Trading and Analysis are Different, Don’t Confuse the Two

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Trading and Analysis are Different, Don’t Confuse the Two

Many traders think that if they can predict where the market is going next they will be a profitable trader. This is a fallacy. Trading and analysis are different. I should know, I am a Chartered Market Technician–a supposed analyst, and I do some analyst work–but when I trade I shut that aspect of myself off.

An analyst will point out a whole bunch of reasons a forex pair should go up, but there is no strategy involved–no place to enter, no risk control, no place to take profit, no position size, no guidance on managing the trade….and the list goes on. In trading you need to consider all those things. You also need to try to control your emotions while that trade is on and your hard earned dollars are see-sawing up and down.

I see a lot of traders spend hours dissecting their charts trying to predict the next move. They come to a conclusion and jump in. That is an analysis based trade, but it doesn’t make you a trader.

To be a Trader (a successful one), you must trade off a tested strategy. Everything is planned and then you just wait for certain planned setups to form. Your trading plan outlines what that that set-up is, how, when and where you will get in, your risk, position size, your profit potential and how that trade will be managed while you’re in it (if required). Everything is laid out. There is not any analysis to be done, you are just looking for certain set-ups and conditions. When they occur you take a trade.

My trading is a based on a tested strategy. I put out my orders (entries, stops and targets) when my plan tells me to. Trading is based on probabilities and implementing a proven method, analysis doesn’t enter into it for me (although I do still falter occasionally and try to predict the market, messing up my trading plan in the process).

You can think the market will go down (analysis-type thinking), and be right, but you lose money because you placed entries or stops at the wrong level, or couldn’t take the trade because the risk was too big for where you would have had to place a stop.

When the market will go down is just as crucial as picking the right direction. Thinking it will go down, and taking a position based on that, won’t help if the market continues to go up for a few days and causes a large loss (for us short-term traders). Prediction won’t make you money. Coming up with a complete trading plan based on the probabilities of the patterns you see repeat over and over again is much more likely to make you a better Trader.

In fairness, there are some good analysts who have a good track record for prediction, and are also good traders. But they are good traders because they follow a strict strategy, and don’t act impulsively based on their analysis. They are still using a fine tuned, well laid plan for all their trades; their analysis is just incorporated into that plan.

Final Word

Being the best analyst or market forecaster in the world won’t help you if don’t have a plan for acting on that information. The best traders I know don’t spend time pouring over charts. They look for key set-ups and have a detailed plan for how they will trade that pattern, and they do it over and over again, every time they see it. It is based on probabilities, and for most traders spending extra hours doing analysis likely won’t improve results. Be efficient. Create a plan, follow it and have lots of spare time.

9 Types of Stock Trading

Once you have decided to invest in the market, it is also important to zero down on the types of stock trading.

Often the extent of gains that you amass from the markets depends on this key factor.

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Different types of stock trading are relevant for different kinds of stocks.

It also depends a lot on the overall profit outlook that you may have.

Most times, investors typically undertake just a few types of stock trade.

They are often not aware of the various other opportunities available.

But the different types of trading have their own unique advantages.

Per se, you cannot decide between two types of trading and identify what’s better.

Each trader will have their own pre-determined trading objective.

Most times, they choose a variant that they can choose maximum gains from.

So when you enter the market, you will have to do a bit of introspection too.

That will help you understand your market psychology in a detailed manner.

The type of trade is essentially a confirmation of a specific approach towards the market.

In many ways, this is one of the primary considerations when you begin investing in the market.

In many ways, this helps you grasp the mystique of the stock market too.

The different types of stock trades explore the latent opportunity therein.

It totally depends on your independent expectation from the stock market.

The challenge is many times; investors do not have that much time to invest in the market nitty-gritty.

That is why we decided to create this ready list of different types of trading.

You can look at the different variants and match it with your trading expectations

That will help you maximize the profit potential and extract better value from your stock investment.

Types of Stock Trading

Here is the different types of stock trading:

  1. Short-term Trading
  2. Market Order
  3. Intra-day Trading
  4. High-Frequency Trading
  5. Swing Trading
  6. Positional Trading
  7. Long-term Trading
  8. Quantitative Trading
  9. Arbitrage Trading

1. Short-term Trading

The moment you are exploring different types of stock trading options, the duration plays a crucial role.

Different kinds of trading cater to the different time period.

Often your return expectation is also tempered by the difference in time.

So there are certain types of trading that work very well for the immediate future.

There are others that will not yield appropriate results in the same period.

Short-term trading is more popular among trading veterans.

Here the duration of trade may be a day or at most a few weeks.

Veterans use it as they have acquired a certain degree of comfort.

They can also anticipate market movements a lot faster.

In comparison, the short-term trading alternatives may not be appropriate for new traders.

