Monday, 30 November 2009

Various Strategies Used in Stock Trading

The styles and strategies employed by one stock trader will not always be the same with another. This is why there are several kinds of strategies used in stock trading. The key differences among these strategies are the risks involved and the size of investment each one wants to put in. There are three basic types of stock market strategies and the most commonly used is the "buy and hold" strategy. These are long-term investments wherein the stock trader will invest money on a chosen company and let it stay there for a long period. Many deem it to be the safest way to invest sine most of the companies involved in such investments are the "blue chips." These are very well established companies, which are the driving forces of the industry. Novice traders are better off with this type of strategy since they are not yet well aware of the ins and outs of stock market trading.

The second type of strategy is called "top down" strategy. What the trader will do here is to first decide on which market to invest their money in, then choose the sector in that market which is the strongest and then buy the best stocks in that sector. Timing is vital in this type of trading as well as knowledge and expertise in the factors that affect the movements in the global market.

The third type is the "bottoms up" strategy. This is otherwise called "cherry picking" and the opposite of the second type of stock market investing. Using this will not necessitate the market and sector research and analysis. Investing on certain stocks will not be dependent on the market or the industry movements but only on the performance of the stocks. Aside from these three major strategies, there are also other minor ones being used by other traders such as contrarian investing strategy, dollar cost investing or defensive investing. Given the complexities of many of these strategies, new trades would best get the informed advices of other financial experts.


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