what is trade? explain the types of trade
Answers
There are five main types of trading available to technical traders: scalping, day trading, momentum trading, swing trading and position trading. Mastering one style of trading is very important, but the trader also needs to be proficient in others. If in doubt, stay out of the market. Standing aside is considered a defensive position, and there’s nothing wrong with waiting for an opportunity.
Scalping
Scalping (or micro-trading) is all about taking very small profits, repeatedly. Typically, trades last from seconds to minutes. Scalping is a trading strategy that attempts to make many profits on small price changes. Traders who implement this strategy will place anywhere from 10 to a few hundred trades in a single day in the belief that small moves in stock prices are easier to catch than large ones.
Scalping is an expert skill and, although many people find the idea attractive (and exciting for adrenaline junkies), I wouldn’t recommend it for beginners.
Day trading
Day trading is all about buying and selling on the same day, without holding positions overnight. Compared to scalping, this style calls for holding positions for minutes to hours versus seconds to minutes. A day trader closes out all trades before the market closes. Most day traders use leverage to magnify the returns generated from small price movements.
Day trading is often glamorised as an easy way to get rich quickly. However, this is rarely the case. Day traders typically suffer severe financial losses in their first months of trading and many never graduate to profit-making status. Day traders are handicapped by the bid-ask spread, trading commissions and other expenses. These costs require day traders to earn significant trading profits just to break even.
Both scalping and day trading require strong discipline; the time and ability to learn how to trade a tested and profitable strategy rapidly; and enough capital to withstand sudden and, possibly, larger-than-expected losses.