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Basically, trading is the buying and selling of financial assets. We’ve all probably heard of buying shares in a company with the hope that their capital will benefit by increasing the value of these shares. Yes, here we are talking about buying stocks listed on the stock market, so the price changes daily based on a number of decisions made by investors and traders. entering this market.
Let's take a simple example, let's suppose that we are thinking of buying some shares of Banco Santander, but here we are not going to stop at the reasons why we came to make this decision. We see that the current price is € 5 per share and we think that its price can reach up to € 6. Therefore, we get a portfolio of 1000 shares (total price: € 5,000) and it turns out that after a while, as we had anticipated, the price reaches € 6 and we decided to sell our entire portfolio for € 6,000. We have made a profit of € 1,000. So far everything is simple and anyone can understand it very easily.
We can say, obviously very briefly, that this is what trading is all about. We buy an asset at a relatively "cheap" price with the idea of reselling it at a relatively "expensive" price. With this we already have the basic concept fully clarified, there is no more. How seriously is that all? Well yes, seriously, that is the basic theoretical concept that we need to understand.
That said, we must clarify that there are many types of trading and many different financial markets and obviously multiple ways to operate in trading.
To be honest, in practice there can be as many types of trading or investment as there are traders or investors, but to make it easier for us to understand the different styles of trading that exist, we are going to frame them so that we can broadly categorize them.
Before this, we also specify that we must differences between investors and traders, I understand that the former invest in the long term while the latter speculate in the short or very short term. Let's take a closer look at the four major categories of existing traders:
This type of trading is characterized by having operations of a considerable duration in months or years. Generally, this investor profile performs both technical and fundamental analysis for decision making. That is, if you are going to invest in shares of a company, on the one hand you will take into account the evolution and behavior of the share price itself, which is the so-called technical analysis.
On the other hand, it also takes into account the evolution of said company taking into account its macroeconomic data such as its sales figures, its annual growth, its billing forecast for the next months / years, etc. In short, this type of trader could be called a long-term investor.
This style of trading involves operations that usually last between days and weeks. Here you need to pay much more attention to technical analysis than to fundamental. The recognition of certain patterns of behavior reflected in the price are often the key to the way of working of this type of traders. They tend to pay particular attention to price impulses and reversals on daily, 4-hour, or 1-hour charts.
In this way, they look for opportunities to revalue their investment, trying to take advantage of short to medium-term impulses. The advantage of this style of trading is that it requires little time a week since the operations will remain open for days. It is especially practical for people who want to combine trading with another professional activity.
In this style of trading, trades are taken and closed in the same working day, that is, no trade is left open overnight. The great advantage of this style is that the trader never goes to bed with the concern in mind of what may be happening to his money.
The day trader is always careful to enter the market with a stop and take profit defined in advance to try to avoid as much as possible any type of decision based on emotional impulses. Obviously, it requires a much more advanced professional preparation than for swing trading or position trading, also requiring high emotional intelligence and iron discipline to be able to carry out a successful operation.
Here we are talking about an extremely active style that involves the opening and closing of multiple trades per day. For this reason, they are operations that usually last from a few seconds to a few minutes. The great disadvantage is the amount of commissions that have to be paid since the brokers charge us to enter and exit the market.
Permanent attention to the computer screen is required with much higher stress levels than for other styles, including day trading. In order to carry out a successful operation, a high-quality professional training is necessary, as well as a lot of experience and knowledge of the operation of the market.