There are hundreds of different approaches to online stock trading. There are always unexpected events and unforeseen developments in the market so it is difficult to test and compare trading strategies. The market is a different market six months later so a winning strategy this year may be next year’s loser.
However if the term ‘trading’ is used it generally indicates a shorter time horizon than ‘investing’. Investors in online stock trading almost always plan to hold their stocks longer than one year and will hold them year after year if they think the company is doing well. Traders are generally looking to take advantage of short-term trends in stocks and are quick to sell if they reach their price target and even quicker to sell if the trade goes against them.
One of the most popular trading strategies in recent years has been momentum trading. Stocks don’t really have momentum in the way a moving truck has momentum. A truck moving at high speed can’t stop on a dime and turn around. A stock can do this without any problem. However the idea is that if a stock is in a strong uptrend, there are probably good reasons for it and it’s likely to continue in that direction for a while. So traders start jumping in even before all the news is out. Most traders will use some type of technical analysis to time their entry and exit points.
Other traders, especially those buying market indexes, adopt the strategy of buying on the dips. This takes a quite a bit more nerve because there are such things as bear markets, but in general it is a strategy that has worked well in the last ten years. If you look at any long term chart of the Standard & Poors 500 you can see that buying on the dips often works out pretty well. However buying the big dip in NASDAQ around June of year 2000 is an example where this approach didn’t work at all. You would still be underwater.
Another approach some traders use is to trade on earnings announcements. For example a trader could buy a stock that announces earnings that are much higher than expected. Many services provide earnings estimates for stocks so if actual earnings are higher than the expected number the stock will generally move up. In most cases the stock moves very quickly so the trader generally has to be waiting for the announcement.
Companies announcing earnings that are less than expected can also be traded. In this case the trader would sell the stock short. Quite often however, a stock will move up or down before earnings are actually announced, and usually in the correct direction. This does seem to indicate that company insiders have an idea of where the numbers will be before they are officially released.
Benefits of Online Stock Trading
When you decide to start trading on the stock market, you might like the idea of doing this in the comfort of your own home. There are online stock trading companies that are willing to let you do this from the comfort of your own home. You can wake up in the morning and purchase new stocks. Plus you can go to bed and sell some stocks, if that is what you need to do at the time.
Having the ability to do this all from home is a great bonus for investors. There is no need to get in touch with a broker; although a broker is still highly recommended when you are dealing with stocks.
These online stock-trading companies will let you buy and sell stock from your own home and on a secure server. That means that your personal information is kept safe from the hands of potential fraudsters. Using a secure website means that you can trade safely without worrying that someone has access to your information.
Of course, up to the minute information is vital whenever you are trading stocks. One moment, when you are not looking, the price of your stock could take a nosedive in response to the most recent news.
This is why it is so important to keep up with the latest share prices and the latest news concerning the future of those shares.
Having the ability to take part in online stock trading from your own home is a great service to have. But you have to choose the right company that is going to provide you with that online stock trading service.
If you don’t know of any reputable online trading companies, then ask for recommendations from your friends and family. Also check the better business bureau and see if any companies have had complaints filed again them. That will filter out the bad companies from the good companies, allowing you to dodge potential scams and to select the best business based on the information you can access.