It can often lead to extreme uncertainty and deep losses for them.

A trader’s mindset and ultimate objective are crucial in this context.

That will help in yielding maximum possible gains.

So, when you are choosing a specific type of stock trading, don’t adjust your return expectation.

It is imperative that you adjust the time duration as per your trading objectives.

A typical short-term trade is initiated with a sell position, and the position is covered by buying.

2. Market Order

This is perhaps the simplest types of stock trading that are practiced.

It is all about selecting a stock, telling your broker to buy it at a current rate.

Here there is no analysis involved and the stock is simply bought at face value.

Invariably this form of trading also involves the lowest commission amount.

The ease of execution is also much higher here.

There is no set time limit in this case.

A buyer may buy the stock for a few days, or it can extend for months too.

The basic profit potential is the only consideration in this case.

The overall idea is to get a certain amount of profit that covers the commission cost and also the cost of holding the stock.

The time duration is extremely flexible and completely at the buyer’s discretion.

The resultant risk is also much lower in this type of stock trading.

3. Intra-day Trading

When you consider short-term options, this is one of the most common types of stock trading.

As the name indicates, the trading is initiated and closed in the span of a single trading day.

The investor does not carry a position home.

They square off all open positions before the closing bell strikes.

The philosophy behind intra-day trading is rather simple.

In this case, traders consider it risky to keep positions open overnight.

They do not know the kind of events that may unfold overnight.

So, all the existing market positions are squared off within trading hours

This type of stock trading is ideal for those who do not care too much about stock fundamentals.

All that they are worried about is their profit margins and timing the trade.

They take advantage of the stock momentum and clock profit on the basis of that.

While trading the momentum guarantees higher returns, it also means you are leveraged more.

So it is surely a very aggressive kind of stock trading.

Technical analysts and experts in stock trading undertake this type of trade more often.

Consistency is crucial in stock trading.

That alone can guarantee a reasonable rate of returns for investors.

Moreover, the returns are compounded on a monthly or quarterly basis.

Here again, consistency plays a crucial role.

That alone ensures that you get the return that can justify the risk that you are taking.

So that means intra-day trading is purely for investors who can dedicate a reasonable amount of time.

They have to track the markets very closely, and the overall return is closely linked to that.

Every tick movement in the market can change the profit outlook to a large extent.

So, every additional minute you spend on the market can enhance profit.

4. High-Frequency Trading

Even within the construct of intra-day trading, there are different types of stock trading options.

One very common type is referred to as speed trading or high-frequency trading.

In this case, the trick is all about manipulating the bid and ask price at a great speed.

Speed is the cardinal factor in this kind of trade.

So the smallest profit in every trade compounds into a huge amount in an aggregate manner.

Trades are often executed in a matter of microseconds.

You may have hundreds of trades over the entire day.

So you can understand that the inbuilt risk in this trading format is fairly high.

Perhaps that is the reason that you see more of institutions, fund managers and hedge fund owners undertaking these trades.

Not only do they have the power to leverage more but also stomach bigger hits.

Most times trades are completely automated.

Detailed analysis, whether fundamental or technical, holds no value whatsoever.

Speed and specific price points are the only two factors to watch out for.

In this context, it can be considered an absolute no-brainer in many ways.

Beginners or medium-range retail traders must completely avoid this kind of trade.

It isn’t suitable for them at all.

5. Swing Trading

When you are exploring different types of stock trading, this is another popular option.

As the name indicates, this trading is based on the swings or price fluctuation in the market.

Though this is also a short-term trading variant, it is different from intra-day trading.

The fundamental difference is in the time frame that is associated with the trading.

While intra-day trading is wrapped within a trading day, swing trading takes advantage of overnight price swings.

It is primarily based on the short-term price fluctuation that stocks experience overnight.

The trader, in this case, tries to accurately predict the extent of swing or price fluctuation.

The profit margin is directly proportional to the accuracy with which they can predict the swing.

So the duration of these trading positions could range from one day to even as much as a week.

At times, these can even extend for a week together.

However, the only advantage, in this case, is that the leverage is not as high as intra-day trading.

Given the overnight risks, brokers often charge certain additional margins on these trades as well.

However, the overnight swing factor often enables a much higher degree of return potential.

In this context, traders also have to invest time in analyzing the charts carefully.

But if you can analyze these movements carefully, the rewards can be much higher.

In many ways, they can ensure steady returns in a given period.

But if you want to invest in swing trading, you need more capital.

Moreover, for every penny that you invest, the margin risk remains.

You cannot look at investing 100% of your capital at any moment.

You have to always provide for margins and a variety of overnight charges that your position may attract.

So the liabilities may be higher here.

6. Positional Trading

This is another popular type of stock trading over the short-term predominantly.

