Trading is a term used generally to describe the activity of trading or buying and selling stocks in a short period of time. Unlike the term investment or "saving" stocks which is applied long-term (yearly), trading is done in a matter of weeks, days, hours, minutes, and even seconds.
Compared to investing, trading carries a relatively higher risk. This is why a trader needs to master strategies to achieve the maximum possible profit or return (capital gain*) while avoiding losses (capital loss**).
* Capital gain: The difference between the selling price and the buying price of a stock transaction in which the selling price is greater than the buying price.
** Capital loss: The difference between the selling price and the buying price of a stock transaction in which the selling price is less than the buying price.
There are many different types of trading strategies in the world of stock market. However, the most common strategies can be reviewed according to trade duration as well as price movement trends.
Trading Strategies Based on Trade Duration
1. Day Trading
Day trading trades stocks with high frequency in a matter of hours. Traders make a small profit or loss per transaction. They utilize short-term buy and sell signals.
There is a version of day trading where traders trade stocks over an even shorter period of time (minutes or seconds), called scalping. Generally, scalping is done with a higher frequency and less profit or loss per transaction.
2. Swing Trading
Swing trading, on the other hand, trades stocks with low-medium frequency in days and weeks. Traders earn more profit or loss per transaction. They utilize trend and momentum indicators.
Trading Strategies Based on Price Movement Trends
1. Trend Following
This trading strategy follows the market trend along with technical analysis to buy stocks when they start to enter a bullish* period. Trend following tends to be easy to implement, especially by scalpers or swing traders, but it still requires accuracy to avoid overpricing stocks.
2. Contrarian
In contrast, contrarians buy stocks when they are still in a bearish* period and will reverse to a bullish one. Contrarian strategies can generate returns many times over, but it takes a fair amount of experience to implement them.
* Bullish: A positive sentiment when the stock market is in an uptrend.
** Bearish: A negative sentiment when the stock market is in an downtrend.
Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).
Which One is Your Favorite Trading Strategy?
Day trading
Swing trading
Trend following
Contrarian
You can vote for more than one answer.
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