  • Current market condition i.e., bull market or bear market
  • Experience in trading
  • Time horizon
  • Risk tolerance

Trading in the stock market is a full-time job. It is much different from the investors who invest in any company or stock with a long-term view after making a proper analysis of Fundamental, Technical, Qualitative, balance sheet and profit and loss account of a company or stock. In general which trading style is best for you is a difficult jargon to solve since it requires a lot of experience in stock trading and high-risk appetite.

If you have any question regarding trading styles in stock market make a comment so that we have a discussion and if you like this post share with your loved ones.

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