Again, it may have some similarities with swing and intra-day trading; the broad parameters are different.

For example, it will never consider the short-term swings that form the basis of swing trading.

This type of trading completely ignores the minor price fluctuations.

They are completely focused on a large price movement of the stock.

In fact, that is how they also lock their profit.

As a result, they are never too bothered about timing the market.

If required, they are even ready to lie low for a few days and then take a stance.

There are times when positional traders can even wait for months together in the hope of a larger gain.

This is exactly why these traders work on the basis of some hybrid analysis.

Their trades are not solely dependent on either fundamental analysis or technical.

In most cases, you will notice a happy mix of both these in the trading decision.

The complexity involved in this type of stock trading is never uni-dimensional.

As a result, the analysis too is multi-dimensional in nature.

Just technical trading cannot help you take up stock positions for a longer duration.

If you have to hold stocks for a longer period, you will have to consider the fundamentals as well.

This is because the long-term price movement is a function of technicals and fundamentals united.

The percentage of gain that is expected is also relatively large.

So you can see the trading bent is gradually shifting to a fairly long term from purely short-term.

The premium for the time invested and the safety margins also need to be taken into consideration.

The final return has to account for all these elements for a realistic price assumption.

7. Long-term Trading

This generally refers to stock trading that goes on for months together or many years.

While short-term trading is based more on technical analysis, this incorporates fundamental analysis.

The stock’s fundamentals completely dictate the stock’s trading dynamics.

Short-term market changes do not influence the investment decisions.

Invariably investors take a long-term call on the stock’s prospects.

The company’s growth, in this case, is very closely tied to the individual’s profit.

As the company’s profit grows, so does your profit from the holdings.

Additionally, these types of stocks also have a bonus or a dividend component.

That too enhances the overall profit percentage from the stock.

All in all, investors undertake this type of stock trading for sustained gains.

They are not just taking into consideration how much they are able to gain today or tomorrow.

On the contrary, this kind of stock trading ensures they have steady earning for an extended period.

In that way, this is the main difference from short-term trading.

Your trading prowess alone determines your profit in short-term trading.

But in case of long-term trading, it is linked to the stock’s fundamentals to a large extent.

8. Quantitative Trading

When you are exploring the variety of stock trading, this is one of the most modern variants.

Sometimes, traders confuse this type of trading with automated trading or other algorithm based trading.

But quantitative trading is quite different from those.

In fact, this type of trading relies on quantitative analysis and is based on stock performance.

The quant programs are geared to match historical trends and patterns and create a price point.

So, in many ways, you can say this is a refined type of technical analysis.

But it also considers a few other factors apart from the immediate price points.

It offers investors a plethora of statistics based probabilities.

That helps in identifying a proper and definitive trading calls.

As the method of analysis is more sophisticated, it ensures higher trading efficiency.

Computer programs also ensure a definitive speed in the overall analysis.

However, it is essential to maintain the accuracy of the details.

That alone will make sure that the data that is being analyzed yield the desired results.

But you cannot just depend on this single factor.

You will also need a thorough understanding of the market for the appropriate application.

That alone will ensure meaningful long-term gains.

9. Arbitrage Trading

This is a type of stock trading that has flourished as stock markets world over started integrating.

But it requires very high-speed internet network and resources to analyze stock calls appropriately.

The basis of this trading methodology is deeply based on the difference in price points.

The smallest tick difference can result in huge profits on a large position.

The arbitrage is primarily on the risk involved.

Now, this risk arbitrage can be played out in a variety of form.

Often the structure of it is linked closely to the market and stocks in consideration.

Institutions and other large traders primarily exercise this.

But the risk element and the profit potential are interlinked in this case.

Needless to mention, this form of trading also involves a greater risk potential.

Also, you have to be careful about the independent market dynamics therein.

Conclusion

On the whole, these are some of the basic types of stock trading.

But these are not the only options.

There are many others types of stock trading too.

Often, the different types of trading are dependent on the kind of trade you undertake.

Be it Futures, technical or Options trade; there will be different types of stock trading option for each variant.

The overall idea is to book maximum profit within a given period.

It also incorporates covering expenses like safety margin and other related elements.

The primary objective of this trading methodology is all about creating a strong profit outlook.

One of the best ways to achieve this is exploring the different types of stock trading.

These options add value and help enhance your profit from stock trading.

Published by

Parvinder Singh

Parvinder Singh is a full time business and money writer with a Master’s degree in finance from the University of Delhi. With over 7 years of experience, Parvinder has helped many startups, financial institutions and marketing agencies in improving their business, marketing, finance, investment, trading etc. View all posts by Parvinder Singh

Warning: Don’t Confuse These Two Kinds of Digital Assets!

