Hey it’s Sasha Evdakov and thanks for joining me here at Tradersfly.com and in this week’s lesson what I’d like to do is share with you the different ways or the methods that you can actually trade. I’m not going to go into every little concept or detail of how to execute these and how to be profitable in them.
I just want to show you the different varieties that you can actually put on for your trades or investments.
Trading based on Direction
The first way that you can trade is trade based on direction, when you’re trading based on direction there’s two directions that you can trade. You can trade stocks to the up side or the you can trade them to the down side.
If you trade stocks to the upside, you’re looking for a long or a bullish position, the reason they call it bullish is because bulls attack to the up side or long is you’re going to the up side and if you’re trading to the down side it’s a bearish position or typically a short position.
Because what you need to do is if you’re going to the long side maybe people understand the long direction because you buy a stock lower and you sell it at a higher price.
However, not everybody understands a bearish position or a short position, and the way that this works is you sell something at a higher price, let’s say 50 dollars per share and then you buy back at a lower price of let’s say 20 dollars per share.
So you borrowed these shares from a friend or your broker in this case and then you buy them back from market price, allowing you to make money on the difference of $30 per share.
The first way to trade is based on direction and you can trade it either to the long or bullish side or to the down side or the bearish side which is the short position.
Trading based on time
The second way that you can do trade is trade based on time and trading based on time allows you to define how big of an outlook you have and trading based on time, you can have a day trader or you have a swing trader.
Now you also have a long term investor there as well but these are the main two that in the trading community people define them as.
In the day trading world you basically buy and sell a stock within 24 hours, it’s within a day, technically it’s 6 and a half hours because a trading day lasts 6 and a half hours.
A swing trader can hold a stock for multiple days, it could be 1 to 14 days, it could even be multiple months, when you’re holding a stock for multiple months.
That’s the main differences you’re based on time on how you trade. A day trader, typically gets in a position let’s say in the morning or afternoon and is out by the evening and in this way you don’t have overnight risk.
On the other hand, the swing trader holds a position for multiple days, weeks or months allowing them to capitalize on the moves in a longer form. Typically the swing trader is one that holds positions longer.
Now if you look at a long term investor this one’s even longer. This one can be 1 to 5 years, it could even be longer, so you’re holding positions for a very very long time because you’re basically a long term investor.
That’s one of those things that you’re looking for a very long future outlook for maybe even a decade.
You might even be wondering at this point who makes more money or where’s the risk between a day trader and a swing trader, well the thing is it really depends on your personal trading. You could be trading much more as a trader or much more as a swing trader.
Typically with day trading there’s much fluctuations, it’s a little more violent of the move. Whereas with swing trading you’re looking for a little more stable moves either to the upside or the downside. So you’re looking for a longer form of a trend.
It really just depends on the type of personality and risk reward that you have. It’s kind of like saying for an alligator to go live in the polar ice caps, this just doesn’t work out so well. Instead the polar bear lives in the ice caps or in the polar atmosphere and the alligator prefers to live in the swamp.
The same thing for you, if you’re an alligator do you prefer the swing trading or the day trading? Same thing so if you’re a day trader you would probably prefer the day trading.
If you’re more into the rambunctious the more volatile markets, you’d probably prefer the day trading. If you’re a bit more stable, if you prefer a little bit more of a calm water, you’d probably go with swing trading.
Trading based on Share Price or Size
The next way that you can trade is based on share price or size. This is another way that you can trade in the stock market and a lot of this has to do again, we can break it down into two formats, we can do Penny stocks or smaller stacks, or what you can do is kind of like blue chip companies, and blue chip companies are more stable stocks or very stable, let’s say higher price stocks than penny stocks.
Typically the definitions for penny stocks, used to be for stocks under a dollar, now the definition has changed and these are stocks that are less than 5 dollars per share. I like to think of them as cheaper stocks, less than about 10 dollars per share or the 10 percent that are at the cheapest level in the current market conditions.
The blue chip companies could be a wide-range of prices but let’s just say for conversation’s sake let’s say between $30 per share to $200 per share and it could be around $500 per share, it really just depend. Let’s say $30, $200 to $500, they’re higher priced.
For you if you’re looking to capitalize based on more trading size, you might want to trade penny stocks and again if you’re an alligator, you might prefer penny stocks. If you’re a polar bear you might prefer blue chip companies.
Again here penny stocks because they’re so much cheaper would allow you to buy let’s say maybe 10,000 or even 20,000 if the liquidity is there, shares of that company allowing you to have just that one dollar move to capitalize much more on that investment or that trade.
For blue chip companies, since they are a little more pricey, it doesn’t allow you to get as many shares so you might be only able to get let’s say 500 or 200 shares. You get a lot less shares than when you trade penny stocks or cheaper stocks, that means you need to have a larger per dollar move in these blue chip companies.
What a lot of people think in terms of mentality is these blue chip companies are already so stable or much higher that they don’t have as a much room to the upside, whereas these penny stocks since they’re already cheaper it allows much more room to go to the upside.
