| There are many styles of trading available. Some use | | | | will affect the company's value and, indirectly, the |
| fundamental analysis, some use technical analysis, and | | | | stock price. For specific numerical data, they will |
| some use no conventional analysis. Some are very | | | | check any number of online sources (I use the |
| risky; some are less so. Some rely on making a little | | | | Yahoo! stock research center, it's free, easy to use, |
| bit of profit on a lot of trades; some seek to make a | | | | and has almost all the information you could ever |
| lot of profit on a few trades. With so many different | | | | need). |
| profitable trading styles available, one thing is for sure: | | | | Technical Trading: |
| there is a trading style that fits every personality. In | | | | Technical traders are obsessed with charts and |
| this article, I will outline all of the most common | | | | graphs. They focus specifically on the moving |
| trading styles. | | | | average convergence divergence (MACD) indicator. A |
| Momentum Trading: | | | | moving average is an average of the closing price, |
| Momentum traders look to find stocks that are | | | | opening price, high or low over a certain number of |
| moving significantly in one direction on high volume | | | | time periods. This value is a 'moving' average because |
| and try to jump on board to ride the trend to a | | | | after every new time period, a new moving average |
| desired profit. The momentum trader will look for | | | | value can be calculated. The MACD indicator plots |
| stocks that are causing a lot of buzz and are | | | | two lines that take the value of two different |
| expected to have significant price movements. He will | | | | moving averages. These two moving averages will be |
| then short-list these stocks and look for increases in | | | | fro two different time lengths, for example one may |
| trading volume of call options related to the stock | | | | be the average over 12 time periods, the other may |
| (see Introduction to Derivatives for more information | | | | be the average over 26 time periods. A technical |
| on options). A significant increase in this indicator will | | | | trader will play close attention to how the two |
| tell the trader that a significant price movement is | | | | moving averages interact. These can be useful for |
| expected. These stocks will also be short-listed. The | | | | determining supports and resistances (values on the |
| trader will then watches how things play out, | | | | graph that the price of the stock tends to never go |
| watching for stocks on his short list that are | | | | above or below, thereby seeming to provide 'support' |
| performing significantly better than the market (ie. | | | | for a falling price or 'resist' a rising price), as well as |
| they go up when their respective markets go down). | | | | when a trend is reversing. When a 'shorter' moving |
| Any stocks not performing as expected are then | | | | average crosses a 'longer' moving average, it can |
| removed from the short list. The trader will then turn | | | | indicate that the trend is reversing in the direction |
| his attention to the charts of the stocks. He will | | | | that the cross occurred. |
| specifically look at the momentum and volume | | | | Scalping: |
| indicators, as these are a good way to gauge the | | | | The scalper is an individual who makes dozens or |
| strength of a trend. | | | | hundreds of trades per day, trying to "scalp" a small |
| Fundamental Trading: | | | | profit from each trade by exploiting the bid-ask |
| Fundamentalists trade companies based on | | | | spread. The bid ask spread is the difference between |
| fundamental analysis, which examines things like | | | | the bid price, the highest price a buyer is willing to |
| corporate events such as earnings reports, the | | | | pay for the stock, and the ask price, the lowest |
| balance sheet, reorganizations, new management, | | | | price a seller is willing to sell the stock for. Provided |
| and mergers. A fundamental trader also looks for | | | | the stock does not increase or decrease in value by |
| quantitative indicators such as price to earnings, | | | | very much while the position is open, the scalper can |
| return on equity and debt to equity ratios, cash flow, | | | | make a tiny bit of profit by buying at a bid price and |
| revenue and earnings per share. A fundamental | | | | then immediately selling at the ask price. This style of |
| trader will typically find his information by looking for | | | | trading works best in low liquidity markets, as these |
| news about a company (either online, in a newspaper | | | | markets are where the highest bid ask spreads are |
| or on television) and then determine how that news | | | | found. |