There are many different trading types out there that can help you make money in the stock market today. If you are just starting out it can be confusing. You may be asking yourself how do I make money and what is the best trading system for me? Here I have composed a list of different trading systems that have been proven to make money in the stock market. Study them and find out which is the best for you.
1. Trend traders, these are traders that simply buy up trending stocks and sell down trending stocks. An up trending stock is a stock that keeps making higher highs and higher lowers. What a trend trader would do is get into this stock at their low and hold onto it until it stops making higher highs and higher lows. That is it. They do not necessarily have to look at the company’s fundamentals. If it is going up it probably has good fundamentals anyway.
2. Swing traders, these traders play off of support and resistance. Support and resistance are imaginary tops and bottoms of stocks. For example if a stock is bouncing between $51 and $60, $51 would be its support and $60 would be its resistance. What a swing trader would do is wait until this stock goes down to $51 then buy it. They might place a stop at around $48 so if it breaks lower they will only lose $3. Then the swing trader waits until it either hits his stop or resistance at $60. Let us look at what could happen here. If you are right you make $60-$51=$9 if you are wrong you lose $51-$48=$3.
That means you have a 3/1 risk reward ratio. If you win only 30% of the time with a 3/1 risk reward ratio you still make money. Risk reward is very important in swing trading most traders will not take less than a 2/1 risk reward ratio. Also because in a swing trading you will be wrong more than you are right you will need to only risk a small amount of your money in any 1 trade.
3. Break out traders; these are the opposite of swing traders. They want to buy stocks that break above resistance and sell stocks that break bellow support. Let us say the stock in the example above broke out to $62. It is now above its resistance of $60 now old resistance becomes support and it will probably go higher.
A break out trader would buy it here and follow the stock up. They would a stop bellow $60 and move it higher and higher as the stock goes up. Your trade ends when you get stopped out. How much higher to place your stop when a stock moves up depends on the trader. Some traders use a trailing stop that can put a stop a certain percentage below the stock’s price. Others, like myself, prefer to manually set the stop were they think is best. It depends on the trader.
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