If you visit crypto websites or ask casual observers, you might come away thinking there are thousands of “cryptocurrencies” in the world.

Yes, they’re all digital assets. And yes, they look similar on the surface.

But less than one-tenth are true cryptocurrencies.

So, before you invest another penny, you need to understand not only the differences, but also a few of the nuances.

There are two basic kinds:

Digital assets of the first kind are what we consider true cryptocurrencies. We call them “coins.”

They include Bitcoin, Ethereum, Cardano, EOS and others — digital money, which could someday function like dollars, euros or yen, but with much more transparency, efficiency and monetary discipline.

Physically speaking, they’re just data saved on computer hard drives following rules defined by specialized software. But that, in itself, should not be particularly surprising. The same is true for the money in your bank account, brokerage account or whole life insurance policy.

What’s unique is that the data is not stored in a central location or owned by a single organization. It’s automatically replicated and stored on countless computers all over the internet in a way that’s virtually hack-free, accessible to everyone and, ideally, controlled by no one.

These coins live on what’s called “public blockchains,” or more broadly speaking “public distributed ledgers.” There are hundreds of them. And many are supported by serious teams of developers.

Digital assets of the second kind are not true cryptocurrencies. Many people call them “ICOs.” We call them “tokens.”

They have some of the same physical properties as the coins. But with a couple of exceptions, which we’ll get to in a moment, they’re little more than receipts for financial donations.

These tokens are touted like stocks that you buy in a company. But most are really like tokens that kids get at Chuck E. Cheese Pizza.

Still, in 2020 and 2020, issuers raised more funds with tokens than was raised by all venture capital firms globally, although this trend slowed down considerably in 2020.

There are thousands in existence, and the overwhelming majority are either failures or scams.

Don’t ignore the variations and exceptions!

No naming conventions in the world of cryptocurrencies can ever be as simple as analysts like us would like to make them seem. There are always twists, turns, variations and exceptions. Here are the main ones:

Centrally managed coins. The best example is what’s happening in the banking industry.

Banks and other financial institutions are large, centrally controlled, highly regulated institutions. They are naturally uncomfortable — and arguably incompatible — with digital assets that are completely open to anyone and controlled by no one.

“How in the heck do we enter into a contract with no one?” they ask. “And who do we go to when there’s a glitch?”

The Ripple company is the leader in offering a hybrid solution for these institutions. Ripple’s coin, called XRP, is technologically similar to other coins. But it’s managed and maintained by the Ripple company. That not only offers banks the advantages of enhanced security, efficiency and speed, but it also gives them an organization they can deal with. Facebook’s Libra is another ledger that intends to work along similar lines.

Tokens to coins. Among the thousands of tokens in the world today, most will always be tokens and nothing more. But there are special-purpose tokens that are very different: They’re earmarked to be exchanged for actual coins at a predetermined date in the near future.

Here’s an example of how it works: EOS is an advanced coin that boasts faster speeds and better scalability than Ethereum. In June of 2020, its sponsors announced they were going to launch the coin in June of 2020. But they needed to raise funds to finance the development.

So, they held an Initial Coin Offering (ICO) for an EOS token on the Ethereum network and raised $4 billion. Then, when they launched EOS on its own “Mainnet,” they swapped the Ethereum-based tokens for EOS coins.

This raises the question: Was the Ethereum-based EOS a token or a coin? In our cryptocurrency ratings model, we treat it as a coin.

Security Tokens. The biggest problem with ordinary tokens has now become blatantly obvious: Most investors thought they would get a chance to participate in the success of a company, like owning common stocks.

But too many were taken to the cleaners. They got no ownership shares, no dividends, and no right to protest mismanagement. Not even protection against outright theft.

Now, however, the industry has a very viable solution: They’re encoding into the software new features, including investor rights and protections. They’re registering the tokens as if they were securities. And they’re on their way to creating what could someday be digital common stocks.

So far, there are just a handful. But soon, they’re bound to become the norm, replacing tokens in most cases.

Whether project issuers choose to build investor protections and real functionality into their tokens, or whether they choose to register their digital assets as securities is immaterial.

The bottom line is tokens are slowly evolving to become more useful, and some are even starting to emerge as viable investments.

So, stand by for our in-depth of reviews of the most promising tokens. But for the most part, stick with our highest rated coins.

Weiss Ratings does not accept any form of compensation from creators, issuers or sponsors of cryptocurrencies. Nor are the Weiss Cryptocurrency Ratings intended to endorse or promote an investment in any specific cryptocurrency. Cryptocurrencies carry a high degree of risk. The SEC, CFTC and other regulators have expressed concerns with the volatility of the market and the actions of sponsors of specific cryptocurrencies. Be sure to review their official consumer alerts such as the public statement on cryptocurrencies by the SEC.

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