I will tell you certain things are cheap or priced cheaper for a reason, be warned about these penny stocks, you really need to know what you’re doing because a lot of them are not the best companies. Typically the more stable ones are these blue chip companies or higher priced stocks.
Other ways to trade
Of course there’s other ways to trade in the stock market and some of those other ways may include things like Dividends. You may also trade based on the News, so if you’re a news trader or news capitalist, you can also trade based on the news.
You can even trade raw materials like Gold or Silver or Oil, you can trade features, Forex and even Options.
As you can see there’s a lot of variations to trading and different things that you can do and different people’s personalities hit them on different ways on what fits them or what fits their risk tolerance, what fits their goals for their investment.
If you start breaking things down, you can trade directionally, to upside and to the downside. You can trade based on time, you can be more of a day trader, or you could be a swing trader or long term investment holding on to companies for multiple years at a time.
You can even trade based on price, so you can trade things like Penny stocks/cheaper companies or focus on Blue Chip/Larger companies or more stable companies.
Otherwise, you could just trade based on Dividends, holding on to stocks and collecting an annual or quarterly return, trade it based on the News, trade it based on Forex, Options, Gold, Commodities, and all those different things.
There’s a lot of opportunity available when it comes to trading.
Now because you have these wide range of what it is that you can actually do in trading, many people get confused especially at the beginning. So I’ll make things easy for you if you’re just getting started in the stock market and what you should do or what you should start at with and that way it allows you to start in calm waters.
If you’re first sailing a ship or you’re paddling out to the ocean, you want calm waters, you don’t want to go into a major storm right away when you’re first time rowing or paddling. So if you’re just getting started, the better approach is to first as far as direction goes start with a long or the bullish approach.
This minimizes your risk a little bit in terms of going to the short side because with going short you can have unlimited loss because if you go short that stock can continue moving up forever and you’ll have to cover the difference.
So going long is something people understand a lot more, buy something at a lower price, sell it at a higher price. As far as time goes, stick to being more of a longer term investor or swing trading at the beginning.
As you become better you could go to day trading but this is fast paced markets, you have to trade a lot quicker if you’re doing day trading so you really need to understand what you’re doing or you’re in and out of position within 2 minutes, 5 minutes, 20 minutes, half hour or just a day, it’s a lot faster in the market.
Stick to swing trading, or longer term investing.
Finally, as far as price and size if you’re just getting started I would stick to blue-chip companies or more stable companies, something like in a hundred dollar range, something that’s more liquid, something in the 30 dollar range, something around that range that’s very stable.
Companies that you know, companies that you understand what their business is, and this just allows you to get your feet wet, I’m not saying you can’t later go into penny stocks, I’m not saying later you can’t do day trading or later trade short.
I’m talking about if you’re just getting started this allows you to go in a safer route or direction.
Finally, if you’re interested in Dividends, go ahead and trade those as far as options go, they’re a little bit more advanced, so I would definitely stay away from options and don’t watch the news, do not listen to them because a lot of times they will fake you out especially if you’re getting in to trading at the beginning.
You’re unsure of what you’re doing, it’s going to cloud your judgments and you’ll start playing games with yourself mentally.
That’s my recommendation when it comes to trading, start there at the beginning and of course you can move into any area that you wish.
It really comes down to your own personal personality as well as your experience in computers if you’re not great with computers you probably not want to do day trading because it’s quick, you need to manipulate the computer a lot quicker.
You’re probably better off staying the swing trading or the longer term investing. Same thing with your knowledge base, if you don’t understand options, don’t trade options and if you don’t have a lot of capital, you may need to trade stocks that are a little bit priced, a little bit cheaper.
However, remember that just because you can’t buy thousands of shares, doesn’t mean you can’t buy five or ten shares and then allow those shares appreciate, because it all comes down to percentages so keep that in the back of your mind.
There are a lot of areas that you can get into when it comes to trading and you need to choose one that fits you, your personality, your risk tolerance, your goals, your objective and your future plan.
Now if you want to take your education a little bit deeper, I do have a few books that’ll help you in your education and training when it comes to trading.
The first book that I have is called Start Trading Stocks and this book is a great book if you’re just getting started in trading or investing, it’ll give you a good overview and big picture view from the top down about how to trade stocks, how to trade in the market and how to really get started.
I also have a handful of charting books such as my 245 Money Making Stock Chart setups and I have one book that’s based on swing trading, another book that’s based on penny stocks and has all kinds of charts that are cheaper ten dollars and less and a third book that’s really focused on shorting or shorting stocks.
All three of these books they are simply chart books, they do have an introduction in the beginning to get you started but really it’s about studying the charts of stocks that move and behave the way that they’re presented in this book.
If you want to check out some of the other books and trainings that I have available, you can click the button right below this video but if you want to sign up to my newsletter to make sure you don’t miss other training videos like this one.
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Thanks again for sticking with me. Remember to do what you love, contribute to others, but most importantly live life abundantly.
I’ll see you next time.