Fundamentals vs Technical Analysis
There are two main types of analysis when it comes to trading and investing-Fundamental and Technical Analysis.
Fundamental Analysis is when the trader does their due diligence on the company-their management, their financials, their plans, etc., and then makes a decision to buy or sell based on if they think the company is under or over valued in the market.
Technical analysis on the other hand, really does not care what the company is, or what they do, but is purely based on the stock charts, patterns and moves in the chart. Technical Analysis looks at things like supports and resistances, and simple moving averages.
What is Day Trading?
Day trading is very simply defined as buying and selling a position within the same day.
What is Swing Trading? And How?
Swing Trading is a form of trading based on technical analysis. As opposed to day trading, a swing trader is looking at the stock and looking for a longer run. A swing trade can be anything from a couple of days to several weeks.
The goal of swing trading is to identify a trend within a stock chart at the beginning-weather it be long or short-and to ride that trend for some period of time.
Typically there can be much higher returns per trade with swing trading than day trading, but there are also fewer trades made over the same period.
How to Trade
Exchanges
There are many exchanges throughout the world for trading all kind of things including stocks, options, bonds, currency, commodities, etc.
The exchange is the actual institution that handles the buying and selling transaction. Some of the more common stock exchanges in the India are the national stock exchange (NSE) and the MCX.
Worldwide there are many more exchanges located in many of the major financial sectors around the world like Tokyo, Amsterdam, Paris, London, and Hong Kong.
Currency vs. Stock vs. Options vs. Commodities etc.
Pretty much anything can be traded or exchanged; however, the most common exchanges are Currency, Stocks, Commodities, and Options. Currency is the trading of different world currencies with the goal of making a profit on the exchange rates, also known as Forex.
Stock trading is the buying and selling of a company’s stock. In Options, trading an option is actually trading the “option” to buy or sell a stock rather than the actual stock itself.
With Commodities, one would be trading futures of things like orange juice or cotton, based on the projection of what the commodity will be worth at a given date.
Brokerage / Trading Accounts
Types
Cash Management – a brokerage account opened with cash giving one the ability to buy and sell up to the value of the cash in the account.
Margin – Gives one the ability to buy and sell with borrowed money from the broker. Margin accounts typically allow one to borrow up to 50% of the purchase price.
Discretionary – A discretionary account is basically a cash account that is managed by the clients’ broker who is permitted to buy and sell without contacting the investor first.
How to Open a Brokerage /Trading Account
When opening a brokerage account, the first question you want to ask is what type of trading or investing will you be doing? Some brokerages may be better for stocks, but not ideal if you are looking to trade options or penny stocks.
Once you have done your research and found a suitable broker for the type of trading or investing you would like to do, the application process is fairly straight forward.
Each broker has their own application process that you will need to go through. Once that is completed, you can transfer funds into the account and begin trading.
How to use a Brokerage / Trading Account
Once you have a funded brokerage account you can begin trading or investing. You will be able to place orders to buy and sell stock or other securities.
Order Types
There are many types of orders that you can place when trading stocks with your broker. Here I will review some of the more common types:
Market Orders – Market orders are the simplest to place and most likely to get filled. A market order simply instructs the broker to buy or sell a given stock at the current market price.
Limit Orders – A limit order instructs the broker to buy or sell a stock at a specific price. This will help control the entry/exit points, but also make it slightly more difficult to get in or out as you are setting a specific purchase or sale price.
Stop Loss Orders – A stop loss order is used to “stop your loss” in the event the price of a stock falls sharply. A Stop Loss Order is comprised of two order types: Limit and Market. A limit order allows you to set a price below the current price of a stock in the event that the stock hits that price the order will convert into a market order and you position will be sold off at the current market price.
Trailing Stops – A trailing stop is similar to a stop loss but rather than protecting against loss it protects profits. A trailing stop “trails” the price of the stock position as it increases, and is triggered when the increase stops and reverses. The trailing stop is set as a percentage of the trading value. If the stock falls x percent, then the trailing stop will be triggered and close your position.
Good till Cancelled – A good till cancelled order instructs the broker to keep the order open until it is cancelled. This is used in conjunction with one of the other order types mentioned above.
Day Order – A day order is similar to a Good till Cancelled order. However, the broker will automatically cancel the order at the end of the trading day.