FIVE TYPES OF TRADING METHODS:
Here we going to see different types of Trading methods in the Stock market and crypto market. The major five types of trading methods are:
- Investing Method
- Swing Traders
- Retracement Traders
- Swing Traders
- Scalpers
As far as the market is concerned, traders will be using any one of the 5 methods...Maybe even you will be trading in any one of these methods.
Investing Method:
Now, to begin with, investing. What everyone thinks is Investing means long term but it's not like that. Even to start with trading we need an investment.
Every trade is an investment and you should know where to invest. So basic rule is "Never Invest in Stock, INVEST in a COMPANY"
So what does it mean, Investment has to be done in a good company and not in shares.
Investing in any random share is better than choosing a company based on the fundamental growth & company management
and through "TECHNICAL ANALYSIS" if you find the company will be in buy trend for a longer period of time. Then, you have to Invest in that company.
Do not buy shares in all the companies for the sake of investment. Hence invest in a company that will give you long-term investment returns.
How to find a Profitable Company? The first important thing is "Fundamentals"
Fundamental means checking for the company's administration & their business plans and investing in it.
Same time we have to do proper technical analysis which helps you to find out the potential growth of the company for the period of 2-5 yrs.
Ex:- When a company share value potentially increases from Rs.150 - Rs.500 over a period of time can be determined through technical analysis.
Technical analysis helps to identify the value of the script. So, an investment can be made in a company, when both fundamental and technical analysis is strong.
Hence I conclude, never invest in a stock, Invest in a Good Company.
Swing Traders:
Swing Traders come in between Investors & Scalpers.
Swing does not happen in 1 or 2 days. It minimum takes 1 - 3 weeks.
So let me explain to you, who is a swing trader with an example.
Ex: - Through technical analysis when u predict a market goes up. We buy at Point A and wait for a period of 10 - 30 days to reach Point B.
A trader who buys at point A and waits for a period of time to sell at point B is called a Swing Trader.
Swing trader doesn't do Position or Long term trade. They buy and sell trades during a contract period of time. ( ex:-10 - 30 days time period)
A swing trader's important quality is they have to know the trend of the market.
A market will never be going in the same direction, it always forms an up & down structure.
So, a swing trader should be aware of whether a market is in an uptrend or downtrend, or sideways to do trade.
In case, if you are willing to trade based on trend. You should know the concept of Trend.(Uptrend/Downtrend/Sideways)
When the market is in an uptrend, the swing trader will place an entry at Higher Low (HL), because as per the Trend concept, the market will reach a new High after HL.
Based on this concept they will trade in Shares or commodities.
So, swing traders are the ones who place an entry in Swing Low & Swing High points and it will take a period of time to reach the target. (Min 10 days - Max 1 month)
Breakout Traders:
Breakout Traders mainly know about Support and Resistance.
Let's say when a market goes down and a candle closes breaking the support line. When a trader places a Sell entry exactly at the closing of the candle are called Breakout traders.
There are major breakout levels in the market.
example:- Diagonal Trendline Breakout, Channel Breakout, Support & Resistance breakout, etc......
These are different types of bounce back & breakout points available in the market
So, Breakout traders are the ones who place entry after the potential breakout point.
Breakout traders are normally called aggressive traders. Because of their agility nature, they place an entry once they find a breakout point.
Conservative traders are the ones who mainly trade on a single script with more patience and discipline.
Psychologically when a trader wanted to trade on many scripts and place entry at the breakout points are called Breakout traders.
You are one among the Breakout traders, In case you are trading at Support & Resistance breakout, Channel breakout, trendline breakout, etc.....
Retracement Traders:
Talking of retracement reminds me of an important person, His name is “Leonardo Fibonacci”
He was an Italian mathematician from 1100 AD. His theory was for every positive there will be a certain percentage of negative.
We have a saying "For every action, there is an equal and opposite reaction". This even applies to the market.
So when a market goes up high, there will be a low, and then only the market will reach a new High.
Likewise, when a market goes down, there will be a high and then only the market will reach a new low
This was the major rule “Leonardo Fibonacci” has made.
