New trader comes in market and started trading without knowing the types of trading in Indian Stock Market. As a Stock Market trader you must know which trading style suits you, which is profitable for you, where your success rate is very high, and you regularly generate income.
In this article we are going to discuss about different types of stock trading style, so without wasting time let’s start.
What is Trading
First we understand what is Stock Market Trading, If you know you can skip this section. In Stock Market Trading and Investing is different, but we buy any share or securities in both. The difference is in trading we buy the securities for short term, the time interval could be 1 minutes to few weeks, in trading our main goal is to make quick profit. Where as in investing we buy the shares and hold it for long term, the time duration could be 1 year to several years (5 years,10 years, 20 years, or more its totally on you).
Different Types of Stock Trading
Online trading is nothing but performing buying and selling securities online via computer and mobile phone. Few years ago when computer was in first stage then traders buy and sell the shares via paper that was offline mode. Now everything goes digital and now we buy and sell shares directly with the help of computer platform that is simply called online trading.
If we broadly categorize types of stock trading then we can divide it mainly two parts one is Long term trading and second is short-term trading. Let’s understand them one by one—
Difference between Long-term and Short term Trading
In long term and short term trading only the difference is due to time horizon. In long term trading you hold the shares for more than 6 month to 1 year. Where as in short term trading we hold our positions for few weeks to few months.
Intraday trading is also knows as day trading, this is the trading style which is widely used. In intraday trading we buy the share or securities and sell them on the same day.
Intraday trading has its own benefits and drawback, for intraday trading you will have to pay less charges compare to delivery.
Whereas the negative point is you will have to cut your position same day before the closing of the market either you are in profit or loss.
Intraday trading is very popular among new traders, second benefit is, in intraday you don’t hold your position overnight, so you don’t have overnight risk, who knows next day any country attacks on other country and share market open gap up 1000 points.
Scalping is a very advance level of trading style where to generate profit your need lots of experience and expertise.For scalping you will have to make your decision very quick and fast, it is generally a momentum based trading, where you only trade based on momentum.
A scalper enters into trade and he could exit from the trade within next few minutes. He will be in trade until stock’s momentum not brake. If a scalper got his target in one minutes then in next minute he would book his profit and will be out from trade.
In scalping a trader only plays for a fast and quick gain, he could not wait long time, that’s why it is called scalping, and these days scalping is used by a large number of traders in the market.
Positional Trading / Delivery Trading
Positional trading and delivery trading is considered the same trading style. Comparatively intraday trading in positional trading you hold your position for more days (more than 1 day) , it could be few days to few weeks or even few months.
Comparatively intraday trading for delivery trading you will have to pay more taxes, but it is considered the best trading style and recommended for new trader.
The beauty of positional trading is if you have bought any share at certain level and share trend is positive then you have the time to hold the share until it achieve your target.
Swing trading generally comes under positional trading, in swing trading, you generally trade based on swing, you find any pattern on chart and find your target and stop loss by analyzing that pattern, and you hold your position, until you don’t get either your target or your stop loss.
For example suppose a share is making a head and shoulder pattern on chart then your strategy would be as soon as the share breaks pattern’s should level , then next target would be bottom of head, and when you got your target you exit from the trade.
Short sell trading style is mostly used in derivative segment when you have the opportunity to short the stock futures or options. Is doesn’t mean that you cannot sell any cash market stock, you can make a short position only in intraday, if you want to take a delivery then you would have to take your position either in futures or options.
The reason is if you sell any cash market share and take his delivery then next day you would have to pay extra charges because of auction. So it would be better, to make a short position in the futures of that stocks.
BTST is buy today and sell tomorrow, in btst trade , a trader only buy the stock when at the last market hour he finds some unusual thing in stock, then he buy the stock and next day in the morning as the market opens he books his profit by sell the stock. In btst today we buy the stock and next day we sell the stock, that’s why it is called btst trade.
For example suppose today any stock is trading around 500 level and at the last due to any news or other thing stock price goes to 510 in the last 10 to 20 minutes then probably next day stock could open even higher from today’s close price.
And as the market will open a btst trader will keep his eyes on the stock, and will book his profit or loss
STBT stands for sell today and buy tomorrow, it is just opposite of btst trade, in btst you buy today and sell tomorrow, where as in stbt you sell today when you find any fall in any stock in last few minutes , then you make a short position and next day as the stock opens gap down you buy the stock to cover your position.
Algo trading is known as algorithmic trading or automated trading or black-box trading. In algo trading computers programs are used to follow a defined set of instructions for placing orders to generate profit at very high frequency and speed that is not possible for a human being.
In current scenario big institutions and some skilled traders are using these techniques.
Here is the end of this article where we have discussed about different types of trading in Indian Stock Market. Hope you enjoyed the article and got some knowledge. Thanks for reading, please write your views on in comment section.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at email@example.com.