Rather than trading in the Breakout point, few people trade in the Retracement Level. (Positive to Negative or Negative to Positive Level)
Ex:- when we predict that a market will go up to 100 points, definitely there will be a correction of 30 to 40 points which comes down.
After a correction of 40 points, if a trader place an entry at that point are called Retracement traders.
There are 2 scenarios in this, let me show you. Few traders use the Fibonacci tool for retracement levels.
For ex:- when the market breaks its resistance then it comes again for a retracement.
A trader who places a buy entry at that retracement level is called a retracement trader.
So the first scenario is when the market is in a downtrend ... on completion of the downtrend a trader places a sell at the correction point
2nd scenario is - based on support & resistance...... when the market breaks the resistance and a trader places a buy entry at the retracement point
In both scenarios, a trader who buys & sells at the correction point is called a Retracement trader
Psychologically, retracement traders are considered conservative traders because they slightly hesitate to take risks.
But aggressive traders never hesitate, they buy or sell after a breakout.
So retracement traders are conservative and enter into a market only after they confirm the retest level.
Scalpers:
Most of the traders will do scalping.
Who are Scalpers? a trader who closes the trade on the same day, otherwise called Day Trading
Scalpers are who trade between 9.15 am - 3.30 pm in the equity market and 9.15 am - 11.30 pm in the commodity market and close the trade on the same day
In Crypto, the scalpers will trade most of the time per day(minimum 10 times to maximum nth time)
Swing traders will always buy at low and sell at high. But scalpers will buy and sell within a specified range of swing
Scalpers will trade in between the swing many times... they buy and sell just to get only 5 to 10 points.
Examples of the above 5 categories:
About the 5 categories let me explain to you with an example:- Bus Route - Starting place is Chennai and Destination is Coimbatore (CBE). In between, there are numerous bus stops.
A person who boards at Chennai may get down either at Vadapalani or Salem or get down at the last destination CBE.
Likewise, in the market, a trader should be aware of his entry & exit point. Based on their entry & exit points we will be able to identify what kind of trader he is.
So if a person boards at Chennai and exits at the next stop Vadapalani are called Scalper. suppose if he waits and exits at Salem he is called Swing trader.
Or if he waits to reach his destination and exits at CBE are called Investors. In the market, it may take up to 6 months to 2 years for an Investor to reach their target.
Retracement and Breakout traders are a trading methodology that comes in between the Scalpers and Swing Traders.
Time Frames:
So let's recap on 3 major traders - Scalper traders are who buy and sell within a swing
Then we have Swing traders who wait for 10 to 15 days to close their trades.
and last we have Investors who wait for a longer period of time and end up with a good amount of returns.
So if you are one of the above traders. An important point is, that you should have proper knowledge about Time Periods.
To explain the Time period, let me give u a few explanations.
While placing a buy trade and expecting to reach his target the same day. But it will not reach its target before the closing market
but the very next day there will be a gap up and the market open price will be our expected target.
Likewise, we place a sell trade expecting to close today which will not happen.
But the very next day there will be a gap down and the opening price will be our exact target price.
Or else, after placing an entry we wait for 10 days and then we give up and close the trade, but 15th day it will reach our expected target.
or else expect to reach its target within this contract period, but it will happen in the next contract period.
This issue mainly arises because of a lack of knowledge in the TIME PERIODS
So if you are one of the scalpers, swing traders, or investors you be should aware of the time frame to do trade.
These are the time frames available in the market:- 1 min, 5 mins, 15 mins, 1 hour, 4 hours, daily, weekly and monthly...
Normally in technical analysis, these are the time frames we use for trading.
For each and every time frame we have a respective time period.
So when a trader analyses a script in 15 mins time frame he has to wait for its time period to reach its target.
if he analyses a script in a daily time frame he has to wait for its own time period to reach its target.
Most traders face issues because they are not aware of the exact time period for their time frames.
A trader expects to reach the target on the same day... but it will happen the next day based on the time period.
or they expect the target on the 3rd day, but it reaches its target on the 5th day. all this miscalculation happens because of a lack of knowledge in time periods.
Once you know the time period..... then you can decide whether you are a Scalper, swing trader, or investor.
based on what type of trader, you have to wait for the respective time period to reach its target.
0 Comments